Across the globe, today’s leading financial institutions are making massive investments into technology and IT development. Why? To create best-in-class technology platforms, payment processing capabilities and financial systems that deliver digital solutions today’s customers have come to expect. It is clear that the world of financial services is rapidly changing as banks transition from the “Age of Regulation” to this new “Age of innovation.”

At the same time, in-house legal departments at banks are now challenged to keep up with these seismic shifts in the expectations of clients customers. The best take an innovative, agile approach to partnering with their business clients. Specifically, they recognize the need to build capabilities necessary in this changing legal, regulatory and business world; and they identify best practices from other institutions, both in the financial services sector and looking to technology and other related industries, to serve their own business needs.

Educating to Innovate

While many banks have adopted an agile product development process to deliver timely, high-value and technology-adept solutions, the pace of change is accelerating at a furious pace. What are the implications for the in-house legal function at these institutions? They too must now move faster and more nimbly than ever before to stay in lockstep with the pace of change driven by these realities.

At U.S. Bank, we launched two innovation education platforms for our legal teams in early 2018: the Innovation Academy and the Center for Technology and Digital Initiatives.

Our Innovation Academy engages experts from both inside and outside the bank to lead education sessions for our legal professionals on topics such as distributed ledger technology, biometrics, artificial intelligence and machine learning. The academy has been so well received that executives from other business lines now also use it as a training tool for their own personnel, highlighting how the in-house legal team can drive change not just within our own legal department but throughout the enterprise.

The Center for Technology and Digital Initiatives is an association of law division professionals across reporting structures who provide legal counsel to our clients on product development, digital engagement, and the collection and use of data. The center’s four pillars—collaboration, education, communication and innovation—ensure that we connect the resources spread across our legal department. In doing so, we can tackle issues in the technology space by leveraging solutions borne from the collective experience and identify solutions that work across the enterprise, not just for one particular client.

(Re)Considering Patent Strategy

Prior to this new Age of Innovation, it is unlikely that patent strategy would have been a priority for in-house legal departments to consider or update. Banks have not traditionally been hotbeds of innovation or heavy users of the patent system. Today, however, most financial institutions are rapidly incorporating technologies, whether internally developed or licensed from third parties, that have an industry overlap with other verticals in the technology space—like finance plus artificial intelligence, or finance plus mobile. As a result, in-house legal departments are now engaging the enterprise about patent strategy early and often in this new environment.

At U.S. Bank, for instance, we have created new legal teams to support our digital customer experience, and are hiring additional internal attorney resources in areas like intellectual property and technology transactions. We have also recently engaged the bank’s Innovation Office and Technology & Operations groups on patent strategy issues, with an eye toward protecting these innovations that now drive much of the bank’s strategy.

Assessing the Threats

The intersection of technologies occurring now in the financial services industry exposes all of us to the threat of patent assertion entities (PAEs) which have long plagued technology companies. PAEs cost companies $80 billion in lost wealth per year by weaponizing patents, and are responsible for more than 85% of U.S. high-tech patent litigation. This issue not only relates to the patents a company actually owns or licenses, but it can also affect the underlying software businesses use every day—regardless of the owner. While litigation is ongoing, even if the case is dismissed, injunctions may prevent other companies from using software they have legally purchased, which can cost millions in lost productivity. Luckily, there are solutions companies can use to combat this threat.

Because the stakes are so high with the misuse of patent rights, many of the top patent holders in the world have made the decision to work together to fight against PAEs by joining LOT Network, including tech giants Google, Facebook, Alibaba and Amazon. Financial institutions like JP Morgan Chase, Wells Fargo, TD Bank and U.S. Bank have signed on to the network. Collectively, the members of LOT Network’s community are protected from litigation on 1.7 million patents, a number that continues to rise as more companies join the nonprofit organization.

In return for this protection, members agree to provide free licenses to one another for patents that are acquired by PAEs, thereby reducing the potential legal fees and lost productivity associated with patent litigation. This discourages PAE activity and allows members to focus their efforts on continuing to innovate the technological solutions that will drive FinTech for the foreseeable future. And, while they may be competing for customers, these businesses all understand the importance of collective action in this space.

The time is now for in-house legal departments at banks and other financial institutions to educate their professionals about the technology that is transforming their industry, and to ensure that they are adequately staffed and rowing together with their clients to effect necessary change throughout the enterprise. Patent strategy should be being discussed with internal clients, and consideration given to the necessary steps to ensure the enterprise is adequately protecting itself from the increasing risk profile that patent litigation will take as banks and technology further intertwine. It’s an exciting time to be a legal professional and change agent for your organization.

Chris Lenhart is a senior vice president and deputy counsel at U.S. Bank, where he leads a team of 30-plus legal professional who support technology and operations services, payment services and commercial collections. In addition, he also manages the legal function that supports the bank’s privacy and data strategy efforts, as well as IP and technology transactions. Prior to U.S. Bank, Lenhart worked in private practice, where he represented secured creditors, trade creditors and purchases of assets in workouts and bankruptcy proceedings, as well as lenders in middle-market and large corporate commercial loan transactions and M&A financing transactions.