Patents and Wall Street

We typically think of innovation as a good thing: Needs inspire ideas, ideas develop into inventions, inventions become patents, and patents make possible new products and services that enhance the quality of human life. But is innovation ever a bad thing? Well, yes, innovation can have a negative effect when it leads to unintended or unforeseen results. In some ways, innovation is to blame for the current U.S. financial crisis. During the past ten years the major players at the heart of the crisis--big Wall Street investment banks and financial companies--developed increasingly complicated and risky investment strategies based on the bundling and trading of mortgages. This has turned out to be a bust. Bankers have been pursuing other innovative strategies, as can be seen in a number of patents and published patent applications assigned to Wall Street firms. We don't usually think of bankers as inventors, but a change in the interpretation of U.S. patent law in the late 1990s (See State Street Bank & Trust Co. v. Signature Financial Group, Inc.) that allowed the patenting of so-called business methods inspired firms to apply for patents on everything from methods of predicting the value of mortgages to picking stock market winners and losers. Will we see fewer such patents in the future? Probably, since both the government and surviving firms will be much less interested in risky innovation.

Top Ten Financial Companies Ranked by Patents+Published Applications*

1. J.P. Morgan Chase ..... 91
2. Bank of America ..... 86
3. Lehman Brothers ..... 74
4. Goldman Sachs ..... 63
5. Merrill Lynch ..... 49
6. Morgan Stanley ..... 37
7. Fannie Mae ..... 28
8. Wachovia ..... 26
9. AIG ..... 16
10. Freddie Mac ..... 8

*Based on data from the USPTO website.