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PayPal granted European patent for account verification

Date: 1 May 2013

A decision of the European Patent Office's Technical Boards of Appeal (Decision T 0844/09 of 5 February 2013) has granted PayPal a European patent for its verification process, which checks whether a person is authorised to use a financial account.


It is very rare for European patents to be granted for inventions of a financial nature. This article discusses the patentability of such inventions in Europe and considers whether the Board of Appeal's decision marks a turning point.




Article 52 of the European Patent Convention declares that 'schemes, rules and methods for doing business' and 'programs for computers' are not regarded as patentable inventions. Nevertheless, hundreds of European patent applications are filed each year in respect of computer systems for commercial, financial or managerial purposes. The majority of these patent applications are never granted, but are instead refused by the European Patent Office (EPO) or abandoned when refusal seems likely.


When examining a patent application for an invention of a financial nature, the EPO's established practice is first to ask whether the invention requires 'technical' means, such as a computer upon which the invention is implemented. The EPO then asks whether the invention would have been more than just a matter of routine practice to an engineer or computer programmer tasked with implementing the financial aspects of the invention. A patent is granted only if both of these tests are satisfied and, in practice,most inventions of a financial nature ultimately fail the second test.


PayPal's patent application


PayPal sought to patent a new way of verifying a user's authorisation to use a financial account. The essence of the invention is to generate a series of transactions involving the account in question, with certain details of the transactions being unknown to the user. The user is then asked to supply the unknown details of the transactions, the idea being that the correct details can be retrieved and supplied only if the user is authorised to use the financial account.


The patent application was refused at first instance. The gist of the first instance department's reasons for refusing the application was that the verification process was a mere administrative procedure, which would have been straightforward to implement for someone with knowledge of payment systems.


The Board of Appeal's decision


The Board of Appeal overturned the refusal of PayPal's patent application.


In the Board's opinion, the verification process relied on a Rare example of patent granted for financial technology technical understanding of the operation of a transaction system and, as such, could not be regarded as a mere administrative procedure that a computer programmer might be asked to implement. Thus, the particular way in which the verification process was implemented had to be given greater weight when considering the patentability of the invention. The Board considered evidence of the way in which previous verification processes were implemented and concluded that PayPal's verification process met the legal requirements for a patent to be granted.




The author considers it to be unlikely that this decision will open the floodgates to patents for inventions of a financial nature. On the contrary, it is expected to remain extremely difficult to patent financial technology in Europe.


The PayPal decision does not create a binding precedent on the patentability of financial technology that the Boards of Appeal, or even first instance departments,must follow. The EPO has long been hostile to inventions of a commercial, financial or managerial nature, and it is unlikely that this decision will diminish this hostility. Indeed, the author has already encountered a first instance department opting to disregard the PayPal decision in favour of the far greater number of Board of Appeal decisions in which financial inventions were found to be unpatentable.


Although the number of European patents for financial technology is expected to remain small, this decision demonstrates that such patents are sometimes granted. Innovators in the financial sector may draw some encouragement from the PayPal decision, in that it proves that there is still a possibility of patenting their inventions in Europe, provided that those inventions involve a sufficient degree of technological ingenuity. With this in mind, companies in the financial sector should not be complacent about the risks posed by their competitors' attempts to obtain patents. Companies' due diligence should include keeping an ongoing watch for new patents being granted in relevant fields of technology and searching for existing patents when developing new technologies of their own.


This article was published in the May 2013 issue of E-Finance & Payments Law & Policy. Vol.7, No.5