A previous version of this paper was originally published in May 2008 and this paper supersedes Working Paper 07-21 – Business Method Patents for U.S. Financial Services

Have these patents increased innovation in financial services? To address this question the author constructs new indicators of R&D intensity based on the occupational composition of financial industries. The financial sector appears more research intensive than official statistics would suggest but less than the private economy taken as a whole. There is considerable variation across industries but little apparent trend. There does not appear to be an obvious effect from business method patents on the sector's research intensity.

Looking ahead, three factors suggest that the patent system may affect financial services as it has electronics: (1) the sector's heavy reliance on information technology; (2) the importance of standard setting; and (3) the strong network effects exhibited in many areas of finance. Even today litigation is not uncommon; the author sketches a number of significant examples affecting financial exchanges and consumer payments.

The legal environment is changing quickly. The author reviews a number of important federal court decisions that will affect how business method patents are obtained and enforced. He also reviews a number of proposals under consideration in the U.S. Congress.