Patents & the Financial Services Industry

Regent Markets Group, a Bahamas-based betting company, recently asserted U.S. Patent No. 7,206,762, against derivatives trading company IG Markets.  The patent, entitled “Betting system and method,” is directed towards an automated betting system and method for financial markets.  Specifically, the complaint alleges that Regent’s ‘762 patent is infringed by IG Markets’ PureDeal trading platform and that IG Markets contributes to and induces others to infringe the ‘762 patent.

Regent developed and operates an automated betting system that offers fixed-odds financial bets to the public over the Internet.  The patent explains the distinction between “spread bet” and a “fixed odds” bet:

Although betting in many diverse forms has been in existence for thousands of years, the concept of a bet on the future performance of one or more financial market indicators is a relatively recent one. Such a bet may take one of two forms, as will be described.

 

The first form of such a bet (the “spread bet”) is one which, if won by the making of a correct prediction, pays out a sum proportional to the market fluctuation. For instance, a speculator may bet that a given stock will fall within a set period of time, and, if this prediction is correct, may receive winnings in direct proportion to the amount by which the stock has fallen in that period of time.

 

The other form that such a bet may take is known as the “digital option”. Digital bets are of the same form as a traditional sporting bet in that the speculator predicts a certain event and receives either a fixed sum of winnings (if that event does occur) or no winnings (if the event does not occur). For instance, a speculator may bet that a certain stock index will rise to a certain level by a certain time. If the named index does reach this level, the speculator wins an agreed amount of money irrespective of any amount by which the index has exceeded the predicted level. It is this type of bet that is known as a “fixed odds” bet.

So, under a fixed-odds system, a speculator who bets that a certain stock index will rise at a certain level by a certain time wins an agreed amount of money.  To draw the analogy to sports betting, the fixed-odds betting on financial markets is akin sports betting where participants receive a point spread when betting on events such as college football, the NFL, or the NBA, and gamblers win if they accurately predict the winner of the event after the final score is adjusted by the point spread.  Similarly, fixed-odds betting also bears some resemblance to a “money line” wager when betting on sporting events such as tennis, boxing, NASCAR or other bets where winners are picked without regard for the point spread; gamblers are paid out according to the fixed money line ratios if they accurately predict the result of the event.

A couple of things caught my attention about this case.  First, speculation in the financial markets is not uncommon.  And although there is a distinction between investment and speculation, a certain degree of speculation exists in a variety of investment decisions.  Thus, even though some have tried to draw a line between speculators and investors, a more accurate description may be a continuum, with risk-bearing financial decisions that represent “investments” at one end and speculative betting, or essentially a form of gambling, at the other end.

In this context, I found it interesting that the patent was so unabashed as to frame the invention as a “betting system” without any backup position that the system was somehow something less than a method for speculators, but rather it had an investment component too.  This may not pose a problem in the U.S., where gambling patents are readily issued without concern for 35 U.S.C. §101, and the utility requirement is low and innovations are rarely found unpatentable for protecting methods that are illegal in certain jurisdictions or are considered to be immoral or offensive.  However, this is not uniformly true in other patent systems around the world.  For example, Article 5 of the Patent Law of China provides that “No patent right shall be granted for any invention that violates the laws of the State, goes against social morals or is detrimental to the public interest,” and this provision is routinely used to object to inventions directed towards gambling on the grounds that they are publicly recognized as detrimental to public interest and contrary to social morality.  Regent Market Group is organized under the laws of the Bahamas and based out of the British Isles where it is licensed and regulated by the Gambling Supervision Commission, and its founder, Jean-Yves Sireau, declares his residence and citizenship to be of Hong Kong.

Second, I think it will be interesting to see whether the defendants attack the patent’s validity, either before the District Court or through reexamination at the USPTO.  Though the patent’s claims are plainly directed to a method and system that calculates fixed odds for a bet, based on input from the user and data on the financial market, here is a sample of what a couple of the independent claims would look like if we simply changed the term “financial market” with a well-known gambling context such as, say, “sporting event”:

26.         A computer program embodied on a computer readable medium and operable on a central processing machine in communication with a data feed, for:

receiving one or more parameters from a user relating to a fixed-odds bet on an aspect of a sporting event;

obtaining data concerning the sporting event via the data feed;

calculating a fixed-odds price for the bet based on at least one of the parameters received from the user and the data obtained via the data feed; and

communicating the fixed-odds price to the user.

32.         A fixed-odds betting system comprising:

a user terminal operable to accept from a user multiple parameters relating to a fixed-odds bet on an aspect of a sporting event;

a data feed to a source of data concerning the sporting event; and

a central processing machine in communication with the data feed and the user terminal, the central processing machine operable to calculate a fixed-odds price for the fixed-odds bet based on at least one of the parameters input by the user and data obtained from the data feed.

Such sport betting systems and methods are presumably practiced at casinos, racinos, and even on the Internet, but some of the automated features may not predate the priority date of the patent (March 28, 2000).  Moreover, just because these limitations may have existed in a sports betting context does not necessarily render them obvious in a financial betting context.  For these reasons, I am eager to see how the defendant responds to what appears to be broad patent covering financial market speculation.