Financial Product Differentiation Using Patents – A Canadian Example (Part 1)

Dickinson Wright

Dickinson Wright

Lightbulbs, bike gears, corkscrews, drilling rigs, TV towers, computer chips, medicine, and cleaning supplies.  That’s the kind of stuff patents are for, right?  Patents are only applied-for by those white-coated toilers frowning at lab benches, by those strange tinkerers in their dusty garages, and by those hoody-clad Silicon Valley campus-dwellers carting their chaotic circuit boards, right?

Patents are definitely for these things, and are definitely applied-for by these people.  But, in my experience, patents are also applied-for by entrepreneurial massage therapists, wine enthusiasts, orthodontists, optometrists, fashionistas, filmmakers, and construction workers.  Really, patents are for anyone wanting to be able to stop others from copying some product or service they’ve conceived of.

But what about financial products?  Things like futures contracts, carbon credits, exchange traded funds (ETFs), and mutual funds?  Financial products such as these are often developed by financial quantitative analyst types (or “quants”), who apply potent combinations of mathematical, financial and computer-science skills to the development of financial models and financial products.  Can quants get patents?  And more importantly: can quants get Canadian patents?

The answer, it turns out, is yes.

On January 11, prominent quant Yves Choueifaty – the founder and CEO of TOBAM, an asset management company boasting over US$10 billion in assets under management – was informed by the Canadian IP Office that his particular process for creating “anti-benchmark” securities portfolios could be patented.  TOBAM is all about diversification: they report that their investment philosophy is entirely based on the realization that inefficiencies arising from pursuing market-cap weighted strategies are due to insufficient diversification.  TOBAM’s process for creating securities involves deeply considering the correlations between assets, and Choueifaty’s proprietary process seeks to build portfolios by maximizing diversification of assets to capture the risk premium of the asset class.

A securities portfolio developed using the process can be used as the basis of an exclusive ETF or mutual fund.  Mackenzie Investments – one of Canada’s largest investment management firms reporting over $187 billion in assets under management – has already partnered with TOBAM to offer to Canadian investors over ten different ETFs and mutual funds under TOBAM’s Maximum Diversification brand, on an exclusive basis.

There is something nicely synergistic about the brand “Maximum Diversification” being used in connection with differentiated financial products that TOBAM can actually hinder competition from freely developing for themselves.

Choueifaty’s journey shepherding his invention through the Canadian IP Office has not been easy.  In the next post, I will break down his showdown with the Canadian IP Office, and will offer some tips for helping any quant or other financial entrepreneur secure Canadian patents for themselves.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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