The last several years have seen a notable growth in FinTech (Financial Technologies)—technological platforms that support electronic payment, banking, and transfer of funds.
In 2018, the global FinTech market was valued at approximately $27.6 billion, with a projected annual growth of 24.8% through 2022, exceeding $309.98 billion. The number of FinTech startups jumped from 5,779 in early 2019 to more than 8,700 as of February 2020.
As we continue to face the Covid-19 global crisis, earlier predictions of FinTech’s growth are likely to be underestimations. Even as business operations resume, social distancing guidelines, continued government regulations on interpersonal interactions, increased necessary precautions, public fear, and the economic effects of the pandemic will prevent “business as usual” and reduce the ability and willingness of both the financial industry and its customers alike to physically interact and conduct business.
Today, companies involved in the global FinTech market produce applications, processes, and products that create solutions for all major industries vital to the economy.
Because companies provide services involving the transfer of capital, which often involves access to its customers’ funds, reputation is often FinTech companies’ most value asset. Cybersecurity, excellent customer service, a user-friendly platform, business relationships, and trust must be associated with the company’s name and brand.
While current larger market actors and financial institutions are likely looking to deploy FinTech solutions, the current crisis provides a new window for startup companies to enter the playing field. These companies can benefit from lessons already learned by earlier players. One such lesson can be learned from the PayCargo LLC v. CargoSprint LLC case filed in 2019 in the Southern District of Florida.
Lesson Learned: Defend Early & Often
PayCargo LLC, a FinTech company, developed an innovative, electronic payment platform in the cargo and shipping industry: the PayCargo System. About three years after PayCargo launched its payment platform, PayCargo user Joshua Wolf formed PayAirCargo LLC., a check running service used in airports for payers to pay vendors.
By 2015, PayAirCargo had launched an electronic payment system that modeled the PayCargo System, causing vast confusion in the marketplace. Rather than initiating litigation, PayCargo agreed to enter into a settlement agreement with PayAirCargo, wherein PayAirCargo agreed to change its name to CargoSprint.
According to the pleadings, PayAirCargo/CargoSprint did not fully comply with the settlement and continued to use the PayAirCargo name. PayCargo filed a trademark infringement suit last year and obtained a preliminary injunction earlier this year enjoining CargoSprint and its founder from any further use of the PayAirCargo name.
According to PayCargo’s most recent filing, however, CargoSprint’s infringement has not stopped. In June, PayCargo filed a motion for an order requiring CargoSprint and Wolf to show cause as to why they should not be held in civil contempt for violating the court’s preliminary injunction order, when defendants continued to use the PayAirCargo name on the company’s About Facebook page and earlier posts on social media.
While it seems PayCargo will ultimately succeed in prosecuting its trademark infringement claims against CargoSprint, such victory will likely not be completely satisfying. To this day, according to the pleadings, customers and industry actors believe the two are the same company, and as a result of CargoSprint’s efforts to piggy-back off PayCargo’s reputation, several potential customers have refused to use PayCargo’s services because of bad experiences with CargoSprint’s platform or customer service.
Patent Troubles for FinTech Companies
Because FinTech companies’ innovations are largely unpatentable, little prevents copy-cat competitors using the same business method and a copied platform. Established companies’ only saving grace is their reputation in the industry for reliability, customer service, and cybersecurity, which is tied to their name and trademark.
When a competitor, however, adopts the same or a similar name, reputation and business losses can occur almost immediately. Companies thus need to invest the resources to quickly identify any use that could potentially infringe on those trademarks and act. That is precisely what FinTech startup mobile banking company Current did last year when Facebook released the logo for its digital Calibra wallet for the company’s Libra cryptocurrency that was remarkably similar to Current’s logo.
Aggressive Enforcement Strategies Should Be Pursued
In addition to registering trademarks, FinTech companies must proactively enforce their trademarks against infringers. Sympathy towards allegedly innocent infringers and efforts to amicably resolve infringement disputes in the industry may only result in irreparable damages if infringers do not immediately cease.
As the economy adapts against the backdrop of Covid-19, market actors will be focused on capitalizing on the heightened demand for FinTech solutions, which customers are eager to adopt, making trademark policing and prosecution all the more important.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Alissa Del Riego is an attorney at Podhurst Orseck P.A. handling the discussed PayCargo LLC v. CargoSprint LLC matter. She is also an assistant professor of business law at the University of Miami Herbert Business School.