Protecting IP in the Blockchain Sector, Patents – Patent Law

Protecting IP in the Blockchain Sector

Blockchain technology has already disrupted the financial sector and fresh blockchain use cases are emerging every day — from corruption-proof land registries to licensing digital assets, to tracking individual diamonds. In fact, there are many who say that blockchain technology has the potential to be as disruptive as the Internet.

What is blockchain?

A blockchain is a secure public ledger of digital financial transactions. It’s the technology that underlies bitcoin and is known for its tamper-proof capability to verify high volumes of digital transactions. TechTarget explains how it works:

When a transaction is made, it is packaged up with other transactions into a “block” and recorded across a network of computers, a majority of which are required to confirm the transaction in order for it to be accepted as legitimate — a process referred to as achieving consensus. The block is then time-stamped with a cryptographic hash. Each block also contains a reference to the previous block’s hash, creating a “chain” of records that is considered unlikely to falsify.

This very dispersed, very secure method for recording transactions is proving to be much swifter and much safer than the traditional hub and spoke architectures used today to reconcile and approve transactions.

The state of blockchain IP

Entrepreneurs in almost every industry, from banking and stock trading to academia and music, are now preparing to corset the power of blockchain. As such, “the number of people and companies filing for patents on blockchain-related technology has been steadily enhancing each year,” said Nelson M. Rosario, Associate at Marshall Gerstein & Borun LLP, in a latest Law360 Experienced Analysis. As of March, Rosario said eight hundred seventy nine patent applications have been filed with the USPTO that contain the words bitcoin, blockchain or distributed ledger. Of these, one hundred fifty patents have been issued.

Because core blockchain technology is already part of the public domain, only significant additions and significant variations can be patented. One popular area for such patents is security – with a concentrate on encryption mechanisms. Financial firms are particularly active here, according to The Economist, with MasterCard having filed four payment-related blockchain patents and Goldman Sachs filing one for processing foreign-exchange transactions.

Protecting blockchain IP

Compared to the thousands of patents issued for smartphone technology, the blockchain sector is clearly in its infancy. However, elevated levels of patenting activity in any sector tend to attract patent trolls. Take Dr. Craig Wright, for example, who claims to be the anonymous founder of Bitcoin. Wright has filed at least fifty blockchain-related patents in the UK through Antigua-registered EITC Holdings Ltd – a company that shows up to be a troll because it has no business model other than enforcing its patent rights.

To stop patent trolls, the Chamber of Digital Commerce launched the Blockchain Intellectual Property Council (BIPC) this year. BIPC’s aim is to develop a global, industry-led defensive patent strategy that will nip blockchain patent trolling in the bud. Its very first meeting on March 30th attracted forty participants. In the next meeting in April, that number rose to 70. The BIPC executive committee members are the “who’s who” list of blockchain stakeholders, including Chain, Digital Asset, IBM, Microsoft, CoinDesk, Blockstream, Bloq, Civic, Cognizant, Deloitte, Digital Currency Group, Ernst & Youthfull, Gem, Medici Ventures, T0.com, TMX and Wipfli.

Aside from establishing a repository of blockchain-specific patent information, BIPC will be exploring various IP protection models that have worked in other sectors, such as:

  • Non-aggression agreements – where industry players agree not to assert patents against each other.
  • Developing patent pools – where cross-licensing options are available to all pool participants.
  • Reducing inventory – where groups form (like the LOT Network) and the members agree not to sell patents without very first granting a license to all group members.

Will blockchain technology be open or proprietary?

Today blockchain applications range from totally public, permission-less ledgers (like Bitcoin) to entirely private, permissioned ledgers accessible only to validated users. With blockchain technology still in its initial stages, there is an ongoing debate as to which direction – open standards vs. proprietary code – will best accelerate its potential economic and societal benefits.

In February 2016, the non-profit Linux Foundation announced the formation of the Hyperledger Project, a collaborative effort to create an open-source standard for distributed ledgers that will serve a broad range of cases across diverse industries. The founding members include top-tier technology companies (such as Intel and Cisco), integrators (such as IBM and Accenture), financial institutions (such as J.P. Morgan and Wells Fargo), and pure-play blockchain companies (such as Ripple and Blockstream). Other notable blockchain players that have made their software open-source are Ethereum (brainy contracts), block.one (commercial applications); Chain (enterprise-grade blockchain infrastructure) and Digital Asset Holdings (financial applications).

Thus it seems, as in many technology areas, that blockchain innovation will be driven both by open source initiatives that will build collaboration and interoperability as well as by proprietary code – which may or may not be made available through licensing agreements.

A vision for the future

20 years ago, only a handful of visionaries understood how the Internet was about to convert our world. We predict that in twenty years blockchain-based applications will also be accurately intertwined in our daily lives. As Marco Iansiti and Karim Lakhani wrote in the Harvard Business Review, blockchain technology has the potential to become the backbone for recording all transactions and will create fresh economic value by dramatically lowering the cost of transactions. Initiatives like the BIPC are critical to a sturdy future for blockchain tech IP rights and for the applications that will be based on them.

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