Blockchain and Patents

6 Jun 2018 , 4:14pm

This article is focused on the major and significant impacts Blockchain technology has on the world of patents. It also addresses patent-related opportunities associated with Blockchain technology and cite recent patent examples.

By Barry R. Lewin.

Blockchain is a comparatively new Internet-based and cloud-based protocol and architecture, and it is receiving a lot of recent notoriety. Probably the best known use of Blockchain today is with cryptocurrencies (“virtual currencies”), such as bitcoin, which are digital assets using cryptography to secure and validate transactions. This article is focused on the major and significant impacts Blockchain technology has on the world of patents. It also addresses patent-related opportunities associated with Blockchain technology and cite recent patent examples. However, before discussing the patent implications, it is important to understand the basic features and technology of Blockchain-based systems.

Blockchain Features and Technologies

Blockchain is characterizable as (1) a peer-to-peer protocol (2) for data storage where (3) select portions of the stored data can be publicly accessible, (4) other data can remain private and (5) whereby data are stored in an extendible chain (6) in a distributed fashion, and (7) data storage is not under the control of a single player such as a particular third party. The Blockchain protocol rides on top of Internet protocol (IP), allowing Blockchain functions to be readily integrated into Internet applications. And, as discussed further, Blockchain uses a fault-tolerant approach to mitigating failures caused by corrupted or improperly changed data. By shifting how data are captured and stored, Blockchain affords a potentially game-changing opportunity that can disrupt numerous industries and business methods – from traditional Government services, like identity validation or real estate recordations, to business functions such as even including how concert and sporting events tickets are generated and used.

Business activities, such as financial transactions or the sale and distribution of foods, often include a sequence of events. In Blockchain, data elements depicting an action or a transaction are stored in “blocks” combined in an on-going and growing chain, such as a block in a chain or sequence of financial transactions. For example, consider a painting owned by A, who sells it to B, who later sells it to C. Each of these transactions is a block in a chain, each block contains important information about that sale, and each sale is linked to the previous one, thereby creating a chain of title. Each subsequent sale grows the chain. In simple Blockchain applications, each block is potentially redundantly and permanently stored in multiple locations in a cloud environment, where each storage site is potentially independent of all others, thereby providing great assurance of later access to the data. Even if one storage site becomes corrupted or unavailable, other sites still retain the data. In other words, at least in part because of redundancy and distributed storage, data security should be improved. The integrity of the distributed stored data is validated by multiple members of the peer-to-peer network. Thus, no independent or “trusted” third party (like a Governmental agency) is necessarily needed for validation and assurance.

Because of the importance in validating and tracking transactions relative to currencies, in at least some cryptocurrency applications, an incentive (in the form of cryptocurrency payment) to validate new data blocks is provided (at least in part, to speed up recordation of transactions). This validation is called “mining.” Once validated, the new block is stored. This overall approach potentially improves the integrity of stored data over current methods and approaches.

Blockchain also can be used as a means for establishing a virtual permanent ledger. Whereas ledgers are generally thought of as accounting records, such as spreadsheet software, the ledgers can be used for a variety of purposes for tracking data and associated transactions. The Blockchain ledger grows with each transaction with a new block (a child) referencing the previous transaction in the chain (the parent). By doing so, the parent remains unchanged but the chain is “added to” when the child block is created. The chain itself is transparent, yet each entry may include aspects making certain content, such as the identity of the owner, hidden within the chain. The Blockchain ledger is “virtual”, meaning that it does not generally exist as a single spreadsheet or a single piece of paper, but rather is recreatable, in whole or in part, based on demand. And, in part because of the distributed storage, the records in the chain become permanent and generally irrevocable or irreversible, even though they may not exist as a single file.

For example, in a cryptocurrency system, the ledger of Blockchain is helpful in both validating the chain of title of a currency and providing assurance of its uniqueness (that is, assurance that the coin or transaction has not been duplicated so as to provide confidence as to the coin’s authenticity and value). Blockchain further affords cryptocurrencies with a ledger-based approach to subdivide currency, such as a holder selling only a portion of the holdings.

Blockchain has not gone unnoticed in financial services. According to one report, there are over 120 hedge funds already playing in the virtual currency space. This distributed, secure ledger has applicability across many other industries and traditional Governmental services as well. For example, the state of Illinois is investigating the use of Blockchain to manage its residents’ personal histories, including tax, voting, and driver’s license data. In this scenario, the approach being considered is that the residents would own their own data but at least some of the data would be sharable on an as-needed basis by Governmental services. In another example, Canada and the Netherlands are working on a Blockchain approach to a “Traveler ID.” And the National Energy Commission of Chile announced that it will use a Blockchain platform to authenticate pricing and legal compliance.

Recognizing the potential importance of Blockchain, one can just imagine similar uses to these chains, such as including the avoidance of “go-betweens” to act as a trusted intermediary. Traditional banks and other financial institutions, among others, may perceive emerging business risks and are attempting to mitigate the risks by seeking patent protection for Blockchain approaches to their businesses. Patent filers thus far include companies big and small, such as banks, financial service companies, telecom companies, and major Internet companies as well as companies in many other industries involving online transactions.

Similarly, the secure data chain Blockchain provides can be a boon to those seeking to authenticate or validate ownership of virtual or real goods. Unlike a tangible metal or paper currency that is backed by a government, cryptocurrencies are virtual and therefore validating their authenticity is key to their value. Assuming elements of a block encompass ownership information, the chain can be used for validating a description of a property and its chain of title. This approach may become a key to validating digital rights management.

Like the early days of the Internet or TCP/IP, Blockchain adoption is growing and evolving rapidly because it has high potential to cause huge changes to many industries and ways of doing business. Due to Blockchain’s potentially far-reaching effect and its scope of impact yet to be known, we are already seeing a gold rush in investment relative to Blockchain (for example, the rise and fall of bitcoin), including patent investment, by business speculators.

Blockchain as a patentable technology

The statutory requirement for obtaining a patent includes that an invention must be novel, useful, and not obvious over prior inventions. According to the National Law Review, by mid-January 2018, more than 60 U.S. patents related to Blockchain have been issued and another 500+ have been published.

The fundamental concept of Blockchain was patented more than twenty years ago and is no longer under patent protection in the United States. However, since the concept is both protocol-based and potentially architecturally-based, add-ons to the protocol or to the functionality running in software, or new architectures and the technology platforms being implemented are potentially patentable areas. Evolutionary aspects to elements of core Blockchain technologies that could lend themselves to patentability, include aspects of transaction protocols, security, and data analysis. One way in which Blockchain is implemented relative to distributed computing and storage is with data validation and mining during which many computing platforms race to identify and store newly formed blocks. New approaches to data validation and mining are potentially patentable. Such approaches could include novel searching techniques resulting in improvements in speed of recording a transaction.

All these types of inventions are forms of, or relate to, algorithms or algorithmic implementations. To patent them, they must comply with the aforementioned statutory patentability criteria as well as recent case law limiting patentability of these types of inventions. Alice v. CLS Bank and its progeny preclude patentability of mere abstract ideas and mental processes, and limit the scope of business method and related claims to those having “significantly more” than a mere abstract idea. Some cases, such as BASCOM Global Internet Servs. V. AT&T Mobility LLC, provide guidance as to when a novel method or architecture includes the requisite “significantly more.” These later cases provide some guidance as to when something meets the test of “significantly more.”

Improvements to the basic protocol are also potentially patentable, as long as the improvements meet the same patentability criteria, including being “significantly more” than the underlying idea. Such improvements may, for example include significant add-ons to the protocol, improvement in security, improvements in configuring a ledger, improvements to data mining, or improvements in adding to a chain. While on the surface Blockchain has the potential to be more secure than prior approaches, it is not fool proof. For example, Steve Wozniak reported that he had bitcoins stolen from him through a fraudulent transaction. Overcoming such security issues may be patentable.

Some granted Blockchain-related patents relate to specific uses of the basic Blockchain protocol. These patents include aspects of identity management based on peer-to-peer protocols and a public ledger (U.S. Patent No. 9,635,000, issued in April 2017), provision of tamper-proof timestamps in a Blockchain (U.S. Patent No. 9,842,216 issued to NewVoiceMedia, LTD in December 2017), and methods for identifying users in pseudonymous transactions (U.S. Patent No. 9,830,593 to SS8 Networks, Inc. in November 2017). While security improvements are a part of the core technology, patents have been granted for further improvements, such as security related attributes directed to mitigating a Blockchain attack (U.S. Patent 9,807,106, issued to British Telecommunications PLC in October 2017). Importantly, these examples show the diversity of industries, indicating that Blockchain work is widespread today.

Patentability of Blockchain applications

Because Blockchain is a protocol running on a distributed architecture, it can also be used as a platform for advanced applications, similarly to advanced applications on the Internet. Aspects of these applications, or the applications running on the platform themselves, can be subjects of patent applications. Of course, the best known application is for cryptocurrencies, and, as expected, several cryptocurrency patents have already been issued. Banks, trading exchanges, and companies involved in transaction processing are already major players in applying for and being granted patents. Application-based Blockchain patents include one directed to methods and systems for authentication, at least in part, in cryptocurrency applications in Blockchain networks (U.S. Patent No. 9,870,508 issued to Unveiled Labs, Inc. in January 2018).

Again, because Blockchain serves as a protocol, other technologies can be layered on top of it. In another example, an issued patent relates to using sensor data collected by an Internet of Things (IOT) device and storing the data on a Blockchain for later use (U.S. Patent No. 9,849,364, issued to Bao Tran in December 2017).

Topical areas using Blockchain also go beyond financial transactions. One patent example is providing venue access control based on a Blockchain and/or bitcoin chain of title (U.S. Patent No. 9,792,742, issued to Live Nation Entertainment, Inc. in October 2017).

Because of the virtual ledger and ability to track chain of title, Blockchain is quite applicable to supply chain management as well. This supply chain management includes traceability. Several patents relating to supply chain management traceability using cryptographic ledgers have issued in this space including two issued in May 2017 to SkuChain, Inc.

Other industries in which Blockchain has applicability include gaming, where some early players were accepting bitcoin for on-line betting.

Increments in management of health and health records using the linkage ability of Blockchain were also patented. U.S. Patent No. 9,665,734 (issued to Q Bio, Inc. in May 2017) is directed to a method for performing record substitution applicable to Blockchain technology.

In all of these cases, in part due to the limitations from Alice and its progeny, claim coverage tends to be somewhat limited. However, in at least some circumstances, the existence of a patent provides credibility and/or an asset that can be used for other purposes.

Blockchain patents as a commodity

Companies are already being formed to leverage Blockchain-based patents for various purposes. As an example, IPwe has established itself as a worldwide registry for Blockchain-based patents. Part of its business plan is that the registry would be a one-stop shop for determining who has ownership of the asset. IPwe notes that it expects to use its registry to store patent transactions and to validate a chain of title. It also established a Blockchain-enabled database and uses artificial intelligence and predictive analytics as tools to improve patent applications in advance and to determine their worth.

Blockchain patents as a revenue product

Because much of Blockchain’s use is theoretical since many possible applications have not yet been deployed and a group of users who will accept the requisite distributed storage for a Blockchain application needs to be established, any granted patents may impact many future users. Consequently, anticipatory filers of patents can be or can become non-practicing entities, particularly when the market is more favorable to them. If, for example, filers do not implement their patents, they might instead turn to selling the patent or, alternatively, enforcing the patents they receive. As an example, there is an apparent uptick in enforcement actions stemming from the surge in pricing for bitcoin.

Blockchain as a means of patent validation

A Blockchain’s stable history itself is a useful asset to validate intellectual property. It is already being used in limited ways for copyright digital rights management. Once an authorized version of an item, such as a recording or a bitcoin, is in the chain, Blockchain could use mining techniques to allow a party to determine if a later use is authorized or not and take appropriate action.

Similarly, one can determine whether a patent is valid relative to prior art. Using sophisticated analytics, it is possible to apply Blockchain technology to determining novelty associated with claims. Such a use might be beneficial when determining if one wishes to license or purchase a patent asset. Similarly, the approach may help patent examiners or potential applicants in determining cost effectiveness in filing, well before a patent is challenged.

Commercializing Blockchain patents

The development of Blockchain intellectual property is in its early stages, but patents in this space already have been sold. Marathon Patent Group, a publicly traded company that has a history of acquiring patents, announced an acquisition of cryptocurrency-based transmission patents.

Summary

Blockchain, as a combined protocol and architecture, has potential to transform the Internet. Both private companies and Governments are using the potential benefits of Blockchain technology to improve service or, in at least some cases, create new services. Consequently, patents and patent-related activities have already begun to take hold. Numerous companies and individuals, across many industries, are players in the Blockchain patent world, either to capture patent rights or using the patent world for positioning.

Evelyn Cheng, There Are Now More Than 120 Hedge Funds Focused Solely On Bitcoin, Digital Currencies, CNBC (Oct. 27, 2017), https://www.cnbc.com/2017/10/27/there-are-now-more-than-120-hedge-funds-focused-solely-on-bitcoin.html.

Wolfie Zhao, Illinois Eyes Blockchain for IDs and Public Asset Management, Coindesk (Feb. 1, 2018), https://www.coindesk.com/illinois-eyes-blockchain-for-ids-and-public-asset-management/.

Jeremy Nation, Canada And Netherlands Pilot Airline Passenger Biometric Identity Solution With Blockchain Technology, ETHNEWS (Jan. 29, 2018), https://www.ethnews.com/canada-and-netherlands-pilot-airline-passenger-biometric-identity-solution-with.

Pilar Sánchez Molina, Chile’s Energy Regulator to Use Blockchain, PV Magazine (Feb. 27, 2018), https://www.pv-magazine.com/2018/02/27/chiles-energy-regulator-to-use-blockchain/.

The National Law Review, Patent Strategies for Cryptocurrencies and Blockchain Technology, Wednesday, January 17, 2018.

U.S. Patent No. 4,309,569, Issued January 5, 1982.

Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014).

Id. at 2360.

BASCOM Global Internet Servs. V. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016).

Evelyn Cheng, Steve Wozniak Says Someone Stole Seven Bitcoins from Him, CNBC (Feb. 26, 2018), https://www.cnbc.com/2018/02/26/steve-wozniak-says-someone-stole-seven-bitcoins-from-him.html.

Ipwe. https://ipwe.com; Eric Rosenbaum, Buying Bitcoin Led Patent Mega-Millionaire to an Even Bigger Investing Idea, CNBC (Jan. 12, 2018), https://www.cnbc.com/2018/01/12/buying-bitcoin-led-patent-millionaire-to-even-bigger-investing-idea.html.

Erich Spangenberg, The Power of Blockchain and Divorce— How We Got to IPwe, IPWatchdog (Nov. 27, 2017), http://www.ipwatchdog.com/2017/11/27/power-Blockchain-divorce-ipwe/id=90488/.

See, for example, Saheli Roy Choudhury, After Bitcoin's Dramatic Rise, Here's Where Experts See Cryptocurrencies Heading, CNBC, (Dec. 7, 2017), https://www.cnbc.com/2017/12/07/cryptocurrency-trends-more-icos-regulatory-guidance-and-wider-acceptance-of-bitcoin.html.

Tyler Harttraft & Roberta Jacobs-Meadway, Where Does Blockchain Fit in Digital Rights Management?, IPWatchdog (Feb. 6, 2018), http://www.ipwatchdog.com/2018/02/06/blockchain-fit-digital-rights-management/id=93024/.

Press Release, Marathon Patent Group, Marathon Patent Group Acquires Blockchain and Cryptocurrency Transmission Patents (January 18, 2018), https://www.marathonpg.com/news/press-releases/detail/1171/marathon-patent-group-acquires-Blockchain-and.