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Blockchain is one of most hyped technology in recent times, and patent protection for blockchain based innovations will have a high degree of impact on projects covering smart contracts, cryptocurrency (Bitcoin), distributed ledger, financial technology (FinTech) products and supply chain management.
Like all other patents, blockchain patents are exclusive rights which are issued by an official authority like an intergovernmental organization or a sovereign state. These exclusive rights are of the inventor or the assignee which he/she gets in exchange for providing the details of the invention in a public domain.
Blockchain Patent embodies the new business value of “trust”. Information technology infrastructure readiness will wither make or break the future of Blockchain because collaboration is the basis for Blockchain innovation. Thus, you should go slowly before you get fast by following the 3 A’s – Awareness, Adoption & Acceptance. A flexible approach will help beat security, privacy, scalability and interoperability challenges.
Blockchain has achieved global importance in recent years due to Bitcoin. It depends on encryption for safety and distributed computer technology. Instead of counting on a third party, it preserves, corroborates, broadcasts, and exchanges data over a distributed network, thereby delivering trusted and value at a very low cost. To get a head start in blockchain standardization and patents, the Chinese government has encouraged the industry, academia, and research institutes to develop related technologies and apply for patents. Some of the leading vendors of Blockchain Patents are Alibaba, Tencent, Xiaomi, Huawei, SinoChain, Bubi Technologies, IBM Intel etc.
Globally, patent applications pertaining to blockchain technology have been rising rapidly. A thorough review and analysis of blockchain patent landscape reveals that blockchain patents are being filed worldwide in the financial sector, non-financial sector (real estate), and other generic sectors. It is expected that with growth of blockchain, and with introduction of novel innovations using blockchain, patents are bound to increase in this area, thereby increasing the possibility of blockchain patent lawsuits and blockchain patent licensing.
As reported by CoinDesk, the Industrial and Commercial Bank of China (ICBC), has explored ways to authenticate digital certificates and store data in a sharable blockchain. As per a patent application filed with China’s State Intellectual Property Office (SIPO), the bank aims to use a blockchain system to improve the efficiency of certificate issuance and save users from repetitively filing the same document to multiple entities. In use, the technology, based on the patent, touts a system where a certificate issuer will first match a user’s credential with a particular certificate digitally. After it’s approved, the data will be encrypted and moved onto a blockchain which will update the distributed ledger held by different entities that could potential require this certificate. By further decrypting the data with users’ specific credentials, the system will allow entities to view an authenticated document digitally to streamline its operation flow.
As reported therein, the referenced patent, currently the first blockchain-related one filed by the bank with the SIPO, was first submitted in November 2017 and released on Friday. It explained that the technological exploration stems from the current pain point where consumers are constantly being required to submit the same certificate – such as for birth, marriage or eduction – by different entities they are dealing with.
As per numerous reports, there exist more than 500 blockchain patents worldwide. As it may seem obvious, majority of these patents are filed by banking and financial companies, thereby leading to a possible patent war in future. Apart from potential patent battle, multiple patent licensing opportunities can also be expected in near future.
The first mentions of blockchain and cryptocurrency-related patents appeared around 2012, as per USPTO records. During the 2012-2015 period, in the U.S. alone, establishments had had congregate a minimum of eighty three patent applications that contained words like “cryptocurrency” and “blockchain” in their forms. Consequently, that number has escalated even further since, 2017 was a very active year for blockchain and cryptocurrency patent filings. The number of major patent applications appears to be on the rise throughout the primary months of 2018.
As a result of comprehensive research and development efforts, IBM inventors have received a record 9,043 patents in 2017, marking the company’s 25th consecutive year of U.S. patent leadership and crossing the 100,000-patent milestone. As reported by IBM, almost half of the patents granted to IBM in 2017 are pioneering advancements in AI, cloud computing, cybersecurity, blockchain and quantum computing.
Blockchain acts as an enabler for other high technologies such as IoT (Internet of Things), Machine Learning, AI (Artificial Intelligence). There are about 100 million users of Blockchain applications worldwide, which also include various blockchain patent apps.
Major financial and technological enterprises from China and also the U.S. are leading the world drive to develop blockchain applications, according to a new report that ranks entities by patents filed. The Internet giant in China, Alibaba tops the list with a total of 90 patent applications targeted on blockchain-related technologies. In second place is IBM, which plunged by just one short of that total with 89 filings, while Mastercard occupies third place with 80 filings. Bank of America secured the fourth place, with 53 blockchain patent applications.
It’s straightforward to see why big, well-established FinTech companies (i.e. JPMorgan, Mastercard, Bank of America, etc.) would desire to file patents for blockchain and cryptocurrency technologies. However, the kinds of companies filing such patents appear to be increasing in variety each year.
Companies from “traditional industries” are also opening to file more blockchain and cryptocurrency patents. For instance, Zhong An, a large Chinese insurance company, is functioning on a number of innovative blockchain technologies. The rise in patent applications from companies which were once considered to be in non-tech sectors are helping re-shape the way people look at the long run of business and tech in the global economy.
It is likely that patent applications will multiply, but the immediate question is whether they can overcome the hurdles presented in Alice Corp. v. CLS Bank International, (2014) US Supreme Court decision. The Supreme Court unanimously held that claims to a computer-implemented technique of extenuating “settlement risk” in financial transactions were barred from patenting. The Court elucidates that a claim directed to an abstract idea is not qualified for patent protection when it “merely requires generic computer implementation” or “attempt[s] to limit the use of [the idea] to a selected technological surroundings.”
Over 10,000 years ago, humans began wisdom to use shells to trade for supplies. Shells eventually turned into money. Now, with the development of the Internet, digital currency has begun to pass and is gradually replacing traditional currency. Unparalleled changes in payment strategies are coming about as a consequence. The sudden surfacing of cryptocurrencies such as BitCoin, Ethereum, and LiteCoin has forced the financial world to meet these changes head-on and to consider complete changes. Cryptocurrencies are ready to develop unhampered by the traditional financial system because they are backed by a key technology – the blockchain. In its fundamental form it is an open ledger of information that can be used to store and track transactions, and which is exchanged and verified on a peer-to-peer network.
A blockchain is a type of distributed ledger, consisting of unalterable, digitally recorded data in packages called blocks. A novel solution achieves this without any trusted central authority: preservation of the blockchain is performed by a network of communicating nodes running bitcoin software.
Transactions of the form payer A sends B bitcoins to payee C are broadcast to this network using voluntarily available software applications. Network nodes can authenticate transactions, add them to their copy of the ledger, and then transmit these ledger additions to other nodes. The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin (amount), each network node stores its own copy of the blockchain.
Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.
Blockchain, the technology behind bitcoin could profoundly alter the way banks do business worldwide, lowering their operating costs and making financial services securer and more accessible, a World Economic Forum report finds Technology could lead to lower fees for consumers, better regulatory oversight and better preparedness against financial bubbles, but impact is likely to be mostly limited to the back-end of banking operations, with major disruption through innovations such as bitcoin less likely to transform the industry.
Blockchain and other distributed ledger technologies create a trustworthy and transparent record by allowing multiple parties to a transaction to verify what will be entered onto a ledger in advance without any single party having the ability to change any ledger entries later on. Each transaction or “block” is transmitted to all the participants in the network and must be verified by each participant “node” solving a complex mathematical puzzle. Once the block is verified, it is added to the ledger or chain.
Blockchain technology enables cryptocurrencies, which are peer-to-peer, decentralized, digital currencies capable of serving in highly secure transactions. Pseudonymous developer(s) Satoshi Nakamoto introduced BitCoin in January 2009, offering a currency that used no paper or metal, but only 31,000 lines of code and an announcement on the Internet.8 Today, the market capitalization of bitcoin is around $10.5 billion.
The blockchain can guarantee the provenance of every transaction—a service currently provided for banks by a cumbersome and bureaucratic set of back-office systems. With blockchain architecture, there is no need for a central clearinghouse or financial institution to act as a third party to financial transactions, because trust in the system is created by a type of cryptography.
Moreover, according to Blythe Masters of Digital Asset Holdings, “one master prime record can eliminate the need for reconciliation, which is a very costly process for financial institutions, while improving compliance, security and privacy.”
The economic impact is that a cryptocurrency carries a very low transaction cost and, theoretically, offers a cheaper electronic payment method.
The blockchain technology has created a whole new playing field, and the game could yet be very hard-fought. It remains to be seen whether this becomes a winner-takes-all race and how the issue of standards for the technology will be managed. But in the face of a disruptive technology, banks will be keen to protect their innovations.
Blockchain is not a cure-all, it has certain limitations and challenges to face in the public sector, such as:
1) IMMUTABILITY- A blockchain is an add-only list. Once data is added, it can’t be removed. Perhaps not a good fit when updating/deleting data is a regular occurrence.
2) DATA STORAGE – Databases are often used to store large amounts of data (images, docs, apps, etc.). However, Blockchain is designed for small pockets of data. If data storage is needed, Blockchain may not be a good fit, or a hybrid solution may be needed.
3) TALKING ABOUT BLOCKCHAIN – The act of explaining blockchain to public officials and civil servants is difficult. De-linking blockchain from Bitcoin and discussing how it can improve efficiency and strengthen mission effectiveness can help.
4) COSTS – Higher short-term costs associated with a still- emerging technology prevent its widespread use. Blockchain-as-a-service products are starting to be offered that can allow for experimentation.
5) BLOCKERS – People often flag issues such as energy consumption and scalability as Blockchain blockers. However, many of these are irrelevant to government Blockchain implementations (i.e., only apply to Proof of Work consensus on permissionless/pubic blockchains).
6) CODING & GOVERNANCE MODELS – Blockchains are known for eliminating the need for central authority, but this is not entirely true. They must be coded and governed by those entrusted with key roles. Governments must build a technical knowledge base to ensure these decisions are made well (even if the actual coding is outsourced).
The more blockchain innovators join together to protect and nurture our innovation, the better for our ecosystem. We all agree that patents in the wrong hands will hurt our industry and the speed at which others embrace blockchain. We all must take responsibility and be good corporate citizens when it comes to IP.
By removing the uncertainty that comes from PAEs, we can avoid the turmoil and costly litigation we saw play out in the Smartphone and semiconductor industries. If we remove friction, we can accelerate the adoption of blockchain technology. This tide will raise all boats.
Whether you are an investor or an entrepreneur in blockchain projects, you should strongly consider the manner by which your projects handle their intellectual property and do careful diligence to ensure that your interests are not threatened by a potential patent battle.
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Advocate Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at rd (at) patentbusinesslawyer (dot) com & @rdpatentlawyer on Twitter.
Quoted in and contributed to 50+ national & international publications (Bloomberg, FirstPost, SwissInfo, Outlook Money, Yahoo News, Times of India, Economic Times, Business Standard, Quartz, Global Legal Post, International Bar Association, LawAsia, BioSpectrum Asia, Digital News Asia, e27, Leaders Speak, Entrepreneur India, VCCircle, AutoTech).
Regularly invited to speak at international & national platforms (conferences, TV channels, seminars, corporate trainings, government workshops) on technology, patents, business strategy, legal developments, leadership & management.
Working closely with patent attorneys along with international law firms with significant experience with lawyers in Asia Pacific providing services to clients in US and Europe. Flagship services include international patent and trademark filings, patent services in India and global patent consulting services.
Global Blockchain Lawyers (www.GlobalBlockchainLawyers.com) is a digital platform to discuss legal issues, latest technology and legal developments, and applicable laws in the dynamic field of Digital Currency, Blockchain, Bitcoin, Cryptocurrency and raising capital through the sale of tokens or coins (ICO or Initial Coin Offerings).
Blockchain ecosystem in India is evolving at a rapid pace and a proactive legal approach is required by blockchain lawyers in India to understand the complex nature of applicable laws and regulations.
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