Crypto Biz Magazine—July, 2014/Issue.02

BITCOIN SUPPRESSION VIA THE PATENT SYSTEM
by REED JESSEN
Page.48 July.2014
Crypto Biz Magazine
The advent of bitcoin presents the global economy
with an issue it has never had to face before. Bitcoin is
the first currency that is fundamentally a technology.
It’s not simply an electronic network for keeping
track of who owns how much fiat currency, like the
Automated Clearing House. Nor is it a technological
abstraction of an underlying non-technical asset, like
an oil futures contract. It is, at every level of the protocol,
a novel and unobtrusive technological advancement,
and many of its embodiments are, there fore, patentable.
Before going any further, it is important to make a
distinction. The bitcoin protocol itself has been opensourced
and is no longer patent eligible. Many of the
innovations developed on top of the blockchain, however,
could be patented. If an inventor successfully obtained
such a patent, it would grant them monopoly power to
exclude others from its use for the next 20 years.
A good clarifying example of the relationship between
patents and bitcoin can be seen in the dairy industry.
Milk, as a product naturally occurring in nature, is not
patentable. Nevertheless, technologies developed to keep
milk fresh, safe, and to transport it to the breakfast table
certainly are patentable. The same is true with bitcoin.
While the protocol itself is not patentable, embodiments
like QR code transactions, dual signature wallets, and
serverless cloud storage like MaidSafe certainly are.
Bitcoin represents a massive disruption of the natural
order that traditional transaction companies like Visa,
MasterCard, and Western Union have come to expect.
These companies are accustomed to skimming 3% or
more off the top of every transaction. When retailers and
consumers are offered a viable alternative, which costs
them nearly nothing, and provides an equal or greater
level of security, they will migrate in droves to the
cryptocurrency economy. This will cut deeply into the
profit margins of the traditional transaction companies,
thus highly incentivizing them to suppress the adoption
of cryptocurrencies.
Examples of established power structures suppressing
the adoption of disruptive innovations are all around
us. As a taxicab company, what do you do when Uber
comes into your territory? You first kick yourself for not
leveraging the computer in your customer’s pockets to
better serve them. Next, you lash out with the monopolistic
taxicab medallion laws you paid to put in place.
Or, as a car dealership, what do you do when Elon Musk
says he’s going to circumvent the dealership system and
sell Tesla cars directly to consumers? You dust off your
ancient tomes of anti-competitive automotive franchise
law (again, that you paid to have written) and load your
lawsuit cannons.
As bitcoin begins to transact a larger portion of the
economy, traditional transaction companies will
react. They will attempt to suppress the adoption of
cryptocurrency technologies with the most effective
tool at their disposal… the patent system. One could
imagine that credit card companies, pressured to keep
profits up, may sue companies like Coinbase for their
merchant-integration API, Robocoin for their ATM, and
Xapo for their debit card.
Examples of patent-based technology suppression are
all too real. The 3D printer was first invented in 1984, but
key patents on laser printing technologies have kept
the price of quality 3D printers prohibitively high and
therefore out of the hands of average consumers. After
20 years, these patents are expiring and only now might
we see the decentralized manufacturing revolution. It’s
exciting to see this revolution begin to take shape today
but sad to consider that the patent system may have
need lessly delayed it for so long.
Early Linux innovators saw the risk that patent suppression
posed to an open source operating system.
They founded the Open Invention Network (OIN) to pool
Linux-related patents for a common defense and to keep
Linux royalty-free. They knew that offering free software
would draw the ire of the powerful proprietary software
vendors. In 2007, a patent licensing company with ties
to these powerhouse software companies called IP
Innovation LLC, tested OIN’s resolve by asserting old
Xerox patents from the late ’80s against Novell and
RedHat for their use of Linux. The OIN community came
to their defense, mounting a massive prior art search.
After 3 years of court battles, the jury looked to this prior
art and finally found IP Innovation’s patents invalid. OIN
drew a line in the sand and today the Linux kernel is
found on almost half of all mobile devices.
Members of the bitcoin community need to be aware of
the economic forces at play in the nascent cryptocurrency
economy. Bitcoin adoption is undermining traditional
power structures and it is predictable how those losing
power will react. If we want bitcoin to flourish like Linux
rather than stall like 3D printers, we need to actively engage
the patent system and leverage it to our advantage. —S
REED JESSEN is a patent ana lyst
and the creator of The Cryptocurrency
Defense Foundation. The Foundation
is a defensive patent aggregator
that acquires cryptocurrency rela ted
patents and licenses them openly
to all those who agree to not enforce
their patents against other members
of the community. Reed regularly
blogs about intellectual property
at Preferred Embodiment. Bitcoin
tips for the Cryptocurrency Defense
Foundation/Reed Jessen at:
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