IPPro Issue 002

Blockchain Patents
Chain Reaction
The growing number of patent filings relating to distributed ledger technology
has skyrocketed in recent years, showing those in the IP profession that
the technology is here to stay, and leaving many questions in its wake.
Ruth Burstall of Baker McKenzie explains
The number of patent filings that mention blockchain or distributed
ledger technology (DLT) in the title, abstract, or claims has increased
exponentially over the past few years.
Although the number of patents granted remains low, the swell in
applications is indicative of the excitement around DLT.
Blockchain was conceived as a way to transfer cryptocurrencies
without the need for an intermediary. Information (in the case of
cryptocurrency, regarding the ownership and transfer of currency) is
shared and verified across a peer-to-peer network and then stored in
a distributed ledger format. As information on the distributed ledger is
verified by the many participant hosting computers (nodes) solving a
complex mathematical problem, no single entity holds the information
and it would take a significant amount of computing power to attack
the network. Information stored on distributed ledgers is therefore
very secure and DLT has therefore found many applications beyond
cryptocurrency from verifying the provenance of diamonds to tracking
Chinese chickens.
The challenges of patenting DLT
DLT has piqued the interest of many, from technology start-ups, to
traditional technology companies to financial institutions, which
have filed numerous patents for DLT inventions in the past five to 10
years. A recent report by Thomson Reuters, based on WIPO figures,
indicates that China leads DLT patent applications, having filed 225
of the DLT patents last year and 59 in 2016, compared to the US,
which saw 91 applications in 2017 and 21 in 2016.
As yet, few applications have been granted but it seems likely
that applicants have had to navigate several difficult issues on the
question of patentability.
First, as with any patent, DLT patent applicants will need to
demonstrate novelty and an inventive step. Blockchain was
described in a 2008 paper by its anonymous inventor, who uses
the pseudonym Satoshi Nakamoto, and was made available to the
public as a way of transferring bitcoin in 2009. Although Nakamoto
did not seek patent protection for blockchain, it forms part of the
prior art for any subsequent DLT. With the speed at which the
technology is being developed and applications filed, the prior art
is a quickly expanding and shifting landscape, meaning it may be
difficult to carve out a monopoly.
Secondly, DLT patent applications need to be carefully drafted to
ensure that the claims cover patentable subject matter, with the
potential to fall foul of restrictions on patenting business methods
and computer programmes. Computer programmes are expressly
excluded from patent protection in many countries, although where a
computer programme has a technical effect it may still be capable of
protection. Likewise, computer programmes and business methods
may not be capable of protection if they are simply ideas of an
abstract nature.
The US Supreme Court in Alice v CLS Bank held that patents claiming
an escrow system implemented on a computer were too abstract
to be valid. Although the court held that claim elements that add
something “significantly more” to an abstract idea might transform it
into patent-eligible subject matter, it did not give clear guidance as to
what these elements might be.
Following this decision, US federal courts have declared many
computer-related inventions to be invalid on the basis that they are
too abstract to attract protection. These restrictions not only make it
more difficult to draft a patent which will proceed to grant, but also
increase the risk that a granted patent will be subject to challenge by
competitors on grounds of invalidity.
Thirdly, the land-grab for patents has led many to speculate that DLT
will be the next innovation to spark patent wars, similar to those which
accompanied the rise of smartphone technology. It also increases the
risk of so-called patent trolls—those whose business model is based
on applying for or purchasing patents, then demanding royalties or
suing for their use, rather than operating the inventions.
Patent litigation is extremely expensive and for many pure-play DLT
initiatives, patent litigation would require them to ‘bet the company’ on
the result. The Blockchain Intellectual Property Council, established
by the Digital Chamber of Commerce, a US advocacy group which
promotes the emerging DLT industry, already warned in 2017 that the
exponential rise in patent filings creates a high risk of IP abuse and
has made helping DLT developers to manage this risk a key element
of its strategy.
The Chinese Ministry of Information Technology and the European
Commission are already reportedly working on blockchain standards,
and this is likely to lead to the emergence of Standard Essential
Patents (SEPs). SEPs must be licensed on fair, reasonable and nondiscriminatory
(FRAND) terms.
Alternative approaches
While there has been something of a gold rush to patent DLT-related
innovations, there are different schools of thought as to whether filing
patents is the correct way to protect DLT, and not all DLT developers
are applying for patents. As a practical matter, for some start-ups, the
cost of filing patent applications and the delay that the application
process may introduce in getting a technology to market may be
prohibitive. These companies may rely on trade secret protection
in preference to patents, but, for companies seeking investment,
applying for a registered patent and related monopoly may be a
prerequisite to securing funding.
Some think that developing DLT on an open source basis will be
the best way to support the success of the technology by allowing
interoperability of developments. For example, the Hyperledger
Project established by Linux in 2015 aims to support collaborative
development of DLT. Another approach has been to establish patent
pools which allow the cross-licensing of patents. Some developers
may take a hybrid approach—applying for patents on technology and
then licensing them under open source licences.
While we can expect the trend of
high numbers of patent filings on the
technology to continue it will probably
not be long before some of the issues
discussed above start to emerge
What can blockchain do for patents?
Whichever approach is taken to protecting DLT innovation, some are
already flipping the question of what patents can do for DLT on its
head and instead asking what can DLT do for patents?
With various governments exploring the application of DLT for land
registries, it is not beyond the realms of possibility that DLT could
also be adopted as a way of registering and recording transfers and
licences of patents and other IP rights. The European Parliamentary
Research Service identified in a 2017 report that digital rights
management and smart contracts are potential use cases of DLT.
Many DLT start ups are already focusing on the application of DLT
in recording the creation and transfer of unregistered rights such as
copyright in music. DLT could also be used to defensively publish
technologies as prior art to prevent others from obtaining a patent
over such technologies.
Although it is currently possible to record patents with customs
authorities and to request that they detain and destroy infringing
products, it is often difficult for customs authorities to tell whether
products are indeed infringing. As DLT allows the secure recordal
of information about a product’s provenance and the steps it has
taken through the supply chain, it has huge potential in helping to
enforce against the import of patent-infringing goods at customs
borders. There are already examples of scannable chips or tags being
embedded in products which interface with information recorded on
blockchain to verify the authenticity of products. If customs authorities
had access to technology which allowed them to scan such tags, this
would greatly assist them in identifying counterfeit products.
The interest of government bodies in DLT and the move towards
creating standards suggests that this technology is here to stay.
While we can expect the trend of high numbers of patent filings on
the technology to continue it will probably not be long before some
of the issues discussed above start to emerge. Exactly how it will
transform the way we live and work remains to be seen, but DLT
developments over the next few years should certainly be watched
with interest by the IP community. IPPro
Ruth Burstall, senior associate, Baker McKenzie
34 IPPro The Internet www.ipprotheinternet.com 35