Blockchain patent dispute is imminent

Baozou Comment : As blockchain technology continues to heat up, some companies are beginning to pay attention to related technology patents, including Goldman Sachs, and there are also patent advocacy entities that are always eyeing patent opportunities. Once any profitable substantive application appears in this field, it will definitely trigger competition around the patent, and even lawsuits. But at present, since the underlying technology and applications have been public for so long, the relevant patents are only likely to appear in the upper-level applications. So you should be prepared as soon as possible.

Translation: Annie_Xu

A battle over patent territories is now emerging in the blockchain field, which may lead to more intense competition for businesses based on this open source technology in the future.

"Everyone is scrambling to stake their claim and develop a business strategy," said Ted Mlynar, an intellectual property law partner at Hogan Lovells, an international law firm in New York.

He and colleague Ira Schaefer said many patents related to bitcoin, cryptocurrency, blockchain and distributed ledger technology are still pending.

Public records show a surge in patent applications. The US Patent and Trademark Office (USPTO) website lists 60 hot searches for blockchain, while the number of pending bitcoin-related patents exceeds 500.

Mlynar said:

"It is not yet known whose application will be approved."

The two partners believe that the main problem with patent applications is that the scope of the application is very broad. The court trial of Alice Corp Pty Ltd and CLS Bank Int'l ruled that financial business methods are independent abstract concepts and cannot be patented; that is, patent examiners will strictly review blockchain-related patent applications.

Moreover, after the Leahy-Smith America Invents Act (AIA) was added to the law in 2011, any patent that passes the review must continue to be reviewed. In this way, anyone can file an objection nine months after approval; the two partners believe that this will make it more difficult to hold a patent.

Schaefer said:

"These are new tools for patent applicants and patent holders in any patent litigation law."

But the sifting through blockchain patents and the brewing patent battles are likely to continue for years, Mlynar said.

Geoff Cohen

Geoff Cohen, PhD, vice president of digital forensics at Boston-based consulting firm Stroz Friedberg, is not as sure.

“The only reason the patent wars aren’t intense right now is that blockchain hasn’t brought any real benefits to anyone yet. There hasn’t been a sustained huge gain in the economies of scale of the industry for many years.”

Storm is coming

However, things are changing. Several startups and financial institutions will launch commercial versions of their blockchain products by the end of this year or early next year, setting off a frenzy.

As companies large and small prepare to release profitable products, patent battles are brewing.

Cohen said that, for example, the simplest patent litigation also has two ways. One is that the start-up companies holding patents will go after large companies because they are sure to be profitable.

In another scenario, a large traditional company may file a lawsuit against a smaller company, raising tax revenue from the competition process through litigation fees. Sometimes this causes the defendant in a patent lawsuit to lose its foothold in the industry altogether.

Cohen said:

"For startups, it's an investment decision. For larger companies, there are sometimes strategic reasons for filing a lawsuit."

The latter trend is already happening in the blockchain space, albeit in the form of trademark infringement, with the over-the-counter futures market Eris Exchange attempting to block well-known blockchain software startup Eris Industries from using its name.

What’s interesting about this case is that Eris Exchange founder and board member Don Wilson is also a co-founder and board member of Digital Asset Holdings, American Banker reported. However, it is not possible to determine whether there is a direct connection between the two.

Dell Products LP is also preparing to sue after it released a solution for configuring and managing computing devices using a secure decentralized ledger as an extension of a patent it filed in March 2015. If the patent is approved, Dell is threatening to sue smaller startups that use the same program.

But blockchain and bitcoin startups are also pursuing their own interests. For example, Coinbase is preparing 10 patent applications.

Defensive attack

Cohen experienced this firsthand. He has a background in computer science, but he spent a decade advising on high-tech, high-stakes litigation at Stroz Friedberg. And between 2010 and 2013, he and his team handled a number of smartphone patent cases.

The threat that Cohen sees affecting the blockchain industry is that small startups that are working on similar services could undermine the monopoly of large companies, so large companies could stifle this competition. In many cases, large companies may cite past patents, perhaps even patents for products that have never been on the market, just to declare war on another company.

Cohen said:

"Large companies generally hold thousands of patents for related projects."

But Schafer and Mlynar aren’t so sure. No major institution has yet been awarded a slew of blockchain patents. It’s just that many companies are applying for patents to protect themselves.

Mlynar said:

“There are many strategies for enforcing patents. Mostly people with financial interests and companies with protected objects use patents to eliminate competition. But blockchain requires the participation of many parties, so there is a risk of public condemnation.”

Moreover, patents are usually valid for 20 years and only apply to situations where patent infringement and losses have continued in the past six years and are likely to continue in the future.

Schaefer said:

"This is where patents are valuable."

The evolution of blockchain patent applications

Of course, when it comes to blockchain patents, we have to mention Satoshi Nakamoto, the anonymous creator of Bitcoin. History shows that since Satoshi Nakamoto did not apply for a Bitcoin patent in 2009, he supported the open source community rather than patent-hungry companies.

Now that Bitcoin has been in public use for many years, whoever created it can no longer obtain a patent.

The timing of Australian Craig Wright’s announcement that he is Satoshi Nakamoto at the beginning of the year is indeed interesting. Cohen speculates that Wright chose this time to release the announcement because he might want to gain some practical benefits through hype, whether the reputation is good or bad.

"Once something becomes public information, there's not much you can do to reverse it because it violates the public interest. Since it's been public for a year, it involves the public interest, which means you've lost your best chance."

Therefore, it is rare to see the most basic patents approved.

Although patent approval may take several years, it seems impossible to enforce Bitcoin patents at present, because this means that any project related to Bitcoin will need to pay royalties to the Bitcoin patent holder.

Cohen said that it seems more likely that people will apply for patents for applications and use cases related to Bitcoin or blockchain. For example, the USPTO just approved a patent for a method of analyzing transactions on a distributed ledger.

However, it is not yet known what the scope of application of the patent is.

Cohen said:

“It’s unlikely that there will be big patents for blockchain or distributed ledgers, but rather patents for specific cases.”

Recognize the difficulties ahead

Even more worrisome than the battle between traditional companies and startups are the patent monsters, or what Cohen euphemistically calls patent assertion entities (PAEs).

PAEs like Intellectual Ventures or Acacia Research Corporation buy up patents and then sit around until they see a way to profit from them, either through litigation or licensing.

Cohen said:

“I would be surprised if these companies didn’t have patents in the bitcoin and blockchain space, or didn’t buy companies that hold those patents. The more well-funded and profitable a bitcoin or blockchain startup becomes, the more the patent world will be swiping around looking for targets.”

And specific patents for new technologies are sometimes called "submarine patents," and they make it harder to predict risks.

Although the road ahead will be slow and thorny, there is an opportunity to protect the technology, Cohen said, by having the drug-access community come together to protect companies from licensing fees and patent lawsuits.

For example, when a large company starts filing patent lawsuits against a small company, the small company will usually fight alone. However, if they join together and hire a law firm to help them fight the case, they will have a better chance of winning.

Cohen said:

“The more cooperation and collective action there is, the more beneficial the outcomes will be.”