Blockchain, the next litigation magnet

Posted: December 7, 2017

Blockchain – the hot new distributed ledger technology that underlies cryptocurrency – is also shaping up to be a rollicking arena for intellectual property litigation.

By one count, 631 blockchain patent families (1,853 patents) exist worldwide, of which 75 percent (465 patent families) have been granted. The United States leads the way with 665 patents, with China in second at 405.

Patent applications to the U.S. Patent and Trademark Office (USPTO) related to blockchain and virtual currencies rose more than six times between 2012 and 2016, from 71 applications to 496, according to The Cointelegraph, a publication about money.

In the first half of this year, application activity almost doubled with 390 applications versus 204 during the same period in 2016. The agency approved 152 patents in 2016, more than double the number (70) in 2013.

So what is blockchain?

Ropes and Gray describes blockchain this way: “Fundamentally, a blockchain is an immutable record of transactions — each one cryptographically verifiable and linked to other transactions — that allows for accurate and secure transfers of digital assets without requiring a middleman or trusted broker such as a bank.”

Says Investopedia:

A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.

By all accounts, blockchain’s potential is enormous. “I believe blockchain will do for trusted transactions what the Internet has done for information,” IBM Chairman and CEO Ginni Rometty said at IBM Interconnect.

Financial institutions are particularly interested in the technology and are aggressive patent seekers. They see potential for the technology in clearing, settlements, payments, trade finance, identity and syndicated loans, according to Financial Times.

New value propositions are floated every day. “Originally developed to record bitcoin transactions, the distributed ledger has attracted big-name backers like Blythe Masters – a former JPMorgan banker who’s become one if its most vocal proponents – because of its potential to reshape how financial services, supply chain and health care industries are run,” writes Bloomberg’s Olga Kharif.

Litigation prospects

Aggressive patent activity typically attracts litigation, and the industry is leery of what some view as patent trolling. “As companies both big and small gear up to launch profit-making products, they’re also gearing up to go to patent war,” writes CoinDesk.

It’s unlikely that a patent will be issued on the blockchain concept itself, according to a Ropes and Gray analysis. Since the seminal description of blockchain in a 2008 white paper has been public for well over one year, the technology is no longer eligible for patent protection in the U.S., write attorneys Leslie Spencer and Marta Belcher: “As a result, the fundamental concept of a blockchain has been effectively dedicated to the public — almost certainly in the United States, and likely in the rest of the world.”

Defensive walls

A couple of new industry measures have arisen to pre-emptively contain litigation. In March, the Chamber of Digital Commerce, a blockchain trade association, formed the Blockchain Intellectual Property Council (BIPC), an initiative to “ help balance the protection of proprietary information with the openness necessary for innovation.”

More than 40 institutions across technology, finance, academia and law have committed to the council, including Blockstream, Bloq, Civic, Cognizant, Deloitte, Digital Currency Group, Gem, Medici Ventures, Microsoft, T0.com, TMX and Wipfli.

“Balancing the open source mindset with proprietary technology is an early and critical challenge faced by the blockchain community,” BIPC Co-Chair Patrick Murck, special counsel, Cooley & Fellow at Berkman Klein Center at Harvard, said in a news release. “An effective solution must be constructed with input from experts in both law and technology – with an eye to preserving opportunities for permissionless innovation.”

CoinDesk described the initiative as attempting to build a defensive wall against efforts by so-called patent trolls to steal intellectual property within the industry. In a conversation with CoinDesk, Chamber president Perianne Boring positioned the council as contributing to a healthy blockchain ecosystem, regardless of one’s stance on intellectual property: “No matter where you are in the patent landscape, if you’re a purist who doesn’t believe in patents, or if you’re a company that is filing patents, this is a major factor in the innovation, and future innovation of the industry.”

In November, a number of well-known blockchain enterprises from the United States, Canada and China launched “the Blockchain Patent Sharing Alliance” (BPSA) at Stanford University in the Silicon Valley.

“On the one hand, [the alliance] can achieve global intellectual property rights sharing and promote the exchange and sharing of technology for every industry; on another hand, it is able to create intellectual property value assessment system to provide the basis for enterprise assets evaluation and intellectual property transactions,” the organization said in a news release.

In an era of fake news and rampant identity theft, certainty on the internet is a hot commodity. That’s what blockchain promises for currency, identity, records and more. Litigants will want to preserve their claims to it.

Expect plenty of action.