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Bold Innovation! Bitcoin, Blockchain Technology, and Intellectual Property

September 22, 2017

In a world of cryptocurrency and digital payment systems, Bitcoin is king. Hated by large traditional financial institutions (JPMorgan CEO Jamie Dimon say Bitcoin is a ‘fraud’) and big government (China’s Cryptocurrency Crackdown) alike, Bitcoin has grown a reputation as a fast growing currency used by criminals.

It has become clear with all the wild price speculators and clickbait headlines that interest in Bitcoin is now greater than ever. Bitcoin’s value has soared thousands of dollars in a few short months, turning some people who hoarded vast amounts early into millionaires.

But why all of this hype? What technology has driven this rise in cryptocurrency interest, and most importantly, is this technology protectable?

What is Bitcoin?

Bitcoin is a digital currency created in 2008 in the wake of the great recession. A secretive internet user, going by pseudonym Satoshi Nakamoto, invented the coin after what he felt were injustices by the world banking system. He wanted to create money free from government control and the fees banks charge.

Bitcoin uses a decentralized network technology for secure payments and storing money that doesn’t require banks or people’s names. Bitcoin does not require a middle man, such as a bank, so transaction fees are kept at a minimum.

Bitcoin works on a public ledger called the blockchain. The blockchain has spawned a revolution, of which hundreds of cryptocurrencies have been created.

What is blockchain?

Blockchain technology was originally invented for Bitcoin, but is now used by hundreds of different cryptocurrencies that have sprung up in the wake of Bitcoin, the most well-known of which are the Ethereum platform and Bitcoin. Blockchain technology has been described as a technology that is “Changing the World.”

A blockchain is a digitalized, decentralized, public ledger of all cryptocurrency transactions. In effect, a blockchain is a distributed database that maintains a shared list of records. Each of these records are called a block, and each block contains the history of every block that came before it with a timestamp.

According to PC Mag:

A blockchain is made up of two primary components: a decentralized network facilitating and verifying transactions, and the immutable ledger that network maintains. Everyone in the network can see this shared transaction ledger, but there is no single point of failure from which records or digital assets can be hacked or corrupted. Because of that decentralized trust, there’s also no one organization controlling that data, be it a big bank or a tech giant like Facebook or Google. No third-parties serving as the gatekeepers of the internet. The power of blockchain’s distributed ledger technology has applications across every kind of digital record and transaction, and we’re already beginning to see major industries leaning into the shift.

Accordingly, this technology has grown to include blockchain-based smart contracts (a computer protocol to facilitate, verify, or enforce negotiation or performance of a contract) that turn a blockchain into a middleman to execute business deals, legal agreements, and automated data exchange. Large companies such as IBM and Microsoft have begun to use their robust cloud infrastructure to build custom blockchains. Additionally, this technology has grown beyond the fintech (financial technology) world, like startups using it for music sharing, tracking diamond sales, and sales in the marijuana industry. This is because different types of data can be added to a blockchain besides cryptocurrency, this includes data files, videos, design documents, contracts, and videos to name a few.

Protecting blockchain IP

As of march 2017, at least 880 patent applications had been filed with the United States Patent and Trademark Office that contains the words bitcoin, blockchain, or distributed ledger, according to a recent Law360 analysis. Of those 880, 150 patent applications have been awarded so far.

Because the core blockchain technology is already out in the public domain, it is likely not patentable. However, as explained below, significant variations or improvements over the existing technology likely could be patentable.

The patentability of Inventions in the United States Code specifies that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” 35 U.S.C. § 101. But the Supreme Court in Alice Corp. v. CLS Bank International, held that if “the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.” The Court in Alice did not define when idea is so far abstract to be considered an unpatentable idea. The court however did say that “fundamental economic practices” are abstract and not patentable. Id.

However, looking at another decision in Mayo Collaborative Services v. Prometheus Laboratories, the Alice Court adopted a two-factor test from Mayo. The Mayo test sought to: (1) look at the patent claim as a whole and determine if it is an abstract idea and, (2) if the first factor is affirmatively an abstract idea, then there would be a determination regarding whether the patent claim introduces additional elements to “implement the abstract idea that are ‘significantly more’ than the abstract idea itself.” If there are additional elements that move the claim beyond an abstract idea, then it becomes a patent-eligible matter. Otherwise, the claim becomes a patent ineligible matter.

Applying this standard to fintech companies that use blockchain technology would likely produce unpatentable subject matter because the Court will likely view these claims as “abstract ideas,” such as processing information in a clearinghouse, methods of creating a contractual relationship, methods advertising as a currency, and etcetera.

To receive a patentable result on blockchain patents, the process would need to be described in a certain way. If it is described as “improving the ledger information of the blockchain to use in an electronic payment system” it would likely be patent eligible subject matter over a patent that claims a “peer-to-peer network that facilitates payments electronically.” This is because the first way of describing the claim meets the Alice test because it is an improvement on the computation technology and introduces additional elements to “implement the abstract idea that are ‘significantly more’ than the abstract idea itself.”

Inventors and business owners should protect themselves by working with their patent attorneys to ensure their intellectual property is fully protected. Bold IP patent attorneys are ready to assist in any intellectual property matters.

Author: Derek Clements, Patent Attorney

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