IP Protection in the Age of Block Chain

By Meredith Holmes with reporting by Carla J. Blackman

Most people associate blockchain with Bitcoin, the first digital currency. Blockchain was created to enable Bitcoin about 10 years ago, but the technology now supports many other kinds of business applications—mostly "ledger" systems, such as global accounting and digital music distribution. Blockchain's dynamic growth raises questions: How will IP rights evolve in this new environment? What influence do cryptocurrency developers and exchanges have? How can this new way of working with data be reconciled with proprietary protection and licensing? What aspects of blockchain technology may be targets for licensing in the future?

A panel of experts at the October 2018 LES Annual Conference in Boston dealt with some of these questions and discussed the implications of blockchain for IP. Ian G. DiBernardo, partner at Stroock & Stroock & Lavan, convened and moderated the panel. Also participating were (from left): Daniel Bork, CTO of IPwe, Inc.; D.J. Nag, InnovAito, LLC; Jason Cohen, CEO of Big Data Block and CTO of IP Coin Group; Alex Lee, Xanadu Big Data, LLC; and Michael Pelligrino, Pellegrino & Associates, LLC.

Introduction

Ian DiBernardo introduced session topics—blockchain basics, use case examples, the patent landscape, proprietary vs. open blockchains, and patents and fundraising. He pointed out, "Blockchains have been used to underpin cybercurrencies like bitcoin, but many other possible uses are emerging." These include "smart" contracts, trade agreements, payments, digital identity, IP innovations, and technology solutions, such as large-scale data processing.

What is Blockchain, and How Does it Work?

Jason Cohen defined blockchain as a "…database that is shared across a network of computers, or 'nodes.' A blockchain is not centralized; unlike traditional ledgers, it does not exist in one central location, and no single person is the "master." Each node is an administrator, and the entire network verifies and reconciles every transaction every ten minutes. A transaction could involve almost any kind of information: identity management, crowd funding, a "smart" contract, or cryptocurrency.

To deal with trust issues, blockchains set tests, called consensus models, for the computers that seek to join and add records to the chain. Cohen explained how consensus and reward mechanisms are built into the system. "To add a block to the chain, nodes must demonstrate that they have done 'work' by solving an increasingly difficult computational puzzle, a process, called 'mining.' In return for their work, members can receive rewards—tokens for instance, or bitcoins," he said. Depending on the context, there are degrees of blockchain security. A corporation might build trust by permitting only employees to join a network. Daniel Bork drew the distinction between "public permissionless blockchains," that enable anyone who downloads the software to put work on that node, and "closed permission blockchains," that grant users an identity.

Blockchain and IP, Patents and Fundraising

Alex Lee discussed the dramatic increase in blockchain-related patents—a jump of nearly 700 percent in the past three years. There are at least 820 organizations or individuals listed as assignees on blockchain-related patents and patent applications, signaling potential for increased licensing and litigation across industries. Sharing results of his search of the U.S. Patent and Trademark Office database, Lee found more than 1,200 published patent applications regarding blockchain innovation as of third-quarter 2018. Applicants include some of the world's biggest corporations, including IBM, Bank of America, Mastercard, Walmart, TD Bank, Intel, and American Express. China and the U.S. dominate the global blockchain patent landscape. In 2017, China accounted for more than half of all blockchain patent applications.

Pointing to headlines in CB Insights, Crypto News, and Forbes, Lee said that blockchain startups are big news. A total of $1.3 billion in venture capital has been raised for 220 prospective blockchain startups, most of which are financial services and e-commerce businesses. However, raising large amounts of venture capital does not appear to guarantee patent generation. Among the 220 prospective blockchain startups, ShoCard had the most patents (16) and raised only $2 million, while BitFury Group raised $90 million and had only three patents.

DJ Nang contended that "blockchain is an enabler to our industry," saying patents can be created as an asset class in "smart contract" blockchain applications. Mike Pellegrino observed that the current blockchain boom is similar to the dot com boom of the late 1990s. People are beginning to realize that blockchain can be used wherever an immutable record is needed. Investors and companies are waiting to see what happens, which will likely be a blend of proprietary and public use.

The session ended with questions from the audience and a lively discussion.

Read LES Viewpoints December 2018 Edition here