Intellectual Property Protection Available to Owners of Blockchain Technology

Sean McLeod*

June 2017

This paper discusses the potential opportunities applying to Intellectual Property protection and Blockchain technology. It will broadly discuss the protection granted to a business with a formal application from the United States Patent Office or from the European Patent Office. Although there are some differences, the result is generally the same – that protection is granted. After a brief discussion of the history, more detailed analyses of patent rights, copyright, trade secret measures and trademarks follow.

What is Cryptocurrency, Bitcoin and Blockchain?

Cryptocurrency is a topic of which many people are not aware.[1] The first notions of Bitcoin and its technology trickled into existence in 2008 by the internet pseudonym Satoshi Nakamoto.[2] As he or she released the program of Bitcoin and Blockchain as open-source, everyone in the world has the ability to alter the code and make their own version. Bitcoin is a cryptocurrency, meaning that the processing powers of computers combine to solve complex mathematical problems.[3] These math problems are attached to small virtual boxes, and those boxes can further be sub-divided into smaller boxes.[4] At the smallest box, there is a recorded transaction between a buyer and a seller.[5] When a computer solves the mathematical problem assigned to the box, it confirms that the transaction occurred between the buyer and the seller.[6] This network of boxes is referred to as the Blockchain and cryptography is when computers solve these problems that represent the transactions.[7] The Blockchain is the entire record of transactions occurring on the network.[8] Sometimes, if a computer mines a specific box, the owner of the computer will receive a reward for their computation – a set amount of Bitcoins.[9]

There is much fanfare surrounding Bitcoin and its potential. At the time of creation in 2008, Bitcoin traded for mere cents. However, the price of one Bitcoin was approximately $1615.61 on May 8, 2017.[10] This meteoric rise is due in part because of outside market forces, such as “Brexit,” the collapse or poor results of the financial markets, wars and conflicts and even the election of government officials.[11] Additionally, Bitcoin holders also believe in its value, buying and trading more of the currency than ever before.[12]

Patent Case Discussion on IP Protection

Generally, the United State Code gives guidance as to what subject matter is patentable. The Patentability of Inventions in the 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.”[13] But the Supreme Court in Alice Corp. v. CLS Bank International,[14] held that “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.”[15] While this rule is important, the Court in Alice did not define when an idea is so far abstract to be considered an unpatenable idea. Yet, it gave guidance that “fundamental economic practices” are abstract ideas and thus are not patentable.[16]

However, looking at a previous decision in Mayo Collaborative Services v. Prometheus Laboratories,[17] the Alice Court adopted a two factor test from Mayo. In Mayo, patents describing the use of thiopurine drugs to treat autoimmune diseases were unpatentable subject matter because correlation between blood metabolite levels and drugs were known laws of nature, and steps of administering drugs, applying natural laws in treatment, and measuring metabolite levels lacked inventive concept in applying natural laws.[18] 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.”[19] 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.

 Alice’s effect was immediately impacted the US Patent and Trademark Office (USPTO) because now the USPTO has to determine which inventions were the exceptions and which inventions were not. It is likely that Alice’s effect on FinTech (companies that use Blockchain technology) is detrimental. The Court will likely view that processing information in a clearinghouse, methods of creating a contractual relationship, methods of risk-hedging and advertising as a currency; are all “abstract ideas” that make the subject matter unpatentable.[20]

Applying the Alice test and getting a patentable result depends on how the process is described. If it is described as a “peer-to-peer network that facilitates payments electronically,” it is likely that under Alice, the patent would be rejected for being an unpatentable matter. However, describing that same patent of a Blockchain as “improving the ledger information on the Blockchain to use in an electronic payment system,” would likely survive an Alice test, since it is an improvement on the computation technology and would not be an abstract idea.

In fact, the Federal Court of Appeals rendered a decision similarly this year. In Enfish v. Microsoft,[21] a case that surrounded an improvement on a data structure self-referential spreadsheet (similar to Blockchain), was patent eligible subject matter.[22] Shortly thereafter, the Court expanded the Mayo exception. In Bascom Global Internet Services vs AT&T Mobility, the Court of Appeals overruled the District Court’s decision to deny a patent holder’s action alleging that a communications company infringed U.S. Patent No. 5,987,606, based on finding that patent was invalid under 35 U.S.C.S. § 101. The invention provided a solution for filtering Internet content by installing filters on service providers’ servers.[23]

Moreover, the Federal Circuit has recognized that certain automated tasks by a computer using a limited set of software instructions that do not include all ways of performing the task, can be patent eligible.[24] For example, in MCRO, Inc. v. Bandai Namco Games Am. Inc.,[25] the Court noted a “claim [that] uses the limited rules in a process specifically designed to achieve an improved technological result in a conventional industry practice” is not an abstract idea.

This change in IP protection by the Court ensures that inventors of Blockchain processes can be protected. In the pre-Alice world, without the protection, there was no incentive to find solutions to outdated processes. Without the protection, these solutions and the incentives, a Blockchain network (for example), would not have proper maintenance or improvements. Without both of these, the consumer would be in a detrimental position and their personal information could be viewed, or worse, stolen. By the rulings in Mayo and Alice, the Supreme Court has ensured that solution oriented processes are to be rewarded, not only for the benefit of the owner, but the consumer of the product.

In reality, the decision in Alice world had ill effects. There are entities that develop “different” applications of Blockchain, patent the processes and make their sole business model for profit by enforcing their “patent rights.”[26] These “patent trolls” are the downside for the Alice decision. Although the determination by the District Court is highly subjective, it is now bound by the Alice standard. If left unchecked, there will be even more frivolous litigation in the future. Small businesses or startup Blockchain companies cannot compete with big banks and large corporations that have more capital to invest in litigation. Juan Benet, an inventor of the InterPlanteary File System (a peer to peer local system with similar processes to Blockchain) criticized the state of Blockchain patents:

Currently the patent system in software is pretty broken, it allows for a lot of things that shouldn’t be allowed as patents and excludes others things that should be. It is a very tricky situation when you have these massive companies amassing these huge portfolios and only they get to wield patents.[27]

Benet’s concern is very real. Bank of America, Goldman Sachs and other large financial services have filed patents in the USPTO regarding their version of Blockchain.[28] The small business owner will likely face litigation related to the patent infringement. Additionally, as banks turn to Blockchain technology, the post-Alice decision risk effectively allowing banks and other financial groups that invest in Blockchain to create a monopoly and cause a deterring effect to enter the market and provide innovation for consumers.

Trade Secrets Protection Measures

Trade secret protection and patentability are complementary. The Uniform Trade Secrets Act (UTSA), which most states have adopted, defines a trade secret as:

Information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.[29]

This provides one justification for the protection of the Blockchain technologies and spinoffs. As new businesses innovate the existing Blockchain technology, per Alice, these “formula[e], pattern[s], compilation[s], program[s], device[s], method[s], technique[s], or process[es]” deserve protection under the precedent and under the UTSA statute. Examples of trade secret protection include non-disclosure agreements and non-competition clauses in employment contracts. But as there is much protection for the inventor, using trade secret has a disadvantage: once the trade secret is revealed to the public, it loses that protected status.[30] For example, Satoshi Nakamoto cannot claim to have a trade secret for Bitcoin or Blockchain technology once he or she released the code as open-source. Thus, for a Blockchain oriented business, once the code has been released, it can be legally contested as not having trade secret protection.

However, many of the world’s greatest inventions have trade secret protection. These trade secrets are effectively assets to the Blockchain business. If a young business gains notoriety and a larger business in the industry fears the competition, it can make an offer to purchase the trade secret. In this fashion, both parties will generally get what they want: compensation and removal of competition or the secret to the brand/business itself. Thus, Blockchain companies should look to protect trade secrets as an alternative to or alongside patent protection.

Trademark – Is the Phrase Too Similar?

A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others.[31] Generally, the enforcement of a trademark occurs through the owner’s usage of the trademark or via registration at a trademark office. There is much debate as to whether the proper rule is “first-to-use” or “first-to-file,” and additionally, there must have been a period of time where the mark had been used in public so that the population can attribute the product to the source.[32] Lastly, Blockchain businesses justify trademark protection under Class 36, as many of the services include financial or monetary affairs.[33]

At the USPTO, the general process begins with the application for the trademark, a period for trademark review where the mark is researched to determine whether it infringes on another trademark, and if there is no opposition to the trademark, then the mark is approved for registration.[34] At the EPO, the process is similar, however the difference is a longer period for opposition of the trademark.[35] This should be a caution to the applying business as this longer period allows the potential of challengers of the trademark. It is also to be noted that trademarks do not have to be filed, however, filing ensures a business’ right to enforcement of trademark protection.

For small Blockchain companies, trademark is a double-edged sword. They have to present their technology in public, for a period of time that ensures the consumer can identify the product as well as the source. For a small business, that may take months and even years given the available capital. For some larger businesses, such as banks and finance companies that have a Blockchain business,[36] have a distinct advantage over the smaller businesses because of the startup capital available. The capital can be used to spread the information of the product and reach a larger portion of the population, ensuring that the product is tied to them as a source. Additionally, these businesses would have the means to succeed in litigation.

Given the nature of the field, using a phrase such as a “XYZ: A Blockchain Business” would be allowed under the Fair Use doctrine.[37] However, if XYZ owns the trademark (first in time) “Lightning Fast Transactions” and Bank of America (second in time) owns “Transactions as Fast as Lightning” – XYZ may have a claim for trademark enforcement.[38] Therefore, it would be wise for all Blockchain businesses to trademark their product, but be cautious because the registration can be challenged by almost any other competitor in the field.

Copyright: Every Business Receives this Right

Some representations of Blockchain are easily protectable by copyright. Timely filing of copyright applications can provide the copyright owner with significant benefits. The exclusive rights include the ability to publicly display the product, to sell the product to someone, or to create byproducts of the work.[39] Copyrights generally attach to the product once it is completed and safely stored.[40]

Copyright infringements frequently appear in software rich cases, alleging that there was no “originality difference” between Software 1 and Software 2. While there is an exception for commentary or education purposes, given the nature of the Blockchain business, it would be difficult to sustain such arguments. Generally, most of the Blockchain spin-offs presently available, use a significant portion of the original Bitcoin/Blockchain code from Nakamoto.

With the adoption of the WTO’s TRIPS in 1995, the notion that copyrights exist upon finalization of the product was adopted on a near global level.[41] The United States also included The Buenos Aires Convention of 1910, that requires an additional step to show copyright such as “All Rights Reserved.” With this understanding, copyrights should be available to all Blockchain variants and their respective owners, so long as it can be proven that the work was original.

Conclusion

With the developments in the field, the protections of the law have adapted to follow. Businesses now have recourse to protect their Blockchain technology through post-Alice and Mayo analysis of the patent. Further protection can be sought in the copyright, trademark and trade secret preventative measures to ensure protection. However, as the law increases these protections, businesses, and in particular small businesses or startups, will likely face considerable litigation as the larger businesses start to enter the marketplace. Presently, it is unclear whether the law will adapt to protect these smaller businesses. But what is clear, is the recognition of the multiple innovative uses of Blockchain technology deserving of IP protection.

* J.D Candidate, Class of 2017, Elon University School of Law. This article was adapted from an assignment in a class entitled “International Intellectual Property.” This article expounds upon a related article in Vol. IX of the Elon Law Review, Bitcoin: The Utopia or Nightmare of Regulation.

[1] See Daniel Roberts, The Bitcoin Book Boom, Fortune (Mar. 6, 2015), http://fortune.com/2015/03/06/bitcoin-book-boom/.

[2] Who is Satoshi Nakamoto?, Coindesk (Feb. 19, 2016), http://www.coindesk.com/information/who-is-satoshi-nakamoto/.

[3] Scott Rosenberg, There’s a Blockchain for That!, Backchannel (Jan. 13, 2015), https://backchannel.com/how-bitcoins-blockchain-could-power-an-alternate-internet-bb501855af67#.ff8fod3am.

[4] See Jeffrey Alberts & Bertrand Fry, Is Bitcoin a Security?, 21 B. U. J.  Sci. & Tech., 1, 2 (2015) (quoting Frequently Asked Questions, Bɪᴛᴄᴏɪɴ.ᴏʀɢ, https://bitcoin.org/en/faq#what-is-bitcoin).

[5] Id. at 4.

[6] Id.

[7] Id. at 3-4.

[8] Id.

[9] Id. at 4.

[10] BTC/USD – Bitcoin US Dollar, Investing.com, https://www.investing.com/currencies/btc-usd-historical-data (last visited May 8, 2017).

[11] See generally, What affects the Bitcoin Price?, CryptoCompare, (Apr. 25, 2017), https://www.cryptocompare.com/coins/guides/what-affects-the-bitcoin-price/.

[12] See id.

[13] 35 U.S.C. § 101 (Current through Dec. 14, 2016).

[14] 573 US _ , 1(2014).

[15] Id.

[16] Id. at 10 (citing Biliski v. Kappos, 561 U.S. 593, 611 (2010), (discussing one of the mathematical formulae in detail, and holding that the they were abstract ideas that ultimately was a “fundamental economic practice.”)

[17] 56 U.S. 66 (2012).

[18] Id. at 78-80.

[19] Alice at 13.

[20] See Ira Schaefer & Ted Mlynar, Is a Blockchain Patent Still Possible?, Coindesk, (Nov. 15, 2016), http://www.coindesk.com/blockchain-patent-still-possible/.

[21] 822 F.3d 1327 (2016).

[22] Id. at 1346.

[23] 827 F.3d 1341 (2016).

[24] See supra note 9.

[25] 837 F.3d 1299 (2016).

[26] Ian Allison, How to Avoid Patent Wars and Reduce IP Risk in the Blockchain Ecosystem, Newsweek, (Oct. 12, 2016), http://www.newsweek.com/patent-wars-ip-blockchain-508921.

[27] Can Blockchain Tech Revolutionise IP and Digital Content?, Nexchange, https://nexchange.com/article/4012 (last visited Jan. 3, 2017).

[28] See Samburaj Das, Bank of America Drawing up 20 More Cryptocurrency & Blockchain Patents, Cryptocoinsews, (Jan. 28, 2016) https://www.cryptocoinsnews.com/bank-of-america-20-more-cryptocurrency-blockchain-patents/. See also Rebecca Campbell, Goldman Sachs Files Blockchain Patent for Foreign Exchange Trading, Cryptocoinsews, (Sept. 9, 2016), https://www.cryptocoinsnews.com/goldman-sachs-files-blockchain-patent-for-foreign-exchange-trading/.

[29] Unif. Trade Secrets Act § 1 (2005). See also Tom W. Lin, Executive Trade Secrets, 87 Notre Dame Law Review 911, 940 (2012).

[30] See Lockridge v. Tweco Prods., Inc., 497 P.2d 131, 134 (Kan. 1972) (“Once the secret is published to the ‘whole world,’ … it loses its protected status and becomes available to others for use and copying without fear of legal reprisal from the original possessor.” (quoting Underwater Storage, Inc. v. U.S. Rubber Co., 371 F.2d 950, 954 (D.C. Cir. 1966))); Rowe, supra note 184, at 46 (“By virtue of the fact that it has been posted, it becomes public and, consequently, loses its trade secret protection.”).

[31] Trademark, Patent or Copyright?, uspto, https://www.uspto.gov/trademarks-getting-started/trademark-basics/trademark-patent-or-copyright (last visited Jan 4, 2017).

[32] See id.

[33] Nice Agreement Tenth Edition – General Remarks, Class Headings and Explanatory Notes – 2012, uspto, https://www.uspto.gov/trademark/trademark-updates-and-announcements/nice-agreement-tenth-edition-general-remarks-class (last visited May 8, 2017).

[34] See generally, Trademark Process, uspto, https://www.uspto.gov/trademarks-getting-started/trademark-process#step1 (last visited May 8, 2017) (discussing the process of trademark protection in the United States).

[35] See generally, Registration Process, euipo, https://euipo.europa.eu/ohimportal/en/registration-process (last visited May 8, 2017) (discussing the process of registration, examination and opposition of trademark applications in the European Union).

[36] See supra note 26.

[37] See Fair Use of Trademarks, International Trademark Association, (Jan. 2016) http://www.inta.org/TrademarkBasics/FactSheets/Pages/Fair-Use-of-TrademarksNL.aspx.

[38] Note that some forms of the Blockchain are referred to as the “Lightning Network”, a tribute to the fast transaction speeds. For more information See Elizabeth Stark, What is the Lightning Network and How Can It Help Bitcoin Scale?, Coincenter, (Sept. 15, 2016), https://coincenter.org/entry/what-is-the-lightning-network.

[39] See generally, Copyright in General, Copyright, https://www.copyright.gov/help/faq/faq-general.html#what (last visited May 8, 2017) (discussing what copyright is and what it protects).

[40] See id. (discussing when copyrighted work is protected).

[41] See generally Hector L. MacQueen, Charlotte Waelde & Graeme T. Laurie, Contemporary Intellectual Property: Law and Policy, Oxford University Press (2007).