Block the Blockchain – are you ready for a new battleground in the patent wars?

Blockchain, a mysterious thing?

Because the most common association with Blockchain is the cryptocurrency Bitcoin, Bitcoin and Blockchain are sometimes used interchangeably. However, such an understanding does not recognize the significance of the technology. Ether and Bitcoin are merely different forms of implementation of their underlying Blockchain technology, while the potential of the technology goes way beyond cryptocurrencies.

Key elements of a blockchain are data blocks which are cryptographically secured and linked to each other. Because each individual block saves certain digital data from the previous data block (“hashes”), integrity of the respectively linked blocks is ensured. It is, however, truly ground breaking when the Blockchain technology is used as a distributed ledger in an open peer-to-peer network. In this way the block chain with the whole history of the transaction is stored on each computer of each member of the network. Then, the data cannot be altered retrospectively since the chain itself provides an inherent trust element. This technology enables safe, decentralised transactions throughout all business areas, making third party intermediaries dispensable.

New applications and new players

Blockchain technology will impact on various areas of business. The European Parliament Research Service even published a report on “How blockchain technology could change our lives”. The technology could make the traditional credit transfer model dispensable, it can be used to enable e-voting, making supply chains more transparent, controllable and can even be used to control and manage copyright in artistic works directly from artist to consumer without the interference of a collecting society.

Because of the broad application possibilities, new players in the patent field are expected. Banks for example – not traditionally known as patent applicants – are currently leading the race to the patent offices. The Blockchain technology is expected to hit the financial industry the hardest, and in the face of this threat, the banks seem to have chosen a proactive approach: they have invested in research and development of the technology in an attempt to turn the threat into a new business model.

Current patent landscape

Although there has been a substantial increase in patent applications regarding Blockchain technology, the general number of applications is still relatively low, in spite of the hype, and especially as compared with the numbers of patents issued in the telecommunication sector,. The most active countries in filing are the USA and China. The most active industries filing applications are currently the telecommunication, the traditional financial and the fintech sectors.

Legal challenges for patenting Blockchain

There are several reasons for the relatively low number of applications:

  • Patents are not the only IP protection regimeBlockchain technologies are based on software. In most jurisdictions the codes can either be protected under copyright law, as confidential information or (if more complicated) under patent law. Since protection under patent law leads to disclosure of the patented technology, some companies may have decided to refrain from filing for patents and instead protect their technology as confidential information or copyrights. But such a protection is fragile. As unregistered rights, the scope and origin of it can be unclear; also the element of copying needs to be proven for any individual case of copyright infringement. In the end, both regimes are not usually as efficient to establish and protect a market position as patents.
  • PatentabilityHowever, filing patents for Blockchain technologies is challenging either because Blockchain is more or less solely based on software or because a lot of the currently discussed solutions are essentially business models. The biggest challenge however lies in the question of novelty. Under the pseudonym Satoshi Nakamoto, much of the basic Blockchain functions have already been published in the “Blockchain White Paper”. Thus, it seems very likely that patentees will have to focus in particular on variations and specific improvements.
  • Open-sourceMany Blockchain projects use open-source software which is licensed under specific licence terms. This adds another hurdle to commercialising the IP behind the Blockchain technology. The licensing requirements under the open-source software vary considerably, making it difficult to manage the derivative IP. Additionally, many open-sources require the derivative part of the open-source software to be redistributed again under the same open source terms, excluding monopolisation through patents.

What to expect?

Usually in emerging technologies, patent claims tend to be broad, but in view of the above, this may not necessarily be the case for Blockchain technologies. Because patents on variations and improvements of the basic Blockchain technology have to be expected, the patents granted will be highly fragmented and a new patent thicket in that area is not unlikely. In view of a new patent war on the horizon, ideas from patent pools and other defensive patent strategies have already emerged within the industry. Companies owning patents in a field of technology where future commercialisation is still unpredictable will always have an opportunity to reserve a spot in the market, either by actively enforcing their patents or by passively defending their business or simply by owning a bargain chip for cross-licence negotiations.