Evolving Patent Landscape of Blockchain TechnologyFOR THE LICENSING EXECUTIVES SOCIETY

APRIL 18, 2018

JUSTIN D. PETRUZZELLI , ESQ.

PARTNER

Topics to be Covered1. History and Applications of Blockchain Technology

2. Blockchain Definition and Operation

3. Blockchain Patent Opportunities, Issues, and Strategies

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History and Applications of BlockchainTechnology

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History/Timeline Crypotgraphically secured chain of blocks described in

1991 by Stuart Haber and W. Scott Stornetta in 1991.

“How to Time-Stamp a Digital Document”, Haber & Stornetta, Journal of Cryptology, Vol. 3, No. 2, pp.99-111, 1991.

Linking chains of time-stamped data; Distributed Trust

Blockchain conceptualized by “Satoshi Nakamoto” in 2008; implemented in Bitcoin in 2009.

Peak daily bitcoin transactions in December 2017 was ~500,000. ~200,000 transactions per day in Mar. 2018.

~ https://charts.bitcoin.com/chart/daily-transactions; https://www.techbullion.com/invented-blockchain-technology/

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Applications Distributed Social Media

Steemit (www.steemit.com)

Utilizes “Smart Media Tokens” with built-in “Proof-of-Brain” properties. Tokens are issued to those who create and curate content. Content with more community “upvotes” (e.g., likes) receives more tokens.

Steemit indicates that ~ $40 million has been paid out to content producers and community members since June, 2016.

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Applications

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Applications Distributed Social Media

D-Tube is a distributed YouTube based on steemit.

https://d.tube/

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Applications Cryptocurrencies

Land registration

Smart Contracts

Document Validation

Decentralized Patent Records Management (BitHealth)

Decentralized Storage (Storj)

~ Forbes at https://www.forbes.com/sites/forbesleadershipforum/2013/06/25/how-to-tell-what-patents-are-worth/#7207ebb86e5b; MEDICI at https://gomedici.com/blockchain-use-cases-comprehensive-analysis-startups-invoved/

Proof of Ownership of Digital Content (Binded)

Digitizing Company Incorporations

Transfer of Equity/Ownership and Governance (Otonomos)

Decentralized Internet-of-Things (Chimera IOT)

Points Based Value Transfer for Ride Sharing (La’Zooz)

Etc… !

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BlockchainDefinition and Operation

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What is a Blockchain? … “a decentralized, distributed and public ledger that is

used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network.”

~ https://en.wikipedia.org/wiki/Blockchain

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What is a Blockchain? Managed autonomously; peer-to-peer, like the internet.

‘Tamper-proof’

~ https://en.wikipedia.org/wiki/Blockchain

Block X Block X+1 Block X+2

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What is a Blockchain?

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What are Blocks? “Blocks hold batches of valid transactions....”

“Each block includes the cryptographic hash of the prior block in the blockchain, linking the two. The linked blocks form a chain.”

~ https://en.wikipedia.org/wiki/Blockchain

Block X

Transaction 1

Transaction 2

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Addition of New BlocksNew ‘Unofficial’

Transaction

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Addition of New Blocks For Bitcoin, “miners” take a pool of unincorporated

(‘unofficial’) transactions and form a new block.

The new block is linked to the immediately previous block that was officially added to the chain.

The combination of the new, as-of-yet unincorporated block, and the immediately previous block in the chain are formed into a ‘challenge string’.

The miner must solve a complex mathematical problem based on this combination: “proof-of-work”.

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Addition of New BlocksMiner

1Miner

2

Proposed New Block X+3

New ‘Unofficial’ Transaction

Proposed New Block X+3

New ‘Unofficial’ Transaction

Miner 1’s Reward Miner 2’s Reward

Block X+2 Prop. New Block X+3

Challenge String

Hash Function

Guess

Required Answer?

Block X+2 Prop. New Block X+3

Challenge String

Hash Function

Guess

Required Answer?

RACE!!!

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Addition of New Blocks First miner that solves the challenge string problem gets

to have its new block officially added to the bitcoin block chain, including its reward and any transaction fees in bitcoin.

“Proof-of-work” throttles the addition of new blocks, and helps prevent fraud by making fraud expensive.

E.g., ~ 10 minutes for a node to come up with the required answer.

~ https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking#bitcoin

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Addition of New BlocksBlock X Block X+1 Block X+2 Block X+3

(From Miner 1)

Miner 1

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Consensus Algorithms Bitcoin’s proof-of-work is an example of a consensus

algorithm which helps the peer-to-peer network decide how a new block is added to the chain.

Other types of consensus algorithms exist.

E.g., Ethereum is moving from a proof-of-work algorithm to a proof-of-stake algorithm.

~ https://coincentral.com/when-will-ethereum-mining-end/

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Consensus Algorithms Under proof-of-stake (PoS), block creators are

predetermined and must put in their own coins as a

‘stake’ (insurance against bad acting). Compensated by

transaction fees.

Eliminates processing time required by proof-of-work.

Other consensus algorithms exist.

~ https://blockgeeks.com/guides/proof-of-work-vs-proof-of-stake/20

Permissionless vs. Permissioned Blockchains Anyone can access a permissionless blockchain network.

Any node can validate transactions. Bitcoin operates on such a network.

A permissioned blockchain network includes an access control layer to limit access to the network. Transaction validation notes are vetted/approved by the network owner.

Ripple runs a permissioned blockchain and has selected MIT and Microsoft for inclusion in its transaction validators.

~ https://en.wikipedia.org/wiki/Blockchain; https://www.coindesk.com/information/what-is-the-difference-between-open-and-permissioned-blockchains/

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Blockchain Patent Opportunities, Issues, and Strategies

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Patent Players in this Space Bank of America, IBM, Mastercard, Fidelity, Coinbase,

World Award, TD Bank, 402 Technologies S.A., Accenture, Dell

Many startups (see slides 5-8)

Expect uptick in patent trolls in this space.

~ http://patentvue.com/2018/01/12/blockchain-patent-filings-dominated-by-financial-services-industry/; https://www.cnbc.com/2017/12/19/a-new-form-of-bitcoin-mining-patent-trolls-coming-for-the-blockchain.html

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Blockchain Patent Opportunities “Research indicates that about 70%-80% of a company’s

market capitalization comes in the form of intangible assets ….”

“Google bought Motorola Mobility, with its 17,000 patents, for $12.5 billion, to protect its Android mobile operating systems from rivals.”

Present price of bitcoin ~ $6,500 (+/- $$$$ on any given day!)

~ Forbes https://www.forbes.com/sites/forbesleadershipforum/2013/06/25/how-to-tell-what-patents-are-worth/#7207ebb86e5b

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Blockchain Patent Opportunities IP ‘Land Grab’ in this technology space

Contrast: 5,512 Patents Granted in 2015 for Database & File Management or Data Structures

~ https://www.coindesk.com/rate-blockchain-patent-applications-nearly-doubled-2017/; https://www.uspto.gov/web/offices/ac/ido/oeip/taf/cbcby.pdf

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Blockchain Patent Opportunities Patents provide the owner with the right to exclude

others from making, using, or selling an invention in the

United States.

Patents are not a freedom to operate.

In return for the right to exclude others, you must

publicly disclose your invention.

Opposite of Trade Secret.

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Blockchain Patenting Logistics Fundamentally a software technology.

35 U.S.C. 101: Whoever 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.

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Blockchain Patenting Logistics Invention must cover patentable subject matter.

→ “anything under the sun”, but no laws of

nature/abstract ideas.

Software-based technologies are closely scrutinized with

respect to abstract ideas.

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Blockchain Patents and Abstract Ideas According to U.S. Patent Laws, you cannot claim an

abstract idea without also claiming significantly more

than the abstract idea.

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Examples of Abstract Ideas Fundamental economic practices

Certain methods of organizing human activities

An idea ‘of itself’

Mathematical relationships/formulas.

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Examples of “Significantly More” Improvements to another technology or technical field.

Improvements to the functioning of the computer itself.

Applying the abstract idea with, or by the use of, a

particular machine.

Effecting a transformation or reduction of a particular

article to a different state or thing.

Something ‘inventive’.

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Select Caselaw Examples –Not Abstract Self-referential database not an abstract idea (Enfish LLC.

v. Microsoft Corp., Fed. Cir. 2016).

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Select Caselaw Examples –Not Abstract Method for halftoning color images not an abstract idea

(Research Corp. Techs., Inc. v. Microsoft Corp., Fed. Cir.

2010)

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Select Caselaw Examples –Not Abstract Computer-processed lip synchronization and facial

expressions in animated characters not an abstract idea

(MCRO Inc. v. Bandai Namco Games America Inc., Fed.

Cir. 2016)

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Select Caselaw Examples –Abstract and Not Sign. More Detecting improper access to patient’s health

information: abstract and not significantly more – patent

ineligible (Fairwarning IP v. IATRIC, 2016)

Hardware description language that converts logic into

hardware designs - abstract and not significantly more –

patent ineligible (Synopsys, Inc. v. Mentor Graphics,

2016)

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Select Caselaw Examples –Abstract, but Sign. More Installation of a filtering tool at a specific location,

remote from end-users, with customizable filtering

features specific to each end user: Court held that such a

feature is directed to an abstract idea of filtering content,

but includes an ‘inventive concept’ in the ‘ordered

combination’ of claim limitations that transform the

abstract idea into ‘a particular, practical application of

that abstract idea’ (significantly more). (Bascom Global

Internet v. AT&T Mobility LLC, Fed. Cir. 2016.)

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Themes Concern about pre-emption and overbreadth

Complexity of claimed invention/inventive concept

Improving the operation of a computer/existing

technology.

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Blockchain Patents, Novelty and Non-Obviousness Blockchain technology still relatively new… opportunity

for ‘pioneering’ patents.

Relatively smaller body of prior patents/publications to

be used by the Patent Office to use against a patent

applicant.

Quickly changing, however, with a rapid increase in new

patent application filings in this space.

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Keep Invention Secret Until Filing! One very important aspect of the patenting process is

the need to keep your invention secret until you file a

patent application.

Public (non-secret) disclosure before filing a patent

application can immediately destroy your ability to

obtain a patent in non-U.S. countries, and can muddy the

waters on your U.S. patent rights.

→ Starting of ‘clock’ in the U.S.

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Patent Ownership Initially vests with inventor(s), as copyright does with

authors.

Joint inventors co-own the invention.

However, no “work made for hire” for patents, like

copyright.

Make sure you have ownership agreements in place

with inventors.

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Overlapping IP Coverage Patents are not mutually exclusive with other forms of

intellectual property

Utility Patent(s) to protect function

Design Patent(s), copyright(s), and trademark(s) to

protect ornamental design

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Disclaimer

The contents of this presentation are for the purposes of

illustrating some general legal concepts and are not intended

to be relied upon for making decisions regarding particular

issues. If you have a particular issue that might involve any

of the legal issues presented herein, please contact us for

the appropriate legal advice.

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Questions?

Thank you for your time.

Justin Petruzzelli (571-919-4402)

JustinPetruzzelli@rkmllp.com

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