Blockchain Patent Disputes: What Can We Expect?

Blockchain Patent Disputes: What Can We Expect?

“Efforts to standardize blockchain technology are already in the works, and once a sufficient number of these standards are developed, a patent war to see who gets credit for the various parts of the technology is almost inevitable. Those utilizing a blockchain infrastructure may not know that the blockchain infrastructure may ultimately be patented by other technologists, and those technologists will want to be paid for it,” says Michael R. Casey, Ph.D., Partner with Oblon, one of the largest law firms in the US focused exclusively on intellectual property. “But even bigger questions loom – will industry participants be able to agree what patents are essential for upcoming standards and what will the licensing royalty structures be for those standards?”

 This situation closely resembles the 2000s technology war involving encoding digital video. From that emerged a number of standards by the Moving Picture Experts Group (MPEG), a working group that established many of the international standards for encoding and compressing video images at the time. Companies having patents covering portions of the MPEG standards relied upon a central licensing aggregator, the MPEG Licensing Association (MPEG-LA), to handle requests for the essential patents of the MPEG standards. “Blockchain adopters won’t want to license blockchain technology from multiple companies individually; they will want to go to a licensing aggregator that provides ‘one-stop-shopping’ and that handles the apportionment of licensing fees,” adds Casey.

Being one of a few of attorneys who understands the unique utilizations of blockchain technology, knows what is on the horizon, and has the technical experience to help blockchain patentees and adopters alike, Casey outlines below to what we can expect regarding blockchain patent disputes.

What efforts have already been made to standardize Blockchain?

One of the major standards organizations is the International Standards Organization, and in 2016 it created a technical committee (ISO/TC 307 named “Blockchain and distributed ledger technologies”) to address a number of the standardization issues for blockchain.  No formal standards yet exist, and they seem like they are still a long way off.  (See https://www.iso.org/committee/6266604/x/catalogue/.)  To at least temporarily fill the gap, a number of industry groups (e.g., Blockchain in Transport Alliance and Health Level Seven) have begun to team together to at least discuss the technology and its potential uses within specific industries.  (See https://www.bita.studio/ for transportation and click here[1] for healthcare information.)

Industry groups are going to need to focus on more concrete use cases that are potentially industry specific

Have these efforts worked well, and if not, why do you think more needs to be done?

The standardization work of the ISO/TC 307 committee is moving slowly compared to the rate at which blockchain is being adopted.  In fact, the committee has yet to adopt a proposal for a reference architecture or even a set of terminology.  BiTA recently announced[2] that it is going to use the IEEE’s help in order to assist in the preparation of standards, so BiTA too has not yet completed its standardization process.  In order to advance this process, industry groups are going to need to focus on more concrete use cases that are potentially industry specific so that small steps can be achieved instead of trying to solve all problems at once.

There is a difference between the infrastructure of blockchain-based systems and the uses of those systems.

Patenting blockchain infrastructure: can you share the basics behind this? What ought to be patented? And how is the process currently?

There is a difference between the infrastructure of blockchain-based systems and the uses of those systems.  For example, the infrastructure includes the computers (and specialized cryptographic processors if they are used) that perform the cryptographic functions necessary to build and verify the data blocks that are distributed throughout the system.  The uses of the system include what data gets tracked and verified.

Patent Offices currently are more predisposed to grant patents on the infrastructure as one can easily appreciate the benefits of a faster running computer or processor.  However, how the data is used that has been tracked and verified may also be patentable if its use is not as obvious over other blockchain-based systems, such as, if someone had filed a patent application on an implementation of a smart contract whose code was stored in and executed by a blockchain-based system — thereby turning a passive distributed ledger into an active perpetual machine.

Patenting blockchain is different than patenting a number of other engineering techniques because it is a technology that can underlie the solutions to so many different problems.

In what ways are patenting blockchain different to the more standard patenting of, for example, a new engineering concept?

Patenting blockchain is different than patenting a number of other engineering techniques because it is a technology that can underlie the solutions to so many different problems.  Not only can it be used to track and control the exchange of cryptocurrencies like bitcoin, but it can also be used to track and control any kind of information (e.g., financial and medical information; or where goods and foods were manufactured or grown).  As the technology is spurring innovation in so many different areas simultaneously, the Patent Offices in various countries are going to have to give increased scrutiny to whether there are yet unpublished patent applications that they do not yet know about that may predate the patent applications they are currently examining.

Also, searching for earlier publications may be more difficult as innovations in the technology may come from very different industry sectors.  For example, while innovations in farm equipment may traditionally come from known farm equipment manufacturers and patent examiners know to consult the pending applications of those manufacturers before granting patents in that area, for some blockchain patents the innovation may come from a different industry.  So, a patent examiner looking for patent applications relating to a medical record system that reliably stores patient information may not know to look for the patent applications of a designer goods company that is building a database of luxury goods that have been sold to reduce counterfeiting — even though both problems actually can use blockchain-based systems for the underlying data tracking.

In addition, unlike technologies that relate to database servers that run in one place at a time, such as in the United States, one of the main benefits of blockchain-based systems is that they utilize a distributed network of computers, not all of which are necessarily going to be in a single country or governed by a single set of patent laws.

Under US law, the process of enforcing a blockchain patent starts with filing a complaint in a U.S. Federal Court alleging that one or more named defendants infringe the patent.

What is the process if someone violates said Blockchain patent? Is the process the same?

Under US law, the process of enforcing a blockchain patent starts with filing a complaint in a U.S. Federal Court alleging that one or more named defendants infringe the patent.  However, as noted above, not all of the participating nodes that are keeping redundant copies of the underlying data need to be in the same country, and it is an open question about how a Court might handle a situation where a named defendant has intentionally distributed its network so that no two servers implementing the blockchain ledger are in the same country for patent infringement purposes.

How will the Patent Office and respective regulatory bodies decipher between advanced tech in this field and decide whether to grant the patent?

The U.S. Patent and Trademark Office (USPTO) is the only US regulatory body to decide whether to grant a patent, and it will do so by reviewing what technology pre-existed before the patent blockchain patent applications were filed.  If it determines that the patent application represents a nonobvious improvement over previous technology, then it can grant the patent.  However, given how relatively new the blockchain technology is, the USPTO may not have a sufficiently complete repository of blockchain publications to really know “what technology pre-existed before the patent blockchain patent applications were filed”.  The USPTO may need to rely on the public (e.g., by setting up information sharing programs) to help it determine “what technology pre-existed before the patent blockchain patent applications were filed.”

 So, if lawyers are going to review smart contracts, they will need to be part programmer to be safe.

Should lawyers become part programmers? Why?

Blockchain-based systems can implement “smart contracts” which are self-executing agreements based on conditions specified when the contract was agreed to by the parties.  This process is fine when the code to implement the transaction matches the intent of the parties, but what if it doesn’t and the parties have had a lawyer review the smart-contract.  Is the lawyer liable for legal malpractice or is this a liability that will be incurred by the programmers involved with the implementation of the contract?   For example, although this is overly simplistic, Party A and Party B want to enter into a contract that implements the agreement that Party A will sell 100 shares of Company X to Party B for $1,000 if the stock price of Company X reaches $10.  If the smart contract is mis-programmed and the payment goes to Party C instead or Party B’s account is debited $10,000 and then Party A refuses to return the additional $9,000, who is responsible?  So, if lawyers are going to review smart contracts, they will need to be part programmer to be safe.

Michael R. Casey, Ph.D.

Partner

mcasey@oblon.com

US Office

Tel: (703) 412-6011

Fax: (703) 413-2220

www.oblon.com

With more than 20 years of experience in patent law including experience in patent prosecution, post grant proceedings, patent litigation, and patent interferences, Dr. Casey’s practice focuses on all aspects of computer hardware and software, as well as circuit design and telecommunications.

Dr. Casey has experience representing and counseling telecommunications, electronics and computer-technology clients — both foreign and domestic — on intellectual property law and related issues, including procurement, valuation, licensing and enforcement of intellectual property. His representations include intellectual property strategies; drafting patent opinions relating to invalidity, non-infringement, and product clearances; patent preparation and prosecution (U.S. and foreign); patent interferences; and patent litigation and trial practice, including appellate work before the Federal Circuit.

 

[1] https://www.hl7.org/documentcenter/public_temp_DF829D9B-1C23-BA17-0CAD6E5EB59116A4/calendarofevents/himss/2018/Blockchain%20and%20Healthcare%20Standards.pdf

[2] https://www.freightwaves.com/news/blockchain/bita-to-use-ieee-standards