Blockchain – What is it and what are its IP issues?

Blockchain
WhatisitandwhatareitsIPissues?

YuhenTomZhang
ROBIC,LLP
LawyerandPatentAgentinCanadaandtheUnitedStates

Whenwethinkaboutsystemsforcomputinglargeamountsofdata,weusuallythinkabout
serverfarmsformedofnumerouscomputermainframesrunningtogetherinair
conditionedfacilities.Distributedcomputingsitsattheoppositeofthespectrum-datais
processedinadisparatemanneracrosslooselyconnectednetworksofcomputers.A
particularlyinterestingapplicationofdistributedcomputingiswith“blockchains”.
Ablockchainisatypeofdatabasestoredonmanycomputersinapeer-to-peernetwork,
andisparticularlyadaptedforrecordingtransactions.Transactionsarerecordedwithin
“blocks”whicharestoredoneachcomputerinthenetwork.Asnewblocksareadded,
theyarelinkedtoallprecedingtransactions,therebyformingachainofblocks.New
transactionsmustbevalidatedbyallcomputersinthenetworkbycheckingthenew
transactionagainstallearliertransactions.Sinceeachcomputerinthenetworkhasits
owncopyoftheblockchain,thedataisseenasbeingmoresecurethantraditional
methodsinwhichdataisstoredinasinglecentrallocation.

Blockchainforcryptocurrency
BlockchainisbestknownforbeingthetechnologythatunderpinsBitcoinandothersimilar
typesofcryptocurrency.TransactionsofBitcoinsarerecordedinblockchaintransaction
ledgers.TheownerofagivenBitcoinstoresthedigitalcredentialstohisorherbitcoin
holdingsinadigitalwallet.Thedigitalcredentialsareusedtovalidateownershipby
verifyingtheblockchainledger.Forexample,ifPartyAtransfersaBitcointoPartyB,Party
Aprovideshisorhercredentialsandtheblockchainledgerischeckedtodeterminethat
PartyAistherightfulownerofthatBitcoin.Theblockchainisthenupdatedaccordinglyto
indicatethatPartyBhasbecomethenewownerofthetransferredBitcoin.
Entriesintheblockchainledgeraresecuredusingcryptography,hencetheterm
“cryptocurrency”.Thepeersinthenetworkverifytheblockchainledgerbydeciphering
theseencryptedentries.Newunitsofthecryptocurrencyareawardedtothosepeersthat
connecttheircomputerstothenetworktoparticipateinthevalidationandverificationof
transactions.

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Currently,itispossibletobuyvariousgoodsorservicesonlinewithvarioustypesof
cryptocurrency.Onetypeofdigitalcurrencycanalsobeexchangedforothertypesof
digitalcurrencies,orevenforrealcurrencies.

Beyondcryptocurrency
Giventhepotentialofblockchaintechnologytoleveragedistributedcomputingpower,
manypeoplehavestartedenvisioningusesfortheblockchaininapplicationsbeyond
cryptocurrency.TheseadditionalapplicationshavegenerallybeenknownasBlockchain
2.0.Oneareaofinterestissmartcontracts.Inasmartcontract,thetermsofthecontracts
canbesetoutincomputercode.Whentwopartiestoacontractexecutetheirrespective
obligationsofthecontract,asmartsoftwareprogramcanverifyandenforcethatcontract.
Thesmartcontractitself,theexecutionofthecontractandtheverificationcanbestored
intheblockchain.
Smartcontractsareparticularlywell-adaptedtoonlineinteractions.Thesmartcontract
candefinetheactionsbyonlineparties(ex:auserlisteningtoasongfromastreaming
service)thatwilltriggerapayment(ex:aroyaltyispaidtotheauthor/publisherofthe
song).
Presently,smartcontractsareseenasbeingusefulforenablingdecentralized
micropayments,suchaspayingaverysmallfee(ex:afewcents)inreturntoaccessing
smallbitsofdigitalcontent(ex:payingtoreadanewsarticleortolistentothesong).In
thefuture,itispossibletoenvisionsmartcontractsplayinganimportantpartinaworld
thatbecomesincreasinglyautomated.
Giventhevastpotential,itisnotsurprisingthattechstart-upshavesprunguptoprovide
innovativewaysofofferingservicesleveragingblockchaintechnology.Atthesametime,
largefinancialcompanieshavealsobegunresearchanddevelopmentactivitiesinthis
space.Inordertoclaimapieceofthespaceforthemselvesandtonotbeleftbehind,
companieshavealsobegunfilingpatentapplicationsforthenewblockchaintechnologies
thattheyhavedeveloped.

Isblockchaintechnologypatentable?
Thereisanongoingdebateinmanycountriesregardingwhethercomputer-implemented
inventionsareeligibleforpatentprotection.
IntheU.S.,thecourtshaverejectedablanketbanonsoftwareinventions,buthavestated
thatinventionsdirectedtoabstractideas,suchasfundamentaleconomicpracticesand
methodsoforganizinghumanbehaviour,arenotpatentable.
InCanada,theFederalCourtofAppealstatedinits2011AmazonOne-Clickdecisionthat
aninventionmustnothaveadisembodiedidea,musthaveapracticalapplication,and
musthaveacommerciallyusefulresult.Again,thereisnotanoutrightbanonsoftware
inventionsunderCanadianlaw.

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InEurope,whilesoftwareisnotpatentableperse,suchprohibitiondoesnotapplyfor
inventionsforentirecomputersystems.
WhetheraparticularBlockchaininventionwillbeeligibleforpatentinginagiven
jurisdictionwilldependontheparticularnatureofthatinvention.Giventhatthecoreof
blockchainistechnologicalinnature(definingspecificdatastructures,algorithmsand
networkconfigurations),itislikelythatthesecoreinnovationswillbeeligibleforpatent
protectioninmanycountries.Innovationsthatapplyblockchaintechnologyinanovelway
tochangecurrentfinancialpracticeswillalsolikelybepatent-eligible.However,simply
applyinggenericblockchaintechnologytoknownfinancialpracticeswilllikelybeharder
toprotect.

Patentprotectionandfutureinnovation
Somepessimistsseepatentsasroadblocksforfutureinnovation.Asindividualcompanies
carveoutsmallareasofblockchainspaceforthemselves,otherscanbepreventedfrom
operatingandinnovatinginthosespaces.
Anotherpossibleoutcomeisblockchaintechnologiesconvergingtowardsacommonset
ofstandardpracticesandtechnologicalnormsasthetechnologymatures.Standardization
seemslikelyconsideringthatlegalandregulatoryschemeswillcertainlybedeveloped.
Consequently,asetofstandard-essentialpatentsmayalsoemerge,inwhichcompanies
wishingtooperateinthespacewillberequiredtoobtainlicensestosuchpatents.This
scenarioissimilartothetelecommunicationsindustry.
Ariseinpatenttrollingactivitiesisalsoforeseeable.Thatis,companiesthatholdpatents
forblockchaintechnologybutdonotactuallyoperateinthespacewillattempttomonetize
theirpatentsbysuingand/orseekinglicensingfeesfromothercompaniesthatdooperate
inthespace.However,ifpatentofficescontinuetoexaminepatentapplicationsinastrict
manneranddonotallowoverlybroadpatents,thelevelofpatenttrollingactivitiesmaybe
lowerthanwhatiscurrentlybeingseen.

Blockchain,patentsandopensource
Afundamentalphilosophicalcontradictionexistsbetweentheopensourcesoftware
technologyandpatenting.Whereasopensourceisbasedonthephilosophythatall
innovationshouldbefreetobeusedbyall,patentingseekstopreventallothersfrom
usingthepatentedinnovation.Largeamountsofopensourcesoftwarearelicensedunder
termsthatobligethelicenseetoalsomakethesoftwareavailableforotherstouse.The
courtshaveyettoprovideananswertothequestionofhowsuchopensourcelicenses
impactpatentsthatcoverinnovationsdevelopedusingopensourcesoftware.
Alargepartofblockchaintechnologiesarebeingdevelopedusingopensourcesoftware.
Forexample,thesoftwareenablingBitcoinisopensource.Itwillbeinterestingtoseeif
thepatentingvsopensourcedichotomybecomesanimportantissueastheindustry
matures.

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Conclusion
Itwouldnotbesurprisingforblockchainstoquicklychangehowfinancialtransactionsare
carriedoutovertheInternet.Itwillbeinterestingtoseewhetherlegalframeworks,such
asIP,cankeeppacewithsuchchanges.