The blockchain patent landscape – what’s been protected and what to expect next – Part 2

Please click this link to see Part 1 of what’s been protected in the blockchain patent landscape so far.

There are two distinct aspects of blockchain that are being patented:

  1. Applications (financial, public records, identification, private records, attestation, tangible and intangible assets, remittance, securities transactions, loyalty points, electronic coupon, smart contracts, escrow transactions, and third-party arbitration).
  2. Core technology enablers (data structures and system architectures):
    1. Method of sharing transactions and blocks (e.g. P2P communication protocol)
    2. Method to validate transactions and achieve distributed consensus (e.g. proof of work, proof of stake, decentralised consensus)
    3. Efficient packaging of transactions into blocks (e.g. Merkle trees)
    4. Transaction/block hashing and obfuscating public keys (e.g. Hash Functions, SHA-3, MD5)
    5. Previous transaction search to prevent double-spends (e.g. Key-Value Database)
    6. Transaction signing (e.g. digital signatures – public key/private key, asymmetric encryption, elliptic curve cryptography)

Other technology areas peripheral to blockchain continue to be patented:

  1. Mechanisms to prevent or thwart attacks or addressing vulnerabilities and exposures (protecting infrastructure, nodes, code, wallets, etc)
  2. Identity mapping systems to prevent impersonation of identity (e.g. credential validation and authentication)

The main technical challenge for innovating blockchain is to optimise tradeoffs while making as few sacrifices as possible. Some of these tradeoffs include:

  • Trust versus speed, more computational power is required to create greater trust
  • Energy consumption versus efficiency
  • Probabilistic finality versus deterministic finality
  • Transparency versus confidentiality/privacy, in relation to bytes per transaction

Potential patent-eligible subject matter applied to blockchain by applying principles from recent case law:

  1. Improvements in blockchain data structures, in validating transactions and achieving distributed consensus, and in encryption and hashing functions; and
  2. Novel arrangements of known/existing hashing, encrypting, solving a proof of work problem and chaining.
Avoiding “Abstract Idea” rejections

In recent times, there has been increased difficulty in obtaining patent protection for software related technology in both the US and Australia. Court decisions in both countries have narrowed the scope of patentable subject matter with respect to software-based inventions. This has eliminated many patent applications that were primarily a business method implemented on a generic computer. The claimed inventions are typically rejected because they are found to be a ‘business scheme’ or ‘abstract idea’.

Depending on the claimed invention, blockchain patent applications have been examined by USPTO art units: 2439, 2491 (Cryptography, Security), 2876 (Optics), 3685 (Business Methods), 3693, 3696 (Business Methods – Finance). From a statistical perspective, an applicant will have a better chance of allowance if they are able to avoid art units 3620 to 3629 (Electronic Commerce), 3680 to 3689 (Business Methods), 3690 to 3696 (Business Methods – Finance), which have an allowance rate of less than 30% and almost all these applications will receive a rejection of non-patentable subject matter from the patent examiner at first instance.

Practical tips for the content of blockchain patent applications

TIP ONE: Instead of drafting patent claims to ‘A method of peer-to-peer payments using electronic cash’ write claims to ‘An improved ledger data structure for use in an electronic cash payment method’. This may increase the likelihood that the application will be examined by an art unit with a higher allowance rate than the Business Methods art units.

TIP TWO: Describe in detail the improved functionality of the computer (e.g. making the computer faster, more efficient, or more secure)[1].

TIP THREE: If applicable, describe the effect on physical objects (e.g. actions and transformations, impact on power consumption).

TIP FOUR: If applicable, describe the invention’s improved data structure based on transformations of data from the distributed ledger[2]. Disparage prior art data structures in the background.

TIP FIVE: Describe that the computer and the computer elements as essential and never as optional or non-essential in solving the problem. If there is even the slightest hint in the patent specification that the invention could be carried out mentally, or with pen-and-paper, in lieu of a computer, a patentable subject matter rejection is likely. Avoid using the word ‘may’ in the description and instead refer to ‘examples/embodiments’ to broaden the scope. Be careful of using standard boilerplate sentences and general disclaimers as they have been usually more harmful than helpful[3].

Freedom To Operate for blockchain

One of the biggest concerns for any business is its freedom to operate, especially if there is a large R&D investment envisaged or large marketing expense required upon launch. One way to determine if you have freedom to operate is to check for safe harbours:

  • Innovators Patent Agreement (IPA)
  • Defensive Patent License (DPL)
  • Other defensive patent pools as they develop

Applicants for recently filed blockchain patent applications have said their intention is to use their patent rights defensively[4], meaning to protect themselves against lawsuits. Additionally, the Blockchain Intellectual Property Council was formed by the Chamber of Digital Commerce in 16 March 2017 with the objective of developing an industry-led defensive patent strategy to help protect innovation and drive wide adoption of blockchain-enabled technologies. These are positive signs in regards to freedom to operate and businesses should continue to monitor how the blockchain commercial environment develops using patent analytics and patent landscaping.

The rate of blockchain patent application filings has increased 90% since 2016. As the adoption of blockchain transitions from innovators/early adopters to early majority/late majority, it is reasonable to expect that the rate of filings for blockchain will increase significantly, particular relating to specific blockchain applications as each industry begins to experiment, trial and deploy blockchain to improve their efficiency or increase their market opportunities.

[1] Enfish LLC v. Microsoft Corporation, 822 F.3d 1327 (Fed. Cir. 2016)

[2] Bascom Global Internet Services, Inc. v. AT&T Mobility LLC, No. 2015-1763 (Fed. Cir. June 27, 2016)

[3] Cultor Corporation v. Staley Manufacturing Company, No.99-1232 (Fed. Cir. September 21, 2000); Wireless Agents LLC v. Sony Ericsson Mobile Communications Ab, 2006-1054 (Fed. Cir. 2006)

[4] Mastercard’s Justin Pinkham says, that like many other companies, it’s simply filing patents to defend its blockchain inventions – as it always does, in all areas of its work.