A wide array of corporations, including Alphabet Inc.’s Google and Bank of America, are lining up to enter a potentially lucrative club: one that allows them to own patents on blockchain technology.
But getting past the patent office’s velvet rope won’t be easy.
Blockchain inventions — from digital currencies to super-fast, secure trading systems — often cover software and financial service-related technologies. The U.S. Patent and Trademark Office has a track record of leaving applicants out in the cold if they seek patents for presenting other types of software or financial services inventions that are too abstract or obvious.
“Especially with cryptocurrency patents, the PTO has the tendency to lob them into the financial services space, which recently is pretty much a graveyard for patent applications,” Joel Lehrer, a partner and fintech practice member of Goodwin Procter LLP, said.
Patent attorneys are working to position inventions based on the complex and fast-developing technology as novel ideas that actually solve problems. Blockchain inventions involve a chain of peer-to-peer or linked actions by multiple parties in transactions, the attorneys told Bloomberg Law, magnifying the challenge of zeroing in on a specific patentable idea.
The patent office has published nearly 700 blockchain-related applications it received between January 2011 and April 30 of this year. The office has granted 70 patents on blockchain technology during that time, Bloomberg Law data show.
It’s unclear how many applications the patent office denied, received confidentially, or stopped processing because applicants abandoned them. There’s also an 18-month lag between when the patent office receives applications and makes them public.
Patents are an essential ingredient for companies looking to reshape the financial services industry or spawn profitable cryptocurrency-related businesses. Without them, companies can’t protect proprietary rights in high-tech ideas, attract investment, and license their technologies down the road to collect monopoly profits.
“You can extend your first-mover advantage with patent protection,” John Squires, partner and chairman of the IP and emerging company practice group at Dilworth Paxson LLP, told Bloomberg Law.
Blockchain’s open ledger technology allows people to verify and record transactions in software code blocks, like links in a chain. It involves peer-to-peer or community computer networks where each computer can act as a server for the others with shared data access. It’s unlike current operating systems, such as those used by banks, using one central server or computer.
Some companies are developing technology to bring transparency to other transactions, make record-keeping more efficient, and simplify back-office functions such as accounting.
Bank of America is seeking to patent technology to store data that allows existing payment systems such as debit networks to function on a blockchain. Bank of America has been granted at least two patents and submitted at least 29 applications since 2014, Bloomberg Law data show. Bank of America declined to comment.
Technology companies like Google are relatively new entrants to the blockchain patent race. The company filed a patent application in 2017 on technology that verifies that data stored on a blockchain system has not been altered, or shows when and what information was tampered with, Bloomberg Law data show. Google did not immediately respond to a Bloomberg Law request for comment.
Blockchain Patenting Strategies
Attorneys drafting blockchain-related applications are emphasizing how their client’s invention offers a new way to solve a technical problem. The community nature of blockchain technology makes it hard to define the scope of inventions, the attorneys told Bloomberg Law.
“The issue is actually identifying patentable innovation,” Marc Kaufman, a partner and patent prosecutor at Rimon PC, said. “Much of the innovation can be characterized as piecing together known technologies.”
Practitioners must painstakingly suss out with clients technical aspects of blockchain inventions, such as what it’s trying to do and whether it’s the most efficient way to perform a function, Kaufman said. Attorneys are explaining to examiners what problems the invention is trying to fix, he said.
“We’re taking great pains to establish non-obviousness by showing problems that are being solved in a technical manner,” he said.
Some attorneys are trying to avoid patent office examination units that are less likely to grant software or financial services patents, such as Technology Center 3600, an examination unit focused on e-commerce technologies.
“To the extent you can, you draft the application with the title, abstract and claims that don’t immediately suggest that this is a method of performing a financial transaction or a method of delivering advertising — all the buzzwords that tend to get the patent applications put into Art Unit 3600,” Lehrer said.
Block Party Wait
Patent attorneys say spending a lot of time with clients’ technologies to hone in on what can be patented and filing applications as ways to improve existing inventions are some ways to avoid pitfalls.
Hogene Choi, a Palo Alto, Calif.-based partner at Baker Botts LLP, says she is shepherding 75 applications at the patent office and is drafting about 20 more.
“We are really looking at the tip of the iceberg right now and this is just the beginning of what I’m sure will develop into a tidal wave of blockchain-related patent applications at the U.S. patent office,” Choi said. “Everyone is trying to get in front of this and make sure that their competitors don’t completely occupy the field.”
Applicants may have a long wait. Generally, the patent office can take up to 16 months to take its first action on a patent application, and an average of about two years to make a final decision. For example, Bank of America’s application on a cryptocurrency exchange system to convert one digital currency into another was filed in 2014, made public in 2015, and granted in 2017.
The patent office may have seen the largest number of blockchain-related applications last year, with at least 255 applications and 19 grants, Bloomberg Law data show. In 2015, at least 143 blockchain-related applications were filed, but the office issued only 21 patents, the data show.
The agency awarded numerous financial services patents during the e-commerce boom of the late ‘90s and early 2000’s that some lawmakers and practitioners later said were improperly issued. To weed out such patents, Congress in 2011 said the patent office could conduct administrative reviews to challenge the validity of patents that cover financial business methods. Many of those technologies added a software or web-based aspect to an existing business process, Goodwin Procter’s Lehrer said.
“The PTO learned its lesson then and is applying that for blockchain patents now and making sure that just because you’re adding some sort of distributed ledger component to a business process doesn’t mean it’s novel,” Lehrer said.
The patent office hasn’t issued guidance on how it will consider blockchain patent applications. An agency spokesman declined to comment.
Some inventors want to patent a new way of conducting a known process. For example, applying distributed ledger codes to existing voting systems so they have an open, public database to securely verify votes.
The U.S. Supreme Court ruled in Alice Corp. v. CLS Bank Int’l in 2014 that software applications covering abstract and non-inventive ideas can’t be patented under existing law. Since then, the patent office has stringently applied the high court’s decision, making it difficult for software-related patent applications to pass the patent eligibility test.
Squires said he is referencing and arguing eligibility under a patent law provision that defines patentable inventions as including novel uses of known processes or machines.
“These are new approaches and applications of doing things that you don’t do in a centralized fashion, and therefore, are patentable,” Squires said.
Squires helped Goldman Sachs win a patent in 2017 from a 2014 application for a secure settlement system in financial markets based on a new cryptocurrency called “SETLcoin.”
Beyond the financial services industry, digital currency companies and startups are rolling out initial coin offerings to raise Bitcoin and other digital currency funds to support projects in exchange for digital tokens. They are rushing to patent their tokens that can be traded as a security or recouped in numerous ways, such as a discount for a service.
For example, one of Squires’ clients, Unikrn, a competitive video gaming service, has applied to patent its digital currency-based gaming and betting technology. In February, Unikrn called on other gaming companies using tokens to license its intellectual property.
Infringement Crystal Ball
Another challenge facing blockchain-related patent applications is that they must be drafted to preempt infringement. Doing so requires drafting patent claims so that they can be enforced against infringers down the road, attorneys said.
The decentralized and network nature of blockchain technologies make it challenging to point a finger at any single party who is infringing every element of a patent claim, Kaufman said.
“I will be willing to bet that I will run into a patent application or innovations where I tell the client this will be very difficult to enforce, and I can’t draft a claim as both novel and that reads on an identifiable party,” he said. “That’s always a challenge in network technologies, but even more so in blockchain.”
— With assistance from Tommy Shen