This article is written by Prashant Dhodapkar, pursuing Diploma in US Intellectual Property Law and Paralegal Studies from Lawsikho.
Table of Contents
The first patent application mentioning ‘blockchain’ was filed in 2012, and the number of patent applications for blockchain has been increasing since then. In Alice Corp v CLS Bank Int 573 US 208 (2014), the US Supreme Court decision resulted in setbacks for computer-implemented inventions, which also put a question mark around the patentability of blockchain inventions. However, patent grants in the blockchain domain have brought smiles of relief and hope for blockchain entrepreneurs and investors and ended the feelings of uncertainty about the patentability of blockchain inventions.
However, the opinion continues to be divided on the potential of blockchain technology, and also whether blockchain inventions deserve patent grants. Some opine that blockchain patents are “pointless” because the technology is about collaboration and openness. Moreover, it is felt that there is nothing new about blockchain technology, as most of its elements have been in existence for quite some time now. Others are highly enthusiastic about the power of blockchain, as it is perceived to have the potential to transform businesses in the same manner as the internet did some years ago. Blockchain has applications in several areas/ sectors such as banking, finance, e-commerce, supply chain management, real estate and even legal processes and IPR management.
For entrepreneurs, getting a patent granted for blockchain invention is considered highly desirable as it provides a distinct competitive edge. Being a fast-evolving technological area, merely applying for a patent and going through the rather lengthy and uncertain prosecution does not appeal to the entrepreneurs or investors. The key is to get a patent granted in several jurisdictions as early as possible so that the commercial benefits can be realized to the fullest extent before other improvements to the technology render the invention redundant. In this respect, using USPTO as the office of first filing possibly has several advantages.
Through this article, the author seeks to explore the concepts underlying blockchain technology, the issues surrounding the patentability aspects for inventions in general and for blockchain inventions, and also examine the relatively greater attractiveness of the US jurisdiction for inventors active in the area of blockchain technologies.
What is blockchain?
Although the subject is somewhat nebulous, the basic concepts underlying blockchain are easy to understand. Simply stated, blockchain is a distributed and shared ledger technology that facilitates the recording of transactions and tracking of assets in a highly reliable, safe and efficient manner using a peer-to-peer network. The assets can be tangible (car, house property, etc.) or intangible (copyrighted material, patents, brands, etc.). The cryptocurrency bitcoin is implemented using blockchain, but the applications of blockchain go far beyond bitcoin. Although ledgers are used in business since times immemorial, there are certain characteristics of blockchain, listed below, that make it special:
- Copy of data related to each transaction is shared and held by each network participant,
- No third-party verification is required,
- Impossible to alter or tamper with data.
All the above features are achieved due to the manner in which blockchain is implemented. The name ‘blockchain’ itself provides an indication regarding the technology. Blockchain is a series of blocks linked together. Each block represents a record and contains a header, details of the transaction-specific to that block along with a timestamp, and a ‘hash’ for the previous block to which it is linked (the first block in a blockchain is the so-called genesis block). Therefore, in a blockchain network, all the network participants (nodes) have details of all the transactions for that network. Any attempt to make changes to a block will be easily recognized as invalid by all the network participants and rejected. Thus, a blockchain network is tamperproof and immutable. Moreover, there is no need for third-party validation or authentication. This makes blockchain very efficient and reliable as compared to legacy ledger systems.
Blockchain : beginning and patent filing activity
The first implementation of the Blockchain database, as well as the development of bitcoin, is attributed to Satoshi Nakamoto, which is believed to be a fictitious name. Patenting blockchain inventions is relatively recent activity. Around 2014, blockchain had a modest beginning with 5 numbers of published applications. This number rose to 123 by 2016, and to 2653 in 2018. In 2020, as many as 12,525 applications were published. A search for the term “blockchain” in the Patentscope database, applying filters such as ‘front page’, ‘single member of a family’, etc. resulted in 30,956 hits. China (11,716), USA (9,254), Korea (1,331) and India (506) are the leading countries in terms of patent filing activity. In terms of companies, IBM, Advanced New Technology Co., Ping An Technology, Tencent Technology, Alibaba Group, Alipay Infotech, etc. are the most active players. In the USA, Bank of America, Mastercard, etc. are the leading patent filing entities apart from IBM.
Many people find it perplexing that even though the basic elements of the technology have already been patented, there are numerous patent applications still being filed every year. This also raises doubts about the commercialization prospects for blockchain innovations and whether the proliferation of blockchain patent applications represents a trend similar to the indiscriminate filing of patents for Computer-Implemented Inventions some time ago. The relative attractiveness of USPTO to inventors also needs some consideration, especially whether USPTO as an office of first filing offers some strategic advantage. The statutory guidelines on the patentable subject matter and judicial exceptions need some deliberation, in order to appreciate the patentability of blockchain inventions.
Patentable subject matter in USPTO
35 USC 101 defines 4 categories of patentable inventions- processes, machines, manufactures and composition of matter. The latter 3 categories are things or products, whereas the process defines actions or a series of steps that need to be taken for accomplishing a result.
Manual of Patent Examination Practice (MPEP) Chapter 2100, S 2106 discusses the subject matter eligibility for patents. The invention must belong to at least one of the four categories as mentioned in 35 USC 101. Moreover, the claims must not be directed to a judicial exception (natural phenomena, mathematical equations, abstract ideas, etc.). However, a claim that includes a judicial exception is not doomed for rejection. S 2106.04 (a)(1) states that “All inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena or abstract ideas, not all claims recite abstract ideas”. A two-pronged test is applied to judge the patent eligibility of a claim. At prong 1, it is determined whether a claim in the invention recites a judicial exception. Prong 2 evaluates whether the claim recites additional elements that integrate the judicial exception into a practical application. In Diamond v Diehr 450 US 175 (1981), the US Supreme Court ruled that controlling the execution of a physical process (curing of rubber) through a computer program did not preclude the patentability of the invention as a whole. It is worth mentioning that the process involved determining the curing time of rubber using mathematical formulae, namely the Arrhenius equation.
However, MPEP S 2106 also clarifies that the eligibility of a claim is not evaluated merely based on whether it recites a ‘useful, concrete and tangible result’. “Mere recitation of concrete, tangible components is insufficient to confer patent eligibility to an otherwise abstract idea”.
USA : an innovation-friendly jurisdiction
USPTO is considered to be innovation-oriented and innovator-friendly and has indeed been a pioneer as far as the patentable subject matter is considered. With the apparently limited 4 categories of patentable inventions, patents for large diversified inventions have been granted. The liberal disposition of USPTO is often expressed as “everything under the sun is patentable” (this often-repeated quote is, among others, attributed to Francis Gurry, former DG of WIPO). In Diamond v Chakrabarty, 447 US 303, USPQ 193 (1980) it was ruled that whether an invention pertains to living matter is irrelevant for the issue of patentability because bacterium was a ‘manufacture’ and/or ‘composition of matter’. This landmark decision paved the way for the establishment of biotechnology as a new area for innovations. In ex parte Allen, 2 USPQ2d 1425 (Board of Patent Appeals and Interference 1987), it was decided that non-naturally occurring polyploid Pacific Oyster could be the subject matter of patents, thus allowing patenting of animal forms. Subsequently, the Commissioner of Patents and Trademark Office considered non-natural, non-human multicellular animals to be the patentable subject matter. US Congress, however, has barred claims directed to human organisms from eligibility. Methods for the treatments of humans, including surgeries, are patentable in the USA.
But USPTO’s liberal attitude is not restricted to the subject matter of living beings. Amazon’s ‘one-click ordering’ (US 5960411, date of patent September 28, 1999) was considered a one-of-its-kind business method patent, although there is no shortage of critics for such inventions. The successful integration of the patented technology in e-commerce not only demonstrated that Amazon had the trust of its customers (who stored their personal details on Amazon’s website) but also enabled Amazon to enforce the patent against its rivals and afforded extra revenue through licensing. The technology ultimately allowed Amazon to expand its platform beyond bookselling to a full-fledged global e-commerce business.
Less popular, but equally interesting patent grants in the area of computer-implemented inventions pertain to methods for increasing reading and comprehension speed (US 6,056,551 granted on May 2, 2000). This invention is reaping commercial benefits through annual subscriptions, as there are a large number of students as well as professionals who desire to increase their reading and comprehension abilities.
The ‘Alice decision’ and its fallout
The US Supreme Court’s decision in Alice Corp. v CLS Bank Int. 573 US 208 (2014) reined in the proliferation of computer-implemented inventions (basically software patents). Relying on Mayo Collaborative Service v Prometheus Laboratories, Inc. 566 US 66 (2012) (although the invention at issue was not software related), the Court decided that claims which were drawn to an abstract idea and implemented on a computer were not enough to make the abstract idea into a patent-eligible matter. There were as many as 52 amicus curiae briefs in this case (from industry and associations, as well as USPTO itself), agitated at “proliferation and aggressive enforcement of low-quality software patents” and sought to limit the term and scope of software patents. There was criticism that the judges did not even mention the word ‘software’ in the judgement, and it was felt that the US judiciary was deliberately avoiding taking a firm stand on this issue. Following Alice, the District Courts in the USA invalidated hundreds of software patents.
Other jurisdictions have tried to clarify the issue of computer-implemented inventions. For example, EPO has drawn clear guidelines for the examination of computer-implemented inventions, and India too has followed suit with a guideline on Computer Related Inventions (CRI). New Zealand introduced the Software Patents Bill in 2008 and then in 2010, seeking to ban software as patentable subject matter.
USPTO as the office of first filing : a strategic option
The patent procedures in USPTO are known to be innovator friendly. For example, the Track One (or Track 1) program allows fast track examination of patent applications and decisions about grants within a period of 12 months, for a fee of USD 4000 (USD 2000 for small entities and USD 1000 for micro-entities). The number of applications that can benefit from the program has been increased to 15,000 per year with effect from September 2021, from an earlier number of 12,000 per year. Once the inventor gets a favourable decision under Track 1, an expedited examination under the patent prosecution highway scheme, either the PPH 5 or Global PPH (which has the participation of about 28 jurisdictions, including EPO, UK, Germany, Poland, China, Korea, etc.) can be sought. Thus, an inventor has a really good chance of getting an invention patented very quickly, almost simultaneously in many jurisdictions, if the USPTO is used as the office of first filing. Currently, India has successfully piloted the PPH program with the JPO, and similar programs with USPTO and EPO are planned.
What does all this mean for an inventor/entrepreneur who wants to get a patent for blockchain technology? There are many who believe that although there is a trend towards increasing grants for blockchain patents, the number will soon taper off. A large number of open source tools are part of blockchain implementations. However, inventors can take solace from the fact that technology need not be built from scratch. Existing tools and components can be used to deliver an innovative configuration. Merely replacing conventional databases with blockchain implementation will not be eligible for a patent, but a reconfiguration of existing data structures, devices concurrent with blockchain implementation will meet the patentability requirement. Moreover, implementations that alter some aspects of the working of blockchain, could be patentable. Such implementations should be able to overcome prior art shortcomings.
Patent applicants should not focus on what blockchain is, but rather on what blockchain does to fix unique technical problems. Since inventors should be focused on getting their inventions granted in several jurisdictions, the applications should be drafted in ‘translator friendly’ language, devoid of any jargon not recognized beyond specific jurisdiction. Also, examination standards of different jurisdictions should be kept in mind at the drafting stage.
The exact nature of the technology landscape for blockchain has not emerged as of now, since there are a large number of applications awaiting decisions. However, a large number of individual elements of blockchain technology, such as digital wallets, security, exchanges, storage, data structures, transactional protocols, validation methods, etc. could be the subject matter for inventions. Blockchain can be an enabler for other technologies such as IoT, AI/ML, etc., thereby resulting in a large number of patentable innovations.
Current limitations and roadblocks of blockchain technology
The blockchain data is immutable, which means that data in a block cannot be altered or deleted. Although this is an advantage, it also means that data cannot be updated or deleted if required. The blockchain holds data in small chunks, whereas conventional databases are capable of holding large chunks of data in the form of images, videos, documents, etc.). Blockchain eliminates the need for third-party validation, auditing or regulatory oversight; but the recent news report (Times of India dated November 27, 2021), which estimated the volume of money laundering in cryptocurrency transactions through blockchain to be of the order of INR 4000 crores in the last year alone, indicates that governments all over the world will have very valid reasons for tracking and auditing blockchain to rein in illegal activities, including drugs and terrorism-related offences. The government, through a bill to be introduced in the forthcoming winter session of parliament, is likely to ban all except a few cryptocurrencies. The Financial Action Task Force (FATF) reported that US agencies have busted an entity ‘Liberty Reserve’ that had its own cryptocurrency known as Liberty Dollars.
These limitations and barriers also mean that there is a big scope for improvements in blockchain, which will possibly widen the prospects of filing patent applications.
On the basis of the discussion on the patentable subject matter, it is clear that blockchain implementations are eligible for patents as process/ method inventions. The enthusiasm for blockchain inventions is evident in the form of a large number of filings, but the patent eligibility of the majority of the filings will be known only in the near future. More importantly, the value of patents follows a skewed distribution, i.e., very few patents turn out to be ‘blockbusters’. This means that a clear understanding of patentability requirements, meticulous drafting and securing expeditious grants are the key elements for realizing the value of blockchain patents. The US jurisdiction supports an enthusiastic and ambitious inventor/ entrepreneur in many ways, which helps in realizing value from a fast-growing technology such as blockchain.
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