Blockchain Technology Raises Challenging IP Issues, Say Speakers 05/09/2016 by Dugie Standeford for Intellectual Property Watch 3 Comments Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)Blockchains, such as the well-known bitcoin, are not yet well-defined but are creating a lot of hype, speakers at a 23 August Intellectual Property Owners’ Association webinar said. Two things are clear so far, they said: the technology is in its infancy, and there are lots of unresolved questions about what is patentable and how IP laws intersect with the mostly open source software used in the systems. Put simply, “a blockchain is like a group chat/text message,” Norton Rose Fulbright (New York) patent lawyer Paul Keller, a member of the firm’s global distributed ledger and blockchain practice group, said after the webinar. “Everyone in the group can see the conversation and every time someone replies, everyone can see that too. No one can erase or change any earlier part of the conversation and all parts of the conversation are connected.” Rather than a conversation, a blockchain is envisioned as inclining groups of transactions such as sales of shares of a company, he said. The webinar was offered under the Intellectual Property Owners Association’s IP Chat Channel webinars. In the view of Pillsbury Winthrop Shaw Pittman LLP (Washington, DC) attorney Patrick Murck, blockchains are public systems with no access restrictions. The idea is to allow people to create a “ledger of property that benefits everybody,” he said. The basic building blocks of a blockchain are the digital signatures that create transactions which build on each other, he added. Murck’s practice focuses on the legal and technical issues governing the use of bitcoin, decentralized financial systems and emerging payment systems. When a company says blockchains are the future, they’re really talking about distributed ledger technology, not necessarily blockchains or bitcoin, said Murck. Distributed ledger technology has several elements, he said. One is digitised assets – for example, rights to be paid in a bond or ownership rights in a car – that must be put into tokenised agreements that can be enforced. That requires standardised data, standardised and automated contracts, and custodial and underwriting services for the property that set out who is liable if, say, someone’s rights don’t accrue or the owner of a car token doesn’t receive the vehicle, he said. Creators of a blockchain or distributed ledger must consider several factors, Murck said. These are: what the network conditions are; data governance best practices; network incentives (what will entice people to take part in the network?); algorithmic consensus rules; and regulatory partnerships. Another consideration is what elements of a particular contract or right will benefit from automation through code, he said. Public blockchains establish trust through “proof of work,” known as “mining,” Murck said. Miners must be incentivized to assemble transactions into blocks, he said. But there are potentially other forms of consensus, such as proof of stake, which has not yet been proven to work, or proof of space (sacrificing hard drive space), said Joel Meyer, vice president of Digimarc Corporation, which pioneered digital watermarking technology. Blockchain applications need some sort of sacrifice to make the systems work to come to consensus, he said. Blockchains and IP Rights Companies are investigating blockchain applications such as IP rights clearance and royalty payments, and some say the technology has great potential for managing digital rights such as copyright, said Meyer. They could also potentially be used to embed digital rights management into the digital signature structure, or to record the provenance of content and track its use, said Keller. The “great excitement in this industry is palpable,” and the issue of whether any blockchain technology should be patented, which had been put to one side until now, is growing in importance, said Keller. His firm surveyed who is filing what sorts of blockchain applications in the US. A search of the term “blockchain” showed that no developers have any issued patents containing that name, but that companies interested in using the technology have filed blockchain patent applications. Published applications containing the term “blockchain” have been filed by Texas Instruments, Panasonic, Marvell, LG, Intel, Apple, Qualcomm, IBM, Toshiba and Samsung, said Keller. Blockchains are expected to create new markets first in the financial services sector, Murck said. “Speed-Bumps”: Court Decisions and Open Source The main “speed-bumps” in the IP landscape around blockchains are whether they’re patentable, the intersection of IP and open source, and the question of trade secrets and open source, Keller said. The 2014 US Supreme Court decision in Alice Corp. v. CLS Bank International held that a claim can’t be drawn entirely to an abstract idea, said Keller. [The high court established a two-set test for determining whether a computer-implemented invention is patent-eligible, with most such inventions since denied patents, the IPKat pointed out in a 13 May 2016 blogpost]. Since Alice, however, two further decisions, DDR Holdings v. Hotels.com and Enfish v. Microsoft, have raised hopes that software patents may be more easily obtained, but it’s still a challenge, Keller said. Compatibility issues between the open source GNU General Public License v3.0 and Apache 2.0 create another problem, Keller said. There are hundreds of different open source licences, but the six most common licences cover around 90 percent of open source projects, he said. Around 55 percent use a “copyleft” license which offers people the right to freely distribute copies and modify the software as long as the same rights as in the original open source license are preserved in the derivative version, he said. But GPL may not be compatible with a company’s licensing strategy, and GPL 3.0 also prohibits the use of trade secrets, he said. These issues can be resolved, Keller told us later. “But it’s important that people understand the impact of their decision to use open source (e.g., what type of open source licence to use) has on IP as well as the impact of their decision to, say, patent an invention used in a blockchain on what types of open source licenses (if any) would be acceptable.” Asked whether the IP community is seeking to impose rules and enforcement mechanisms on a system that runs largely on open source software, Keller said that the software industry has survived for decades with both proprietary and open source software. “It’s a matter of finding the right balance to encourage and reward innovation with practical solutions that the marketplace accepts,” he told Intellectual Property Watch. Little Value in Proprietary Approach Before-you-go-to-market questions about whether to use trade secrets or copyright to protect blockchain technology show how early in its infancy the industry is, said Keller. He predicted patents will be the primary mechanism for protecting IP in blockchains, but added that the situation will become clearer as the sector develops. Only 685 patents have been filed in the US, Murck noted. And, unlike, say, a pharmaceutical innovation which is of substantial benefit for a company to own and keep closed, there’s little value in making blockchain platforms proprietary, he said. The platforms need to be open and free of IP entanglement so innovators can add value through applications or by providing better services than rivals, he said. Higher up the systems, however, above the blockchain network, patents for proprietary technology could make sense, Murck added. 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