BitLaw

Blockchain Inventions can be Patented

In many ways, patents on blockchain inventions are similar to patents on other types of software and computer-related inventions. This means that improvements in this space must be both novel and non-obvious before a patent can be granted, as is explained in more detail in Bitlaw's discussion on patent requirements. The novelty requirement states that a patent will not be granted on an invention if it has been publicly used or disclosed anywhere in the world before the patent application was filed. If the use or disclosure was made by the inventor of the patent application, the application must be filed within one year of that disclosure. This one-year period is known as the statutory bar.

Under the non-obviousness requirement, it is not enough that an invention is simply different than what has gone before (what has gone before is sometimes referred to as the "prior art"). An invention has to be more than just novel to be patentable--it has to be a non-obvious improvement over the prior art. If an invention is nearly identical to a previous technology, or is different from the prior art only in obvious ways, than the invention is not patentable under this non-obviousness requirement.

An example of a non-patentable, non-obvious improvement might be taking a known technique for minting tokens on an existing blockchain and moving this technique to a different blockchain. If the technique has never been used before on this new blockchain, it may be new or novel. But if the technique can be used on the new blockchain without making any significant changes to how it is implemented, using this known technique on the new blockchain to perform the same minting process would be considered obvious. If, however, the context of the new blockchain imposes significant roadblocks to minting tokens in this fashion, and changes to the technique had to be developed to overcome these roadblocks, the implementation on the new blockchain might well be non-obvious.

Subject Matter Eligibility

Furthermore, a blockchain invention must be eligible for patent protection under Section 101 of the Patent Act as interpreted by the courts after the Supreme Court's Alice Corporation decision from 2014. Whether or not blockchain software is eligible for patent protection is, unfortunately, a complicated issue. While the statutory basis for this subject matter eligibility requirement is Section 101 of the Patent Act, the actual statute does not describe this issue at all. Rather, courts have created this law and the test for patent eligibility, which makes interpreting this issue much more difficult. The Bitlaw website contains a great deal of information on this topic, which can be found through the Section 101 Index.

The subject matter eligibility requirement means that many (or even most) patentable blockchain inventions will relate to how the blockchain functions, and how external systems (including other blockchains) interact with the data on the blockchain. For example, Microsoft’s US Patent No. 10,938,548 relates to a blockchain “event interface system” that covers the communication of events on one blockchain with objects, such as smart contracts, residing on another blockchain. Similarly, Square Network owns US 10,108,938, which covers the interaction between an off-the-blockchain payment system (such as Square’s own payment system) and cryptocurrencies controlled by a purchaser on the blockchain.

The issue of subject matter eligibility is an important one when drafting a new patent application on a blockchain related invention. If the invention relates to data gathering, data analysis, and the display of results, it will be difficult overcome a Section 101 rejection simply by claiming that the data is stored on the blockchain. The Patent Trial and Appeal Board (the "PTAB") has considered the subject matter eligibility of multiple blockchain patent applications and has regularly found that the inclusion of blockchains in the claim for storing data does not alter the abstract nature of inventions that handle financial transactions or otherwise collect, store, and analyze data.

For example, in a 2021 decision (Ex Parte Vijay Madisetti and Arshdeep Bahga, Appeal 2021-000148), the PTAB considered an invention relating to a “lending pool smart contract” that ran on a blockchain network. This “pool” contract was assigned a plurality of lender smart contracts and a single borrower smart contract. The claim required account reconciliation after the ending of one of the lending smart contracts. Although the claim clearly was limited to a plurality of smart contracts found on a blockchain network, the PTAB found that claim ineligible under Section 101 as being directed to the idea of accounting reconciliation. All blockchain-specific elements in the claim were considered by the PTAB to be well-understood, routine, and conventional.

Similar analyses and results are found in other decisions of the PTAB. A study of these decisions leads to the conclusion that blockchain patent applications should be drafted and claimed in a manner similar to software patent applications. Technological improvements must be emphasized, and any resulting improvements to business processes should be presented as a consequence of the technical advancement.

Divided Infringement

In addition, it is important to consider the issue of divided infringement when drafting blockchain-related patent applications. Every patent application is written to include one or more patent claims, which determine the scope of the patent if and when that application issues as an enforceable patent. In order for any party to infringe the issued patent, there must be a single party that performs every element of the claim, or some device must be produced that includes every element of the claim. If some part of the claim is performed by one party, and another part of the claim is performed by another party, this is a case of "divided infringement," and it is possible that the patent is not legally infringed. See the court's analysis in Akamai Technologies, Inc. v. Limelight Networks, Inc. for the best explanation of how this doctrine is currently being applied in the United States.

Because it is generally best to avoid cases of divided infringement, it is important to draft a blockchain-related patent application so that each element in a system claim, or each step in a method, is created, sold, or performed by a single actor. As many commentators have noted, this can be trickier in the blockchain environment because of the distributed nature of the blockchain and the multiple actors that are involved in simply placing data onto the blockchain. For example, blockchain miners that mine new blocks may act independently from the node computers that contain the blockchain, and are they also likely to be acting independent from the participants that submit new data to the blockchain. Thus, if the invention relates to interactions with a blockchain (as is the case with the Microsoft and Square Network examples above), it might be wise to focus the claim on the activities of the computer system operating outside of, and interacting with, the blockchain, as opposed to claiming the steps of actually saving data on the blockchain.

Reactions to Patents on the Blockchain

On August 18, 2021, U.S. Patent No. 11,113,676 issued to Circle Line International Limited. This patent covered a technology known as ASICBOOST, which increases the efficiency of Bitcoin mining operations by up to 30 percent. Because of this improvement in efficiency, and because of aggressive marking of the “patent pending” status of this application in 2017 (in an open letter by a patent attorney alleging widespread infringement), many in the industry worried that a patent monopoly on this technology would disrupt the Bitcoin system. The Bitcoin blockchain grows through mining and consensus, which generally makes it impractical for a small number of miners to disrupt the blockchain by creating a counterfeit blocks in the chain. But, according to those concerned, if a small number of miners were given patent exclusivity on a technology that greatly improved their efficiency, perhaps those miners could out-compute others and effectively re-write the blockchain to suit their own purposes.

In response to the early publicity about this technology, numerous hardware developers of Bitcoin mining devices entered into a defensive patent license consortium that created the “Blockchain Defensive Patent License.” All members of the consortium agreed to license their Bitcoin mining related patents to each other. While reports differ, it appears that the current owners of the ASICBOOST patent in the United States, Europe, and South Korea are not part of this license scheme. In late 2020, Circle Line did in fact sue Samsung, one of the largest ASIC manufacturers for Bitcoin mining devices, for patent infringement of the ASICBOOST technology in Korea.

Blockchain Patent Attorney

Please consider Dan Tysver's bio and contact information if you need any legal assistance in obtaining a patent on a blockchain-related invention. Dan is a Minnesota-based patent attorney helping clients from across the country obtain patents on their blockchain innovations.