In the past year or so, the cryptocurrency craze has taken the global economy by storm. Seemingly everyone wants to get in on the action, from Fortune 500s to startups seeking to build their own digital currencies.
One way that companies can solidify their place in the cryptocurrency race is by picking up patents. The rise of these patent applications further demonstrates the industry’s rapid growth.
There are two distinct patent category types for bitcoin: blockchain-specific and cryptocurrency-specific. Both patent categories are increasing in popularity. Blockchain-specific patents increased by 300% in 2017. Moreover, close to five hundred total bitcoin applications were published in 2017, compared to only six applications in 2012.
Three main complexities with patents
The rise of patents in the cryptocurrency industry has revealed a number of complexities in the patenting process. Three of the most notable complexities revolve around the newness of the industry, ethical questions about patenting cryptocurrency, and issues in demonstrating eligibility for a patent.
Newness of the cryptocurrency industry
Given the relatively young lifespan of the cryptocurrency movement, it may be too early to tell the legal effects of the first hundreds of cryptocurrency patents or even how these patents will play out in the crypto marketplace.
We don’t know yet if the early patents are truly enforceable, or how specifically courts will adhere to them. Courts have not yet made a distinct ruling on this issue. The majority of courtroom battles over bitcoin have been about illegal financial activity revolving around the use of bitcoin (i.e. the Silk Road arrests). Courts have yet to hear patent cases about cryptocurrency. We will know more about cryptocurrency patent enforceability when we see the first infringement cases decided by the Federal Circuit or the U.S. Supreme Court.
Furthermore, it’s too early to tell if cryptocurrency patents will have a cooling effect on the market. Big companies have purchased 90% of the initial patentable blockchain assets. Because of this, there may be a cooling effect that prevents new companies from starting up for fear of infringing on those patents.
Moreover, the cryptocurrency market is still very volatile, with monetary values rising and falling on an almost daily basis. It’s a big financial risk to buy patents, especially for smaller companies, given this degree of uncertainty.
Ethical concerns about patenting cryptocurrency
As a distributed financial ledger designed to eliminate the need for any centralized ownership or control, the subject of whether it is ethical to give parties cryptocurrency patents is currently a big source of controversy.
After 2008, the world experienced a deep lack of trust about money being owned by one central party. Cryptocurrency came about in part to eliminate this need for monetary centralization. The original blockchain software was intentionally made to be free and open-source. In fact, many would agree that this open, permissionless ethos helped make Bitcoin the success it is today.
J.D. Houvener, founder & CEO of Bold IP, says that this open-source foundation is “one of the most appealing aspects of blockchain. No one person owns it.”
By the same token, many would also argue that patents are contrary to crypto’s liberal, open-source, and democratized foundation- especially when the biggest patent holders are some of the world’s biggest and wealthiest banks and financial institutions.
Subject-matter eligibility complications
Cryptocurrency patents often see scrutiny in courts due to subject-matter eligibility concerns.
Blockchain currencies and softwares are merely financial transactions. Federal Circuit courts hold that pure financial transactions are not patentable. In order to patent cryptocurrency, inventors must demonstrate that their crypto software’s functionality makes something more efficient or effective, provides new data, or can’t be done by humans alone.
However, as a new, novel, diversified ledger system, cryptocurrency does qualify in many cases. As long as what’s being sought for patenting is more than a computerization of human activity, it is is likely eligible.
Houvener says that, “It’s not all that difficult to be able to get a patent in the crypto or blockchain basis as long as what the inventor has is novel. In that sense, cryptocurrencies are just like any other invention. The inventor must sust show that the function of their technology- whether it’s saving time, promoting efficiency, etc. — is performing that specific function as the first invention to do so. time- is it performing that way as the first ever? That standard is not too different from any other type of invention, machine or device.”
Where are we now?
Currently, most of the cryptocurrency patents are owned by big banks, most notably Bank of America and Mastercard. They’re acquiring and owning these assets because they truly don’t know what will happen, and they’re using these cryptocurrency patents as a safety net with the option to either hold on to the technology or auction off the patent to the highest bidder.
We won’t know much for sure, though, until the day that a startup is bold enough to try to replicate a patented technology.
If you read this article and patenting become of interest I recommend you check out this 13-step process on how to go about patenting an idea!
Carly Klein is a law student at Loyola Law School in Los Angeles. A graduate from Boston University with a B.A. in Political Science & Philosophy she has previously served an Americorps term at the American Red Cross in Los Angeles on the Service to the Armed Forces & International Services Team.