Blockchain — the technology infrastructure behind bitcoin and many other emerging platforms have been a hot topic recently, with multiple industries exploring their possibilities and new blockchain use cases emerging almost every day. Blockchain technology is poised to revolutionise almost everything from supply chains including illegal fishing and human rights abuses. It is flourishing in an open-source environment, which raises the question whether our current intellectual property (IP) laws are fit for the purpose to foster innovation.
What is blockchain
Blockchain is an open ledger of information that can be used to record and track transactions, and which is exchanged and verified on a peer-to-peer network. Blockchain and other distributed ledger technologies create a trustworthy and transparent record by allowing multiple parties to a transaction to verify what will be entered onto a ledger in advance without any single party having the ability to change any ledger entries later on. Each transaction or “block” is transmitted to all the participants in the network and must be verified by each participant “node” solving a complex mathematical puzzle. Once the block is verified, it is added to the ledger or chain.
From the perspective of information, the real innovation of distributed ledger technology is that it ensures the integrity of the ledger by crowdsourcing oversight and removes the need for a central authority. In other words, transactions are verified and validated by the multiple computers that host the blockchain. For this reason it is seen as “near unhackable”, because to change any of the information on it, a cyberattack would have to strike all copies of the ledger simultaneously. While the traditional concept of blockchain is an open and anonymous network, there are also “private” blockchains which prescreen as to who is allowed to administer the ledger.
Attractive beyond the world of fintech
Since distributed ledger technology creates a secure, time-stamped and immutable chain of information, it is already finding applications in brand protection and enforcement, marketing and consumer engagement. More use cases seem to emerge on an almost daily basis. The technology has fast become attractive beyond the world of fintech. It is already being used to track the progress of goods in a supply chain, which is of interest to many IP-intensive sectors including the pharmaceutical, automotive, luxury and consumer goods industries, where the traceability of goods is important and counterfeit and grey goods are of concern.
Blockchain is attractive to many different industries because of its potential uses. Different types of data can be added to a blockchain, from cryptocurrency, transaction and contractual information to data files, photos, videos and design documents. And the technology is continuing to develop with new types of distributed ledgers such as hashgraph software, which seeks to address issues of scalability.
Intellectual property laws incentive theory
Intellectual property laws, such as patents and copyright, are premised on the incentive theory. To incentivise people to create, they are given, in effect, a monopoly on their creations and, can go to court and stop others from free riding on their work.
The digital world has made the tension between innovators and free riders even more acute. In the pre-digital era, copying a book incurred considerable costs for the copier. Now, given that digital files can be copied indefinitely for near zero cost, one could argue that we need even stronger IP laws to prevent rampant and unfair copying.
But theory does not always match reality. History is littered with examples of patents harming rather than aiding innovation. James Watt’s steam engine was an advance over existing steam engines, yet the technology could not be built upon because of Watt’s patents. It was not until the patents expired — one of which had inexplicably been extended by Parliament — that steam power came into its own in driving the industrial revolution.
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. 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.
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.
A search of the term “blockchain” showed that no developers have any issued patents containing that name, but the 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.
“Speed bumps”: Court decisions and open source
The main “speed bumps” in the IP landscape around blockchains are whether they are patentable, the intersection of IP and open source, and the question of trade secrets and open source.
The 2014 US Supreme Court decision in Alice Corpn. v. CLS Bank International held that a claim cannot be drawn entirely to an abstract idea. The High Court established a two-set test for determining whether a computer-implemented invention is patent-eligible, with most of such inventions being denied patents.
Since Alice, however, two further decisions, DDR Holdings, LLC v. Hotels.com, LP and Enfish, LLC v. Microsoft Corpn., have raised hopes that software patents may be more easily obtained, but it is still a challenge.
Compatibility issues between the open source GNU General Public License v3.0 and Apache 2.0 create another problem. There are hundreds of different open source licences, but the six most common licences cover around 90 per cent of open-source projects. Around 55 per cent use a “copyleft” licence 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 licence are preserved in the derivative version. But GPL may not be compatible with a company’s licensing strategy, and GPL 3.0 also prohibits the use of trade secrets.
These issues can be resolved. “But it is 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 licences would be acceptable.”
It is a matter of finding the right balance to encourage and reward innovation with practical solutions that the marketplace accepts. 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. Patents will be the primary mechanism for protecting IP in blockchains, but the situation will become clearer as the sector develops.
Only 685 patents have been filed in the US. And, unlike, say, a pharmaceutical innovation which is of substantial benefit for a company to own and keep closed, there is little value in making blockchain platforms proprietary.
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. Higher up the systems, however, above the blockchain network, patents for proprietary technology could make sense.
Vaishali Singh is Research Associate, GNLU-Microsoft IPR Chair, Gujarat National Law University.
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