Disruptive technologies have transformed the global economy, and will continue to do so at exponential rates. Innovators at the cutting edge of these technologies should carefully review their patenting strategy, or risk being pushed out of emerging market opportunities.

One particular technology that has the potential of greatly disrupting the status quo is blockchain – the technology underlying several “electronic cash” systems. Deceptively simple, at its core blockchain is a distributed, cryptographic, digital record of entries, commonly referred to as a ledger. Each entry in the ledger is contained within a block and each block is cryptographically linked to a previous block in the ledger, thereby forming a chronological “blockchain”. The chain provides, in theory, an immutable record of all transactions ever made for a particular unit of digital “currency”, or with respect to an identified digital asset. Copies of the chain are intended to be distributed amongst system participants, providing the system with transparency. The encryption that is used with the ledger, as well as its decentralization, provides a level of trust for system users that is, in traditional currency systems, provided by government or banking authorities.

The rise of blockchain technology and current implementation

The world awoke to blockchain technology when, during the 2008 financial crisis, an anonymously authored white paper was published to an obscure cryptography mailing list. The white paper set out the foundation for what it termed “a purely peer-to-peer version of electronic cash” (see Nakamoto, 2008). The goal was to enable parties to transact with each other without the need for a financial institution to act as a trusted intermediary. The name of this decentralized peer-to-peer cash system was Bitcoin. Without an identified author (Nakamoto is a pseudonym), and with much of the software provided under open-source licenses, Bitcoin development has proceeded without system ownership or governmental oversight. Many of the other leading public blockchain implementations, such as Ethereum, are also open-source.

Although arguably the most famous example, Bitcoin, and digital currency generally, is but one implementation of the blockchain architecture. The benefits of blockchain’s decentralized and immutable ledger can be implemented across many fields of endeavor where tight control over digital assets or information is required. As an example, blockchain may be used to track the rightful ownership of a digital work all the way back to its genesis. With such a system, an individual could be prevented from distributing a copyright-protected work to another person, while also retaining their own copy. Once ownership is transferred, the transaction is locked into a block in the chain for all to see, including the original copyright owner and any subsequent licensee.

In fact, three of the largest copyright royalty collection societies in the world recently announced that they had entered into a partnership to explore such a shared system for managing copyright in music. The system would utilize IBM’s open-source blockchain technology and would be managed by IBM. The stated goal of the system is “to prototype how the music industry could create and adopt a shared, decentralized database of musical work metadata with real-time update and tracking capabilities”.

As another example, blockchain may be used to store the payment or maintenance history of an asset, such as a financial instrument like a loan or a physical item like a vehicle. A financial institution or government entity may access the information coded into the blockchain to inform its decisions on valuation, risk, financing, or the provision of insurance for the tracked asset. One of the major international airlines recently launched an initiative to evaluate how such an implementation could be used to increase transparency of aircraft and flight maintenance. The airline envisions a decentralized system that can track all components installed in an airplane regardless of who actually installs the part, so long as they are a member of the system. If a component were to malfunction, technicians could use the blockchain to review the exact number of flight hours the component has logged and assess whether it requires repair or replacement.

What types of patent applications are being filed?

Because much of the technology behind blockchain has been publicly disclosed, and much relates to e-commerce and finance, a topical question is: Is it possible to obtain a patent on a new and non-obvious blockchain innovation or implementation?

The current answer is that patent applications covering systems and methods utilizing improved blockchain technologies are currently being filed in patent offices around the world. Around 100 applications have already been published on “blockchain”, filed by applicants that include, among many others, some of the biggest entities in the financial sector: banks, credit card companies, and stock exchanges. These applications provide some evidence that players in this nascent field are attempting to shore up their competitive advantages early.

As Canada has no prohibition against patents covering either fintech or e-commerce (the patentability of technology implemented business methods was considered by the Federal Court of Appeal in 2011), it may not be surprising to find that applicants are also filing patent applications in Canada for blockchain and distributed ledger technology.

Given that distributed ledger technology was publicly disclosed almost a decade ago, recently published patent applications are generally directed to variants on the technology or address solutions to specific outstanding issues, such as improved flexibility. Some applications seek to re-introduce a centralized authority to the system to provide some level of control, effectively creating a hybrid private-public ledger. A centralized authority may allow for certain blocks to be added or changed given some trigger event, such as a major theft of digital currency.

Other patent applications are intended to cover such implementations as the use of blockchain technology to record the identity of parties to a contract, the terms of a contract, the contracted activity, and the corresponding parties’ rights and obligations. Disputes concerning contractual performance may be resolved by reference to a dispute resolution process, which may be codified by a central authority.

Risks and benefits

The open-source nature of the core blockchain code also raises certain risks regarding the enforceability of any patents on the technology. For example, a party may wish to obtain a patent that covers a contribution or improvement to an open-source blockchain project. The code may be provided under an open-source licence which includes certain patent license provisions applicable to contributors to the project.

It should also be noted that, despite the number of patent applications already filed, patent protection can be a controversial topic in the open-source world of blockchain. However, for those that do pursue patent protection significant benefits can be obtained. For example, patents may be used defensively. In this manner, they may provide a party with a bargaining chip in potential cross-licensing negotiations prior to, or during, patent infringement litigation. A patent may also provide evidence that innovation is taking place, which may be key to securing investments or providing an avenue to obtain tax credits.

Regardless of any misgivings that individuals in emerging blockchain technology may have towards patents, patent applications are and will continue to be filed by first-movers. Any company that is not an early patent applicant may very well risk finding itself an early patent infringement defendant without any options other than paying up.