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IP Considerations for Blockchain Technology

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This was a CLE presentation that I gave concerning blockchain technology. The talk covered blockchains, cryptocurrency, smart contracts, DAOS, ICOs, patents, open source software, and suggested best practices.

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IP Considerations for Blockchain Technology

  1. 1. IP Considerations for Blockchain Technology Prepared for Chicago Bar Association – IP Committee Presented by Nelson M. Rosario September 26, 2017
  2. 2. Presentation Roadmap marshallip.com | 2 1. Introduction to blockchain technology concepts 2. Interesting statistics on blockchain patents 3. IP Issues related to Blockchain 4. Suggested best practices
  3. 3. Why should you care? Source: CoinDesk, “State of Blockchain – Q2 2017” Patents: 1,843 patents and patent applications Trademarks: 109 live trademarks Copyrights: 58 registered copyrights on artistic works Source: UPSTO, and US Copyright Office marshallip.com | 3
  4. 4. Introduction to Blockchain Technology Blockchains, cryptocurrencies, smart contracts, daos, and icos
  5. 5. Blockchain What is a blockchain? marshallip.com | 5
  6. 6. Blockchain • No agreed upon definition • A blockchain is a tamper-evident append-only distributed ledger of peer-peer transactions maintained by a decentralized network of participants – Blockchains are cryptographically linked blocks of transactions • Blockchains utilize public-key cryptography, and consensus mechanisms to establish the veracity of information stored in the blockchains • Fundamentally, blockchains are about two key concepts: trust and consensus marshallip.com | 6
  7. 7. Who do you Trust? How is Consensus achieved? • Middlemen? • Individuals? • Math? • Blockchains are trustless • How do you prove veracity of data? • How do you get people to agree on that proof? • Blockchains allow for emergent consensus Blockchain marshallip.com | 7
  8. 8. Blockchain • Blockchains are tamper-evident • Saying blockchains are immutable is imprecise • As time goes by, previously entered transactions trend towards being immutable – Always the possibility of a 50%+1 attack • The use of Merkle tree’s and cryptography make changes very difficult marshallip.com | 8
  9. 9. Blockchain • Blockchains are append-only • You can’t go back and edit previous transactions • Information communicated on a blockchain is not reversible – Once information is sent out there is not getting it back marshallip.com | 9
  10. 10. Blockchain • Blockchains utilize a distributed ledger of peer-peer transactions • Every node in the network may have a copy of the “ledger,” or blockchain marshallip.com | 10
  11. 11. Blockchain • Blockchains use peer-peer transactions • These transactions are broadcast to the entire blockchain network marshallip.com | 11
  12. 12. Blockchain • Blockchains are decentralized • Robust blockchains are run by a plurality of nodes where no one party controls over 50% of the computing power necessary to sustain the network marshallip.com | 12
  13. 13. Blockchain • Consensus is achieved over time, accordingly, consensus on the information in the network emerges as more and more nodes confirm the data • Main two approaches to incentivize nodes to maintain the network – Proof of work • Nodes solve a cryptographic puzzle to prove they expended a certain amount of computational power during the process of building a block of transactions to be added to the blockchain • As a reward miners receive a token for the network, usually a cryptocurrency, when their block is accepted and added to the blockchain – Proof of stake • Blocks are added to the blockchain in a deterministic fashion • The chance that a block built by a node is added to the blockchain depends on the amount of cryptocurrency “staked” by that node marshallip.com | 13
  14. 14. Blockchain Flavors marshallip.com | 14
  15. 15. Blockchain What can we do with a blockchain?
  16. 16. Blockchain Use Cases marshallip.com | 16 Technical Possibilities 1. Cryptocurrency 2. Smart contracts 3. Decentralized Autonomous Organizations (“DAOs”) 4. Initial Coin Offerings (“ICOs”) Example Real-World Use Cases 1. Land transfers 2. Escrow accounts 3. Voter registration 4. Logistics 5. Supply Chain Management 6. Digital Identity
  17. 17. Cryptocurrency • The first cryptocurrency was Bitcoin • Bitcoin introduced the first blockchain protocol • Solved the “double-spend” problem • Addresses in the network keep track of unspent transaction outputs marshallip.com | 17
  18. 18. Smart Contracts • Smart contracts were first introduced by Nick Szabo in 1994 • Scripts that automatically execute • Essentially, they are distributed and decentralized public agreements • Ethereum was the first public blockchain built specifically for smart contracts – Two accounts in Ethereum • One account that holds a balance of ether • Contract account that has – An ether balance – Functions – Data, which is the state of the Contract marshallip.com | 18
  19. 19. Decentralized Autonomous Organizations • Extension of the idea of smart contracts • Organizations that live solely in code on a blockchain • Program in all of the functionality of your “organization” using smart contracts • Most famous example is the “DAO” • The DAO was hacked as a result of a bug in its smart contract marshallip.com | 19
  20. 20. Initial Coin Offerings • Initial Coin Offerings, or ICOs, are overwhelmingly conducted on the Ethereum blockchain • Type of crowd funding, looks like an IPO without all the required disclosure • Can be deemed a security by the SEC • $1.3 billion has been raised through ICOs in the form of cryptocurrency contributed to projects marshallip.com | 20
  21. 21. Blockchain Related Patents Stats on published applications and issued patents
  22. 22. Blockchain Patents Summary • Around a 200% year over year growth in the number of filings we know about • Results are based on searching anywhere in a patent document for “bitcoin,” “blockchain,” “distributed ledgers,” “Ethereum,” or “smart contracts” • 1842 total filings • 1592 published patent applications • 250 issued patents
  23. 23. Blockchain Patents marshallip.com | 23 9 27 85 257 548 692 224 0 100 200 300 400 500 600 700 800 2011 2012 2013 2014 2015 2016 2017 Patents and Applications by Filing Year
  24. 24. Blockchain Patents 9 27 85 257 786 2164 6617 0 1000 2000 3000 4000 5000 6000 7000 2011 2012 2013 2014 2015 2016 2017 Projected Patents & Applications by Filing Year
  25. 25. Blockchain Patents 3 16 26 77 78 43 7 0 10 20 30 40 50 60 70 80 90 2011 2012 2013 2014 2015 2016 2017 Issued Patents by Filing Year
  26. 26. Blockchain Patents 6 11 59 180 470 649 217 0 100 200 300 400 500 600 700 2011 2012 2013 2014 2015 2016 2017 Published Applications by Filing Year
  27. 27. Blockchain Patents marshallip.com | 27 705 60%1 12% 713 6% 726 4% 463 4% 709 3% 707 2% 700 1% Misc 8% Patent Filings by Subject Matter Class
  28. 28. Blockchain Patents • Overwhelming majority of filings are from the 700 family of classes • Deal with financial innovations • Makes sense since the initial use cases are financial • Small group of filings in class 463 that relate to gaming machines, e.g. slot machines • Major corporations appear in the filings: Facebook, Apple, IBM, Qualcomm, PayPal, Bank of America, JP Morgan Chase, Visa, MasterCard, GE, Morgan Stanley, Dell • Expect to see filings related to: insurance, shipping, logistics, autonomous vehicles, internet of things, and supply chains marshallip.com | 28
  29. 29. IP Issues Related to Blockchain Patent protection, open source software, and trade secrets
  30. 30. Legal Issues Generally • Very little legal guidance to date • Most case law has been related to criminal law • No patent infringement lawsuits related to blockchain patents have been filed yet
  31. 31. Patent Issues • Same patent issues that face all software-related inventions • The basic functioning of a blockchain is well-known in the community and would be considered in the public domain • 35 USC §101: Aren’t these all just abstract ideas? • Yes, and • No • Technical solutions to technical problems • “Real-world hook” • Where is the innovation focused? If it is simply “using a blockchain where we used to use a database,” that is probably not patentable marshallip.com | 31
  32. 32. Open Source Software • No different than legal issues that come up with other open source software projects • Many blockchain projects are licensed as Open Source Software • For example, Bitcoin is licensed under the MIT License • Similarly, Ethereum is licensed under a variety of licenses: MIT, GNU GPL, or LGPL, depending on the parts being used • Developers in this space are very keen on open source projects • Need to be mindful of any obligations created by using preexisting code from a blockchain project marshallip.com | 32
  33. 33. Suggested Best Practices Patent claim strategies
  34. 34. Suggested Best Practices Do you really need a blockchain?
  35. 35. Suggested Best Practices • What is the data that you hope to store in a blockchain? • Is it mission critical? • Is access to it time-sensitive? • Are there privacy restrictions on the data? • How will the data be entered into the system? • Is the data going in solely under human direction? • Is there a type of machine-machine communication? marshallip.com | 35
  36. 36. Suggested Best Practices • How are transactions on the network verified? • Are there additional steps taken as part of the verification process? • How is consensus handled? • Is an existing consensus mechanism used? • Is some new consensus mechanism proposed? – If so, is it properly tested? marshallip.com | 36
  37. 37. Suggested Best Practices • How is the blockchain system interfacing into the existing system? • Is the blockchain system set to replace an existing system? • Is the blockchain system set to interact with legacy systems? • How is the blockchain system going to interact with internal systems v. external systems? • Is the blockchain system involved in B2B interactions? B2C? marshallip.com | 37
  38. 38. Suggested Best Practices • Who all is allowed to participate in the proposed blockchain system? • Is the invention built on top of an existing public blockchain (e.g. Bitcoin or Ethereum)? – If so, have you considered any privacy requirements and how they might be met? • Is this a completely open system where anyone can join? • Are there any checks performed on participation? • Is there a validation process? • Are entities automatically entered as participants? marshallip.com | 38
  39. 39. Suggested Resources Technical • “Mastering Bitcoin” – by Andreas Antonopoulos • “Bitcoin and Cryptocurrency Technologies” – by Narayanan et al. • The Bitcoin Whitepaper • The Ethereum Whitepaper News/Legal • CoinDesk – News site covering all things blockchain • CoinCenter – Leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies marshallip.com | 39
  40. 40. Thank you Nelson M. Rosario, Associate nrosario@marshallip.com 312-474-9577 © 2017 Marshall, Gerstein & Borun LLP. All rights reserved. This presentation is intended to be informative and should not be construed as legal advice for any specific fact situation. Readers/viewers should not act upon the information presented without consulting professional legal counsel.

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