Published on August 25, 2016 at 12:30 BST
Ira Schaefer and Ted Mlynar
are partners in the Intellectual Property practice at Hogan Lovells in New
York, where they advise on patent and intellectual property issues relating to
blockchain and cryptocurrency technologies.
In this opinion piece,
Schaefer and Mlynar discuss whether bitcoin could be patented, and whether
it would be enforceable if it was.
Bitcoin
is a technological marvel that has revolutionized financial systems.
The birth of bitcoin came in 2008 in a paper entitled "Bitcoin: A
Peer-to-Peer Electronic Cash System" by
the pseudonymous Satoshi Nakamoto. The
genesis block – the first block of transactions – was created the following
year, and the network has continued ever since.
Given that no person (or group) has credibly claimed
authorship of the 2008 Nakamoto paper or the bitcoin transaction method it
describes, not surprisingly, no patent based on that original work has
appeared.
However, that does not stop us from imagining what a
patent claim on the bitcoin method might have looked like if a patent
application was filed in the US before the Nakamoto article was published.
While patent claims are written to pass muster at the
US Patent and Trademark Office (USPTO), we have taken the liberty of drafting
our proposed claim in simple English. We could draft broader claims to capture
individual features of the bitcoin method, but find a claim focused on a
collection of key features to be more useful for the purposes of discussion.
Noting that the Nakamoto paper does not use the term
"blockchain," but rather describes a "chain of blocks," our
proposed claim implements that same terminology:
A method for peer-to-peer electronic currency
transactions comprising the steps of:
Creating
a hash value for a prior transaction;
Combining
the hash value, transaction data and the public key of a transaction recipient;
Digitally
signing the combination to form an electronic coin;
Broadcasting
the electronic coin to peers with a time-stamp;
A subset
of peers collecting electronic coins to form a transaction block
Each peer
in the subset creating a solution to a proof-of-work problem for its
transaction block
Each peer
in the subset broadcasting its transaction block and the solution to peers
Obtaining
consensus that a transaction block is valid
Adding
that transaction block to the existing chain of blocks.
Bitcoin is just that simple. It is a series of steps implemented
on computers connected the internet.
If the proposed claim was filed in 2007, it should
have issued in a patent by 2011, passing through the window for business method
patents opened by the State Street decision we discuss below.
Legal
background
Prior to 1998, it was understood that even though you
could get a patent on a process, machine or manufacture, there was a
"business method" exception. That exception would prevent you from
patenting a method for performing a financial transaction. It was ineligible
subject matter.
That all changed in 1998 when the Court of Appeals for
the Federal Circuit (the appellate court for patent cases) ruled in State Street Bank & Trust Co v Signature Financial
Group that a
claimed investment structure for use as an administrator/agent for mutual funds
was, in fact, patentable.
Regarding the "business method exception"
the court explained, "We take this opportunity to lay this ill-conceived
exception to rest."
The State Street decision ushered in an avalanche of
business method patents and, in particular, patents directed to implementing
business methods with a computer connected to the internet. That avalanche was
not well-received by many. Patents issued covering "computerized"
versions of a multitude of well-known business methods.
In 2014, the Supreme Court took action in Alice Corp Pty Ltd v CLS Bank Int’l. It held
that a patent directed to a computer-implemented method for mitigating
settlement risk by using a third-party intermediary was not eligible subject
matter for a patent.
Rather, the claimed method was an abstract idea that
could not be patented. The court also specifically singled out financial
business methods that implement a "fundamental economic practice" as
being likely unpatentable abstract ideas.
But the Supreme Court left the door open by making an
exception for business methods that include "technological" advances.
Subsequent Federal Circuit decisions explained that improving the functionality
of a computer qualified as a suitable "technological" advance.
Would a
bitcoin patent be viable?
Of course, the idea of recording the exchange of
currency in a ledger has been a "fundamental economic practice" for
more than a thousand years.
The Nakamoto article admits that hashing, digitally
signing, time-stamping and solving a proof-of-work problem were all known
processes in 2008.
However, it cites no precedent for (a) the particular
combination of processes it describes, nor (b) specifically using a hashed
chain of transaction blocks as a currency transaction ledger. Viewed as
providing an improved computer data structure, our proposed bitcoin method
claim should be precisely the type of improvement to computer functionality
that is still patentable under Alice.
By applying for the bitcoin method patent after State
Street, “Satoshi Nakamoto” should have succeeded in obtaining a patent. Based
on recent court decisions, it appears that patent would be eligible for
enforcement today.
A patent carefully camouflaged by using terminology
difficult to detect but covering some aspect (or application) of bitcoin
nonetheless, very well could have issued and be enforceable. Although the
open-source community has enthusiastically embraced bitcoin, "Satoshi
Nakamoto" has not expressly returned the embrace.
That reality should give us all pause for thought and
reason to be cautious. Given the incentives, let's not be too surprised that
when the identity of Satoshi Nakamoto is finally revealed... along with holding
a million bitcoins, *someone* holds a handful of bitcoin patents as well.
The views expressed in this article are those of the
authors and do not necessarily represent the views of, and should not be
attributed to, their firm, its clients, or any respective affiliates. This
article is for general information purposes only. It is not intended to be, and
should not be taken as, legal advice.
Disclaimer: The
views expressed in this article are those of the author and do not necessarily
represent the views of, and should not be attributed to, CoinDesk.
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