why major companies are patenting blockchain

What is a patent?

Patents are a powerful form of intellectual property protection. They can save inventions from infringement, provide lucrative licensing and monetization opportunities, and give your new invention a heightened level of credibility to attract inventors. There are three types of patents: utility, design, and plant.

Utility patents

Blockchain assets fall under the category of utility patents. Utility patents protect the functionality of any new and useful process, machine, product, composition of matter, or new and useful improvements to existing items. Utility patents grant a federal right of exclusive use to the invention for up to twenty years.

Utility patents can cover blockchain assets so long as the functionality of those assets covers more than a mere financial transaction. However, this can be difficult to demonstrate in a patent eligibility assessment.

Trends with blockchain and bitcoin patents

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.

The biggest blockchain patent holders

The major players are Bank of America, Barclay’s, and Mastercard. Bank of America sought patent protection on its blockchain-based system allowing the external validation of data; Barclays filed two patent applications to protect their method for transferring digital currency and storing blockchain data; and MasterCard applied for patent protection on its blockchain-based method for linking assets between blockchain and legal tender accounts.

Upside for big companies to patent blockchain

These big banks, among others, have acquired blockchain assets because they truly don’t know what will happen in the industry. It is likely that their angle is to use these patents as a safety net with the option to they can either hold on to the technology, auction off the patent to the highest bidder, or have them in their back pocket for a rainy day.

J.D. Houvener, founder & CEO of Bold Patents says that, “Blockchain patents have great value because the technology has an incredible ability as a distributed ledger to validate and confirm information with no real need for a middleman. There is an enormous body of work that people have done around verifying, confirming, checking, and routing data, information, and supply. In theory, this whole body of work within the middleman industry can go away if done correctly. Blockchain has a lot of potential in this way, and it is wise to patent now at the early stage.”

Why big companies are building their patent portfolio now

The biggest upside to building up a patent portfolio right now is because these are the early days of IP protection over blockchain assets. Just like in the nineties when the Internet was in its early stages, there are huge swaths of rights up for grabs. Getting a seat at the table early ensures an ability to get a more broad share of those rights.

Obtaining a patent on a specific type of blockchain, such as a specific currency or storage methodology, makes you the only player in that niche market share for up to 20 years. This is especially valuable given the fast growth of the blockchain market, which will likely continue to grow.

Even with all these anticipated upsides of the blockchain boom, there is still a possibility that the industry could fail. The bigger banks have more of an opportunity to take the gamble. By securing IP rights over blockchain, they’re taking a high risk that will likely lead to high rewards when it comes time to enforce their patents against copycats.

About the author

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 previously served an Americorps term at the American Red Cross in Los Angeles on the Service to the Armed Forces & International Services Team.

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