Protecting Blockchain Innovation Through Open Source Patent Non-Aggression
Blockchain, or Distributed Ledger Technology (DLT), is arguably in its second and more impressive phase, moving beyond cryptocurrencies to disrupt multiple vertical markets. It’s seen as a key to underpinning sea changes in retail, finance, real estate, insurance, supply chain, and healthcare, among many others.
According to a Deloitte survey of executives, 24% believe that DLT can facilitate new models – with 40% responding that it will disrupt their industries. It is probable that within the next decade, every transaction platform that currently exists will either integrate DLT or be replaced by one that does.
Gartner, a leading information technology industry research and analysis firm, estimates that the business value-add (defined as those IT activities within a supply chain that directly contribute to satisfying the end consumers, or those activities end consumers would be happy to pay for) of blockchain will grow to slightly more than $176 billion by 2025. It is expected to experience significant compounded annual growth – with the business value-add estimated to reach approximately $3.1 trillion by 2030.
Blockchain Venture Funding is Significant
There was a record amount of venture funding for blockchain and crypto companies in 2018. According to Diar, a blockchain research firm, more than $3 Billion was invested in blockchain vendors [https://diar.co/volume-2-issue-39/]. Crunchbase estimates that more than 60% of the investments went to blockchain-related business-to-business or business-to-consumer products. Almost 20% of the investments went to infrastructure and protocols vendors, while less than 20% went to investments in exchanges or stable coins.
According to BeInCrypto, the first quarter of 2019 experienced more than $350 million in blockchain-related venture funding [https://beincrypto.com/venture-capitalists-still-investing-in-blockchain-startups-at-record-numbers/]. Although venture investments in blockchain companies are expected to be less in 2019, they are expected to be over 2017’s levels. It is also important to keep in mind that this figure applies only to direct investments and does not include the significant growth happening incorporate research and development (R&D) investments and purchases.
Blockchain Is Intertwined with Open Source
In 2008, the founder of blockchain, “Satoshi Nakamoto,” published a whitepaper on the concept on which DLT is based. In early 2009, Nakamoto released the first reference implementation of the software as open-source software and released the first units of the Bitcoin cryptocurrency. Since that time, Bitcoin usage has grown, other cryptocurrencies have gained attention, and the underlying DLT technology has been recognized as a tool for improving all transactions.
Currently, Ethereum is a commonly used permissionless open source blockchain platform, with some studies suggesting it may have around a 50% market share in the enterprise application space. R3 Corda is a permissioned system originally built by the financial industry, for the financial industry. It was developed in collaboration with a network of banks, financial institutions, regulators, trade associations and technology companies to leverage the power of blockchain to address specific banking industry needs and challenges.
Hyperledger, the DLT project hosted by the Linux Foundation, aims to enable organizations to build robust, industry-specific applications, platforms and hardware systems to support their business transactions by creating open-source distributed ledger frameworks and code bases. While Hyperledger has several different open source blockchain platforms and toolkits, one of its important platforms is Hyperledger Fabric, a permissioned framework. All told, Hyperledger is a global collaboration of leaders in finance, banking, IoT, supply chain, manufacturing, and technology. With support from IBM, Oracle, American Express, JP Morgan, Daimler, Intel, Hitachi, and more than 200 other technology, finance, and manufacturing industry leaders, Hyperledger is poised to become the backbone of distributed ledger technology.
Blockchain Patents and IP Issues
Perhaps the greatest indication of blockchain’s value is the number of firms rushing to file DLT patents. While the core technology is open source and in the public domain, complementary and supplementary technologies are being patented. That said, there has been a “land rush” to develop and secure DLT-related patents. Through its direction [https://www.govinfo.gov/content/pkg/FR-2019-01-07/pdf/2018-28282.pdf]
in early 2019, the United States Patent and Trademark Office (USPTO) appears to have eased the burden placed on patent applicants seeking to obtain U.S. patents on certain technology, this includes blockchain technology.
According to research presented by Rimon PC [https://blockchainpatentchronicle.com/wp-content/uploads/2019/02/February-2019-Blockchain-Patent-Landscape-1.pdf], an intellectual property law firm, there were more than 2,600 blockchain patent-related family publications in 2018. A patent family is the publication of a patent or application in multiple countries. In 2018, U.S. technology companies, financial services companies, and technology companies based in China dominated the ranks of the top DLT patent family holders.
Of the top-20 patent family assignees in 2019, more than 50% were U.S.-based companies, with Chinese firms accounting for more than 30%. The U.K came in a distant third with five percent. This continues a trend that presented itself in a 2017 report from the World Intellectual Patent Organization, a self-funded group under the United Nations, showing that Chinese and U.S. firms were the world leaders in DLT patent applications that year.
- The following list shows the top-20 blockchain patent family holders:
- IBM (US) (146)
- nChain Holdings (China)(111)
- Bank of America (US) (59)
- Coinplug (China) (47)
- MasterCard International (US) (47)
- BT Group (UK) (41)
- Wal-Mart – Apollo (US) (41)
- Intel (US) (40)
- Alibaba Holdings (China) (36)
- Visa (US) (34)
- American Express (US) (32)
- Nokia (Finland) (31)
- Modernity Financial Holdings (China) (24)
- Cognitive Scale (US) (23)
- Accenture Global Solutions (Ireland) (22)
- China Unicom (China) (20)
- Sichuan Huayi Shared Blockchain Technology (China) (19)
- Microsoft (US) (17)
- Fujitsu (Japan) (13)
- Samsung SDS (South Korea) (13)
Some of the previously listed organizations, like IBM, are perennial global leaders in patent applications and awards. What is striking is the number of financial institutions that have seen the value in DLT and have sought to mitigate their potential exposure to patent lawsuits through patenting.
It is important to note that the data above may relate to patents and patent applications that generally mention DLT but do not necessarily disclose DLT in the patent and patent application claims (which legally define the invention). It is nonetheless directionally indicative of the global nature of those seeking to develop blockchain-related patents and the diverse set of industries/market segments from which the inventing companies are drawn.
Just as the telecommunications and wireless communication sectors experienced contentious and costly patent wars as the mobile market grew, there is a growing risk of these occurrences in the DLT space.
Open Source – An Irreversible Trend
Blockchain, like open-source software development and usage, is an irreversible trend. Today, open-source code is so effective and cost-efficient that it is used in more than 90% of all software. It is impossible to catalog all of the daily touchpoints the average person has with an open source-powered product or service. The Linux Foundation estimates that more than 31 billion lines of code have been committed to open-source software repositories. Open source is a leading technology in smart cars (Automotive Grade Linux), IoT platforms and, of course, blockchain technologies.
While it has experienced nearly exponential growth, the successful adoption and use of open source by banking networks, mobile phone manufacturers, telecom networks, smart cars, cloud computing, and blockchain platforms, among numerous others, was not a foregone conclusion. In 2003, there was an IP-based attack on Linux, the most prevalent open-source software project.
Promoting Patent Non-Aggression in DLT
While the claims underlying the litigation ultimately were found to be without merit in the court proceeding, it was a wake-up call to several IP-savvy companies as to the potential negative impact of patent aggression on the growth of Linux and open source software projects. IBM, Red Hat and SUSE (then Novell) coordinated an effort with Sony, Philips, and NEC to conceptualize and implement a solution designed to create a “patent no-fly zone” around the core of Linux. The entity charged with administering this patent no-fly zone utilizes a free license to require participant companies to forebear litigation and cross license patents in the core of Linux and adjacent open source software. In the twelve years since its formation, the organization has grown into the largest patent non-aggression community in history with an excess of 2,500 participant companies which own upwards of 2 million patents.
In addition to administering the highly successful royalty-free free license, the organization has been one of the most active users of the American Invents Act’s pre-issuance submission program and through its actions prevented the grant of hundreds of patent applications with overly broad claims that, if issued as submitted, would have threatened Linux technology and products for years to come. The community-based organization also routinely uses its central role as guardian of patent freedom in the open-source community to gather critical prior art to neutralize Linux-related litigation and pre-litigation patent assertions. In some cases, it has taken the extraordinary measure of forward deploying key assets from its defensive patent portfolio of more than 1,300 patents to companies at risk or in litigation for the purpose of allowing these companies to better defend themselves from patent antagonists with often far larger patent portfolios and deeper pockets seeking to slow or stall the progress of Linux.
Going forward, the DLT industry has the potential to be a significant driver of innovation and growth for the global economy. For this reason, the organization is planning to include core blockchain open-source technology from Hyperledger in the Linux System and is thereby insulating its community licensees from patent risk in this area. As the threat landscape morphs and new threats arise from the ranks of operating companies and patent assertion entities, this organization will remain vigilant in acting to ensure fewer poor quality patents are issued, poor quality already granted patents are invalidated and the community of companies pledging patent non-aggression in the core of Linux and adjacent open source technology grows.
For the creativity and inventive capacities of the hundreds of thousands of people developing around DLT open-source projects and platforms to be realized it is vital that patent non-aggression in the core is safeguarded. Companies and individuals seeking to support patent non-aggression in DLT should join this kind of organization’s free license and, in so doing, commit to the onward sustainability of the collaborative model of innovation that is central to open source.
Keith Bergelt is the CEO of Open Invention Network (OIN), the largest patent non-aggression community in history, created to support freedom of action in Linux as a key element of open-source software. Funded by Google, IBM, NEC, Philips, Red Hat, Sony, SUSE, and Toyota, OIN has more than 2,900 OIN community members and owns more than 1,300 global patents and applications. The OIN patent license and member cross-licenses are available royalty