Evolving Patent Landscape of Technology FOR THE LICENSING EXECUTIVES SOCIETY APRIL 18, 2018 JUSTIN D. PETRUZZELLI, ESQ. PARTNER Topics to be Covered 1. History and Applications of Blockchain Technology 2. Blockchain Definition and Operation 3. Blockchain Patent Opportunities, Issues, and Strategies

2 History and Applications of Blockchain Technology

3 History/Timeline . Crypotgraphically secured chain of blocks described in 1991 by Stuart Haber and W. Scott Stornetta in 1991. . “How to Time-Stamp a Digital Document”, Haber & Stornetta, Journal of Cryptology, Vol. 3, No. 2, pp.99-111, 1991. . Linking chains of time-stamped data; Distributed Trust . Blockchain conceptualized by “Satoshi Nakamoto” in 2008; implemented in in 2009. . Peak daily bitcoin transactions in December 2017 was ~500,000. ~200,000 transactions per day in Mar. 2018.

~ https://charts.bitcoin.com/chart/daily-transactions; https://www.techbullion.com/invented-blockchain-technology/

4 Applications . Distributed Social Media . (www.steemit.com) . Utilizes “Smart Media Tokens” with built-in “Proof-of- Brain” properties. Tokens are issued to those who create and curate content. Content with more community “upvotes” (e.g., likes) receives more tokens. . Steemit indicates that ~ $40 million has been paid out to content producers and community members since June, 2016.

5 Applications

6 Applications . Distributed Social Media . D-Tube is a distributed YouTube based on steemit. . https://d.tube/

7 Applications

. . Proof of Ownership of Digital . Land registration Content (Binded) . Smart Contracts . Digitizing Company Incorporations . Document Validation . Transfer of Equity/Ownership and Governance (Otonomos) . Decentralized Patent Records Management . Decentralized Internet-of-Things (BitHealth) (Chimera IOT) . Decentralized Storage . Points Based Value Transfer for Ride (Storj) Sharing (La’Zooz) . Etc… ! ~ Forbes at https://www.forbes.com/sites/forbesleadershipforum/2013/06/25/how-to-tell-what-patents-are- worth/#7207ebb86e5b; MEDICI at https://gomedici.com/blockchain-use-cases-comprehensive-analysis- startups-invoved/

8 Blockchain Definition and Operation

9 What is a Blockchain? . … “a decentralized, distributed and public that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network.”

~ https://en.wikipedia.org/wiki/Blockchain

10 What is a Blockchain? . Managed autonomously; peer-to-peer, like the internet. . ‘Tamper-proof’

Block X Block X+1 Block X+2

~ https://en.wikipedia.org/wiki/Blockchain

11 What is a Blockchain?

12 What are Blocks? . “Blocks hold batches of valid transactions....” . “Each block includes the cryptographic hash of the prior block in the blockchain, linking the two. The linked blocks form a chain.” Block X Transaction 1

Transaction 2

~ https://en.wikipedia.org/wiki/Blockchain

13 Addition of New Blocks

New ‘Unofficial’ Transaction

14 Addition of New Blocks . For Bitcoin, “miners” take a pool of unincorporated (‘unofficial’) transactions and form a new block. . The new block is linked to the immediately previous block that was officially added to the chain. . The combination of the new, as-of-yet unincorporated block, and the immediately previous block in the chain are formed into a ‘challenge string’. . The miner must solve a complex mathematical problem based on this combination: “proof-of-work”.

15 Addition of New Blocks Proposed New Proposed New Miner Block X+3 Block X+3 Miner 1 New ‘Unofficial’ New ‘Unofficial’ 2 Transaction Transaction

Miner 1’s Reward Miner 2’s Reward

Challenge String RACE!!! Challenge String

Block X+2 Prop. New Block X+2 Prop. New Guess Guess Block X+3 Block X+3

Hash Function Required Required Hash Function Answer? Answer?

16 Addition of New Blocks . First miner that solves the challenge string problem gets to have its new block officially added to the bitcoin block chain, including its reward and any transaction fees in bitcoin. . “Proof-of-work” throttles the addition of new blocks, and helps prevent fraud by making fraud expensive. . E.g., ~ 10 minutes for a node to come up with the required answer.

~ https://www.khanacademy.org/economics-finance-domain/core-finance/money-and- banking#bitcoin

17 Addition of New Blocks

Block X Block X+1 Block X+2 Block X+3 (From Miner 1)

Miner 1

18 Consensus Algorithms . Bitcoin’s proof-of-work is an example of a consensus algorithm which helps the peer-to-peer network decide how a new block is added to the chain. . Other types of consensus algorithms exist. . E.g., is moving from a proof-of-work algorithm to a proof-of-stake algorithm.

~ https://coincentral.com/when-will-ethereum-mining-end/

19 Consensus Algorithms . Under proof-of-stake (PoS), block creators are predetermined and must put in their own coins as a ‘stake’ (insurance against bad acting). Compensated by transaction fees. . Eliminates processing time required by proof-of-work. . Other consensus algorithms exist.

~ https://blockgeeks.com/guides/proof-of-work-vs-proof-of-stake/ 20 Permissionless vs. Permissioned . Anyone can access a permissionless blockchain network. Any node can validate transactions. Bitcoin operates on such a network. . A permissioned blockchain network includes an access control layer to limit access to the network. Transaction validation notes are vetted/approved by the network owner. . Ripple runs a permissioned blockchain and has selected MIT and Microsoft for inclusion in its transaction validators.

~ https://en.wikipedia.org/wiki/Blockchain; https://www.coindesk.com/information/what-is-the- difference-between-open-and-permissioned-blockchains/

21 Blockchain Patent Opportunities, Issues, and Strategies

22 Patent Players in this Space . Bank of America, IBM, Mastercard, Fidelity, , World Award, TD Bank, 402 Technologies S.A., Accenture, Dell . Many startups (see slides 5-8) . Expect uptick in patent trolls in this space.

~ http://patentvue.com/2018/01/12/blockchain-patent-filings-dominated-by-financial-services- industry/; https://www.cnbc.com/2017/12/19/a-new-form-of-bitcoin-mining-patent-trolls-coming- for-the-blockchain.html

23 Blockchain Patent Opportunities . “Research indicates that about 70%-80% of a company’s market capitalization comes in the form of intangible assets ….” . “Google bought Motorola Mobility, with its 17,000 patents, for $12.5 billion, to protect its Android mobile operating systems from rivals.”

. Present price of bitcoin ~ $6,500 (+/- $$$$ on any given day!)

~ Forbes https://www.forbes.com/sites/forbesleadershipforum/2013/06/25/how-to-tell-what- patents-are-worth/#7207ebb86e5b

24 Blockchain Patent Opportunities . IP ‘Land Grab’ in this technology space

. Contrast: 5,512 Patents Granted in 2015 for Database & File Management or Data Structures ~ https://www.coindesk.com/rate-blockchain-patent-applications-nearly-doubled-2017/; https://www.uspto.gov/web/offices/ac/ido/oeip/taf/cbcby.pdf

25 Blockchain Patent Opportunities . Patents provide the owner with the right to exclude others from making, using, or selling an invention in the United States. . Patents are not a freedom to operate. . In return for the right to exclude others, you must publicly disclose your invention. . Opposite of Trade Secret.

26 Blockchain Patenting Logistics . Fundamentally a software technology. . 35 U.S.C. 101: Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

27 Blockchain Patenting Logistics . Invention must cover patentable subject matter. → “anything under the sun”, but no laws of nature/abstract ideas.

. Software-based technologies are closely scrutinized with respect to abstract ideas.

28 Blockchain Patents and Abstract Ideas . According to U.S. Patent Laws, you cannot claim an abstract idea without also claiming significantly more than the abstract idea.

29 Examples of Abstract Ideas . Fundamental economic practices . Certain methods of organizing human activities . An idea ‘of itself’ . Mathematical relationships/formulas.

30 Examples of “Significantly More” . Improvements to another technology or technical field. . Improvements to the functioning of the computer itself. . Applying the abstract idea with, or by the use of, a particular machine. . Effecting a transformation or reduction of a particular article to a different state or thing. . Something ‘inventive’.

31 Select Caselaw Examples – Not Abstract . Self-referential database not an abstract idea (Enfish LLC. v. Microsoft Corp., Fed. Cir. 2016).

32 Select Caselaw Examples – Not Abstract . Method for halftoning color images not an abstract idea (Research Corp. Techs., Inc. v. Microsoft Corp., Fed. Cir. 2010)

33 Select Caselaw Examples – Not Abstract . Computer-processed lip synchronization and facial expressions in animated characters not an abstract idea (MCRO Inc. v. Bandai Namco Games America Inc., Fed. Cir. 2016)

34 Select Caselaw Examples – Abstract and Not Sign. More . Detecting improper access to patient’s health information: abstract and not significantly more – patent ineligible (Fairwarning IP v. IATRIC, 2016) . Hardware description language that converts logic into hardware designs - abstract and not significantly more – patent ineligible (Synopsys, Inc. v. Mentor Graphics, 2016)

35 Select Caselaw Examples – Abstract, but Sign. More . Installation of a filtering tool at a specific location, remote from end-users, with customizable filtering features specific to each end user: Court held that such a feature is directed to an abstract idea of filtering content, but includes an ‘inventive concept’ in the ‘ordered combination’ of claim limitations that transform the abstract idea into ‘a particular, practical application of that abstract idea’ (significantly more). (Bascom Global Internet v. AT&T Mobility LLC, Fed. Cir. 2016.)

36 Themes . Concern about pre-emption and overbreadth . Complexity of claimed invention/inventive concept . Improving the operation of a computer/existing technology.

37 Blockchain Patents, Novelty and Non-Obviousness . Blockchain technology still relatively new… opportunity for ‘pioneering’ patents. . Relatively smaller body of prior patents/publications to be used by the Patent Office to use against a patent applicant. . Quickly changing, however, with a rapid increase in new patent application filings in this space.

38 Keep Invention Secret Until Filing! . One very important aspect of the patenting process is the need to keep your invention secret until you file a patent application. . Public (non-secret) disclosure before filing a patent application can immediately destroy your ability to obtain a patent in non-U.S. countries, and can muddy the waters on your U.S. patent rights. → Starting of ‘clock’ in the U.S.

39 Patent Ownership . Initially vests with inventor(s), as copyright does with authors. ̶ Joint inventors co-own the invention. . However, no “work made for hire” for patents, like copyright. ̶ Make sure you have ownership agreements in place with inventors.

40 Overlapping IP Coverage . Patents are not mutually exclusive with other forms of intellectual property . Utility Patent(s) to protect function . Design Patent(s), copyright(s), and trademark(s) to protect ornamental design

41 Disclaimer

The contents of this presentation are for the purposes of illustrating some general legal concepts and are not intended to be relied upon for making decisions regarding particular issues. If you have a particular issue that might involve any of the legal issues presented herein, please contact us for the appropriate legal advice.

42 Questions?

Thank you for your time.

Justin Petruzzelli (571-919-4402) [email protected]

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