Blockchain is a transformative technology that already is altering the way business is done across many industries. The name "blockchain" refers to digital, decentralized and distributed ledger technology that provides a means to immutably record information (i.e., a "block") and share and maintain the records of that information (i.e., a "chain") within a public or private community. The underlying digital ledger technology relies on cryptographic principles and acts as a secure repository for the information being recorded and shared. For a simple example (and real-world application), consider the deed to a parcel of land. Under the traditional method of recording ownership, a centrally maintained, manual ledger of entries and volumes of related documents reflect the history of the property as it was owned and transferred over time. Using blockchain technology, a decentralized, digital ledger permanently records all such transactions, building upon the prior transactions, and remains accessible to anyone with the cryptographic "key."
As companies refine this technology and its applications, U.S. intellectual property ("IP") law, among others, must be considered. This article, Part 1 of a two-part series, will address some of the IP law considerations, namely, patents, trade secrets and trademarks. Part 2 will address U.S. securities law considerations of so-called cryptocurrencies, such as bitcoin, which utilize blockchain.
The Intersection of U.S. IP Laws and Blockchain
U.S. patent laws protect inventions that are novel, useful and not obvious, and meet certain other eligibility requirements. A U.S. patent gives the patent holder the right to exclude others from practicing the invention for a period of 20 years from when the patent application was filed. The race to obtain patent protection over blockchain is well underway. To date, over 50 U.S. patents with the word "blockchain" in the title have issued, and several thousand applications are pending. Companies from start-ups to Fortune 500 entities are in this race.
A potential tension for patent protection is the open-source and collaborative nature of blockchain. Some of the underlying aspects of distributed ledger technology involve open source software or resulted from open collaboration among early developers, and the cryptographic aspects of the technology are well established. So satisfying the patent eligibility thresholds could prove challenging to certain blockchain patent applicants. Another concern stems from the U.S. Supreme Court's decision in CLS Bank v. Alice (2014), which broadly held that abstract ideas implemented on a computer are not patent eligible, thus potentially narrowing the scope of protection for blockchain. Thus far, there have been no blockchain-related patent infringement suits. If (when) that day comes, the above concerns may be highlighted. Importantly, a number of initiatives and organizations are in play to ensure the coexistence of blockchain development and innovation, while also promoting the necessary interoperability.
In addition to patent laws, companies should consider trade secret protection for their proprietary information. A trade secret under U.S. laws is any such information that has economic value and is not generally known or readily ascertainable. Its term potentially is perpetual, as long as it is kept secret. Typical examples of trade secrets include confidential technical and financial information, client lists and other proprietary know-how. A trade secret alone does not give the right to exclude but provides a claim if proprietary information is misappropriated.
Blockchain and its related applications are an exciting technology area already transforming myriad industries. As innovative ways of utilizing blockchain technology continue to advance, businesses old and new must keep abreast of the laws and regulations that are implicated and that are developing alongside.
This article was featured in Volume 2 of the Legal and Tax Newsletter published by the German American Chamber of Commerce, Inc. Click here to view the article within the Newsletter.