Blockchain technology is disrupting the financial sector as well as many other areas of our lives. According to most observers, distributed ledger technologies are beginning to change the world as deeply as the Internet has already changed it.
- Banks are the driving force behind blockchain patents
- Most patent applications are rejected, but there are still many reasons for filing
- A few companies have been gathering patents for specific projects
- Entrepreneurs, traders, investors and developers should follow the patent trail to find profitable opportunities
It’s not surprising that a crowded field of players is attempting to cash in by filing blockchain patents. Financial services firms, AI and communications companies are the most active for blockchain and crypto patent filings.
Fintech is the main source of new filings, and for good reason – Old-school banks became fat by controlling money flows, and now they’re scrambling to compete with the newer generation of financial gateways.
The dinosaurs have finally realized that crypto is here to stay, so they’re pouring investment money into this sector. It’s easier to buy than build it.
Beyond basic banking functions like accounting for deposits and withdrawals, the major financial institutions are also working with blockchain patents that cover trading platforms, asset management, insurance, and real estate concepts.
Staking an early claim…..
Patents represent an investment view of the future. That’s why banks are so eager to own blockchain patents even before knowing what the full range of commercial applications may be. A bank’s goal in seeking patents is usually to either create some kind of exclusive service offering for its own clients, or to earn revenue by monetizing or licensing those rights to other platforms.
Looking downstream, patents are helpful to the bank’s licensees and cross-licensees because they reduce the legal risk in case of legal claims by third parties. Licensee risk is usually limited to the amount of royalty paid. So, developers may lose revenues if the patent owner faces a legal challenge, but they won’t be on the hook for infringement claims.
….or testing the waters
Banks (and others) may also be filing certain applications just to test whether the U.S. Patent and Trademark Office considers that concept to be patentable. If it can’t be protected, it’s probably not worth developing.
It’s also important for outside investors and developers to know early whether an idea is unique and valuable enough to qualify for patent protection. If an application is rejected, developers are less likely to be sued for infringement if they piggyback on others’ previous work. Yet, the same trade secrets and technical know-how can be used in offshoot projects that outside investors and developers can profit from.
Rejected applications also help investors learn which “families” of patents may be most profitable for development. Wherever there’s concentrated interest in a particular patent family or cluster, investors and developers should take note.
Can the blockchain be patented?
Before looking at some of the upcoming breakthroughs suggested by new blockchain patents, it’s important to first understand how and when they can be used. Many ideas for new technologies are found to be duplicates during the lengthy process of comparing them with existing patents.
Or, a concept may be new but it doesn’t bring enough additional value to warrant development. There are also some good ideas which are simply not “unique” enough to qualify for patent protection. The same as in other industries, many blockchain patent applications are rejected.
In Alice Corp. v. CLS Bank International, the Supreme Court set tough standards for computer-related patents. The Court unanimously held that just because an idea requires computer implementation doesn’t automatically make it eligible for patent protection.
In that decision the Court also said that eligibility claims couldn’t be based on attempts to limit a technology’s use to a particular medium, which would imply Internet and blockchain. Although this case was based on claims about financial techniques, it’s become the precedent for deciding whether an idea should receive patent protection.
Lower courts have been relying on the Alice decision to kill patent claims that might otherwise have been litigated by deep-pocketed players. Until or unless a newer precedent is set, going forward it seems likely that blockchain will continue to be treated as software. Under the Alice standard, that means blockchain ideas must be something entirely new – They can’t simply dress up an “old idea” using blockchain and apply it online to get a patent.
For example, JPMorgan Chase came up with a new idea for a mobile payment platform somewhat similar to Bitcoin. Yet, all 180+ of their filing claims were either rejected or withdrawn. That’s a clear sign this new idea was actually an old idea with new implementation.
At the same time, the U.S. Court of Appeals for the Federal Circuit (Washington DC) is said to be working on several decisions that set clear rules for determining patent eligibility for computer-implemented innovations. This is a key jurisdiction for litigation because the Patent Office is physically located in DC, so that’s where patent eligibility decisions are made.
Current estimates show almost 2,000 pending patent applications, but most are being rejected. It’s a clear sign that investors, tech players and independent developers are racing to file highly speculative claims without much of a legal basis.
For investors, traders, entrepreneurs and developers it’s important to think about blockchain geopolitics. There’s clear evidence that the leading countries for blockchain patent applications and assignments are accumulating specific types of intellectual property.
Although the US had been generating the largest number of blockchain patents, China has now surged ahead. The Chinese government has been encouraging overall technology patenting in recent years, and fintech is especially hot. Investors, traders and developers should take note of this Chinese fintech bonanza, which seems likely to surpass US leadership in the blockchain space.
Types of patents
From the perspective of investors and developers, patents may be categorized as either blockchain-centered or cryptocurrency-centered. Both types of patent filings are increasing rapidly.
In spite of tighter regulations and market volatility for Bitcoin and other forms of cryptocurrency, filings in this category have been rising dramatically each year. For example, crypto filings rose more than 15% from 2016 to 2017, and from 2017 to 2018 they rose an estimated 20% more.
It’s important to note that most of the recent crypto patent filings are not associated with any existing cryptocurrency. This indicates that although the current marketplace is volatile, big investors and large tech companies are committed to laying the groundwork for a crypto-focused future, and they want their own coins.
Who’s behind blockchain patent filings
Regardless of whether you’re a developer, investor or trader, basic crypto patent research can give plenty of valuable insight. There’s no need to reinvent the wheel. Just like it was with eBay, PayPal and Amazon in the early days of ecommerce, in today’s blockchain gold rush you should follow the leaders with the best patents. By researching the patents, you can assess each new crypto project and choose which are likeliest to become winners.
As mentioned elsewhere, not all blockchain technologies can qualify for patent protection. Of course a patented technology is far more interesting to investors and developers.
The application filing process is expensive, and it also means disclosing sensitive tech information to potential competitors. So, why are some blockchain technologies being singled out for patent protection, while others are ignored?
It seems that some owners and developers of blockchain technologies are choosing to protect those ideas by keeping them as in-house know-how and trade secrets instead of exposing them to outside scrutiny in a patent application.
Even though banks are the logical driver for blockchain patents, there is now more diversity in the kinds of companies that are filing fintech patent applications. For example, companies such as nChain are establishing their business models entirely based on providing blockchain and crypto R&D services to clients in the fintech sector. Savvy developers can capitalize on this trend by aligning themselves with projects that show early success, then participate in the highly-profitable waves of follow-on development.
Big banking players are getting into the blockchain game
We can learn from the giants – Some recent patent filings by major financial services companies show how they’re planning to use blockchain technologies.
Ultimately, these patent applications are ammunition in the race to determine the next generation of technology standards. Of course, whoever owns the successful patents will control the dominant technology platforms. Investors, developers and business owners can profit by focusing on these “hot” areas for blockchain patent applications.
Why are banks chasing blockchain dreams?
Blockchain technologies are uniquely suited for financial operations because the chain itself shows the provenance of each transaction. This improves speed, security, privacy, and compliance.
Traditional banking uses costly systems to verify transactions and reconcile accounts. In contrast, blockchain uses cheaper crowd-focused methods to avoid central clearinghouses or third-party escrow scenarios.
Crypto solutions are difficult to find, but easy to verify
Satoshi Nakamoto solved the problems of Bitcoin scarcity and decentralization by making (mining) solutions difficult to find yet easy to verify. Likewise, banks want to continue in their traditional role as gatekeepers by owning exclusive proprietary “black box” technologies that others can’t access, while relying on blockchain to simplify and streamline operations.
China leads the world in blockchain patents
A few countries together account for most worldwide technology R&D including crypto and blockchain patents. Research shows that various types of tech patents predominate in distinct countries.
For example, the US Patent Office has approved many recent patents on technologies for email systems, energy-related performance optimization, and data identifiers. Yet China currently has the most patents for memory applications and blockchain technologies. Likewise, Taiwan has multiple patents relating to encrypted commands and block technologies.
Beyond looking at the countries-of-origin for specific blockchain patents, it’s even more instructive to consider where patents are being assigned. In other words, once a patent is granted for a new crypo or blockchain innovation, the owner is free to sell, assign or license that patent.
Patent assignees are often in the process of gathering together the specific intellectual properties needed to launch major projects. By researching the assignment of specific patents, developers and investors can gain a clearer view of upcoming opportunities.
Looking at the overall marketplaces for blockchain technologies by assessing the number of patent assignees, the US is quickly losing dominance to China. Since 2016 the number of blockchain patent assignments to China has surged. The assignment process is often cross-border, which suggests that investors worldwide are focused on the Chinese marketplace.
Bank of America is bullish on crypto
BoA seems to be the current leader in crypto-related patents (50+) including several for crypto storage. Another important patent involves automated crypto exchange at optimal rates based on multiple external data sources.
Bank of America is developing an enterprise service based on this technology, which uses a 3-account system. One account is the retail customer account to store a given crypto. The other two are “float accounts” owned by the corporate client. A float account allows temporary storage of currency while it moves between sender and recipient.
The first float accounts acts to hold crypto being sold by the customer, and the second float account holds an equivalent value of other currency for the crypto being converted. This second float account next deposits the converted money back into the retail customer account, to be available for withdrawal.
The patent envisions an enterprise-level service, which means BoA plans to offer blockchain platforms and tools to other financial firms. This technology can be used by their clients and licensees to provide on-the-fly settlements for forex or other international commodity trading, as well as converting between Bitcoin, other forms of crypto, and fiat money.
Trading and international sales settlement seems an obvious application for a currency-exchange patent. Yet the utility of this patent also extends to risk management and fraud prevention. That’s because blockchain allows for better security functions and fraud detection, including user authentication, computer fingerprinting, velocity pattern analysis, and blacklisting.
These recent currency-exchange and storage patents are in addition to earlier filings by BoA, including a blockchain-based money-transfer concept back in 2014. A platform powered by this technology would let customers transfer money in their local currency by first converting it into crypto, then sending it through an offshore exchange to convert into the local currency of the destination country.
Insurance on the blockchain
The Chinese insurtech pioneer Zhong An is working to bring insurance onto the blockchain. Backed by Chinese tech moguls, the company has struggled to meet expectations set by its 2018 IPO.
Still, the company has filed multiple patents for blockchain technologies that could let it control a valuable chunk of the Chinese marketplace for consumer insurance, household lending, travel and leisure. Powerful backers include Alibaba chairman Jack Ma and other top executives.
Zhong An’s blockchain patents can be used to mine the huge amounts of consumer data held by the company’s owners. By targeting customers and designing insurance and loan products for niche markets, the company can leverage the full power of blockchain.
The company’s model is to use big data for marketing and sales. By replacing the hordes of fat-commission insurance agents with blockchain-based apps, Zhong An plans to become highly profitable. The company is making progress in replacing local agents with online partnerships, but it will need to reduce costs even more.
Other Zhong An products and services to benefit from blockchain include flight insurance with risks calculated in real time, peer-to-peer lending, backstop lending, health insurance and car insurance. Blockchain allows for faster, cheaper functionality at all levels, so it allows insurance sales for “minor” risks.
For example, one attention-grabbing insurance policy offers coverage against “alcohol poisoning” for people watching sporting events. Although quirky, it’s precisely the type of specialized policy that blockchain technology makes practical. Likewise, the company offers a range of shipping-delay and flight-delay insurance products.
Beyond blockchain, Zhong An has also obtained patents for technologies involving data modeling and cloud computing for insurance applications. And, the company isn’t limiting its blockchain focus to insurance alone.
Recent patent filings indicate the company is combining blockchain ideas together with the Internet of Things and AI to create a facial-recognition system for poultry, so producers can improve their 23 million chickens’ lifecycle and productivity by monitoring them as individuals. The company’s stated goal is to improve food security worldwide.
Global delivery goes blockchain
Recently the US Patent and Trademark Office shared some details about Walmart’s smart package delivery management system, which is based on blockchain technology. The platform will use delivery lockers to safeguard items until buyers can sign for them.
The system will rely on a “blockchain reservation” system to manage locker use, as well as other crypto-powered security features. Beyond ordinary package tracking with real-time notification, other functionality includes monitoring package contents, temperature and environmental conditions.
If you’re an investor or app developer, think in terms of blockchain-enhanced security features including anti-theft and anti-tampering measures for packages containing valuables, medications, firearms or explosives, or lab samples.
In other patent-related developments, Walmart has partnered with IBM and shared blockchain patents to create a logistical system for tracking food and other short-life merchandise through the entire supply chain. Interestingly, Walmart has recently filed applications for blockchain patents to handle and track medical records. The company is also working on crypto-powered systems to manage energy consumption.
More blockchain and cryptocurrency patent developments to watch in 2019
- Citi’s Citicoin and Bank of New York Mellon’s BK Coin are continuing internal develop testing and funding, and are worth watching for outside app developer opportunities
- UBS and other major banking partners are testing a crypto named USC (utility settlement token) that relies on Ethereum-based technology
- Mutineers from that same UBS blockchain payment project have now jumped ship, and are applying their know-how at several new startups in the crypto ecosystem
- American Express is an early believer in blockchain patents, and they’ve launched Abra with several partners as a way to buy and sell Bitcoin
- Circle has partnered with Barclays’ reputation and strength to launch a P2P blockchain payments and messaging
How to own your slice of the blockchain
It appears the recent price volatility in crypto markets hasn’t impacted the number of blockchain patent application filings or assignments. Likewise, the continuing pressure to regulate the crypto ecosystem hasn’t reduced the number of big banks and investors that are buying, selling and licensing these patents.
If you’re an entrepreneur, investor, trader or app developer, reading crypto patents will give plenty of valuable insight into which companies are gaining momentum over their competitors, even in non-blockchain business sectors. By doing the right homework, you can profit from third-party apps and related services that thrive in the ecosystems created by blockchain leaders like those highlighted here.
If you enjoyed this article, subscribe to our newsletter below to receive all the latest blockchain updates!