Blockchain technology patent pools are forming to fend off patent trolls

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it. – Santayana, George “The Life of Reason: The Phases of Human Progress Vol. I, Reason in Common Sense” (1905).

A monumental shift in technology makes everything that was old, new again. The personal computer was a monumental shift in technology in the early 1980s. The internet was a monumental shift in technology in the 1990s. Each shift in technology was accompanied by a flurry of patent activity. Some entrepreneurs attempted to protect their inventions with patents, others looked at the patent system as an easy way to cash in on the technological boom.

United States patent law like other laws has trouble keeping up with advances in technology. The technological advances in the 1980s and 1990s resulted in the creation of business methods patents. The United States patent and Trademark Office allowed something which was considered not patentable, a method of doing business, to be patented if a computer or the internet was involved. It was not until the 2014 United States Supreme Court case Alice v. CLS Bank that business method patents were reigned in significantly.

The period of time around the technological advances computer and internet also saw a precipitous increase in nonpracticing entity litigation. A nonpracticing entity is a company that has no assets other than a portfolio of patents and primary gets revenue from patent litigation. Nonpracticing entities are pejoratively called patent trolls. The patents owned by patent trolls typically revolved around patents of questionable quality or good patents that were acquired from a failed company. Patent trolls exploited certain aspects of the patent law which allowed them to extract monetary settlements from other companies, because paying the patent troll was less expensive than litigating the issue. The America Invents Act, which amended United States patent law, and the Supreme Court decision in TC Heartland LLC v. Kraft have removed many of the tools patent trolls used to extract payments.

Nonpracticing entities were not the only companies that have abused the patent system in the past. It is a common practice for large international companies to build up patent portfolios for the purpose of blocking competitors. Because a patent is an exclusive right, not a licence, a patented invention might never be used because it infringes on the patent of someone else. The practice of building a large patent portfolio uses patents as offensive weapon to prevent innovation instead of a way to protect an inventor’s hard work.

Blockchain is a new technology on the horizon which will potentially be an even bigger technological advance than computers and the internet. Blockchain in its most basic form is a public digital record of transactions. Participants each have a copy of a database, and they compare their version of the database with other participants until a consensus is reached, then the process begins again. The advantage to blockchain over traditional databases is that blockchain is decentralized and indelible. Blockchain has been applied to crypto currencies, but the technology can be applied to just about any information which is stored in a database, like grocery store inventory or school grades.

Major international companies that recognize the potential of blockchain technology have already begun attempting to patent different blockchain related inventions. Bloomberg Law data from 2011 to April of 2018 shows that 700 blockchain related patents applications have been filed with the United States Patent and Trademark Office and about 10% of those applications have been granted. Smart patent owners are also learning from mistakes made in the past. Smart patent owners are collaborating with one other to create patent pools and patent pledges. These different methods of managing a patent portfolio can vary greatly, but the key points are royalty free use of patents for pool members and cross licensing agreements between members. The cross licensing agreement of a patent pool typically includes a provision that the licensing agreement will continue even if the patent is sold to discourage patent trolls.

Blockchain technology has the potential to usher in a new technological era, collaboration is a fundamental feature of blockchain technology. The companies that will succeed are those that learn to collaborate in patent pools.

If you have questions or comments for the authors of this blog please email us at: admin@uspatentlaw.cn