September 10, 2018

Blockchain: Issuing Innovation in Cybertechnology

Holland & Knight Blockchain Blog
Brian J. Colandreo | Alexa Marie J. Derkasch

While there exist many variations of the English proverb, "you don't know where you're going until you know where you've been," the foundational message holds true: in order to advance in a prosperous direction, there must be an understanding and appreciation of what has been accomplished and a prescient willingness to improve.

Technology, particularly in the digital realm, feeds upon this mechanism of constant reflection, and more so in regard to advancing cybersecurity efforts since the global "on-demand" economy saturates online marketplaces.

After a decade-long evolution, blockchain technology has gradually become the cornerstone of these cybersecurity efforts. Accordingly, there has been a surge of interest across numerous industries to implement blockchain technology in their business platforms, many of which have sought protection of these developments at the United States Patent and Trademark Office (USPTO).

As is known, blockchain technology includes a distributed ledgering system that allows for the memorializing of transactions in a manner that is not easily spoofable, is self-authenticating and is inherently secure. Specifically, this distributed ledgering system records such transactions, wherein multiple identical copies of these ledgers are maintained by separate and distinct entities (typically the parties to the transaction and other interested parties), thus resulting in the distributed ledgering system.

Accordingly, a blockchain distributed ledgering system is a continuously growing list of records (e.g., called transaction blocks) that are linked and secured using cryptography. For example and when a new transaction occurs, a new transaction "block" is generated that memorializes the new transaction (in a cryptographically-verifiable manner), wherein the above-described separate and distinct entities must concur concerning the content of this new transaction block before the new transaction block is added to the existing chain of transaction blocks. 

Each transaction block within a blockchain ledger may include transaction data, a time/date stamp for the transaction, and (importantly) a cryptographic hash function that quantifies the previous block in the existing chain of transaction blocks. Therefore, a blockchain ledger is inherently resistant to modification of the data defined within the transaction blocks, as each transaction block in the blockchain is cryptographically-linked (via a hash function) to the previous transaction block in the blockchain. For example, transaction block 1 within a blockchain may be the initial block in a blockchain; wherein transaction block 2 within the blockchain may include (inter-alia) a hash function of transaction block 1; wherein transaction block 3 within the blockchain may include (inter-alia) a hash function of transaction block 2; and so on. Accordingly, a blockchain ledger may serve as an open, distributed ledgering system that may securely record transactions between parties efficiently and in a verifiable, permanent, and tamperproof way.  

The blockchain distributed ledgering system became famous through its association with (and use by) Bitcoin. As is known, Bitcoin is a decentralized cryptocurrency that does not require the currency norms of a central bank and/or administrator. Specifically, the Bitcoin network is a peer-to-peer network, wherein transactions occur directly between users (without the need for an intermediary) and these transactions are memorialized in the above-described blockchain distributed ledgering system.

Naturally, since the blockchain distributed ledgering system has already been utilized to memorialize transactions in the above-described manner, what is left that can be protected?  Accordingly, and as defined within 35 USC §102 and 35 USC §103, statutorily-protectable subject matter may be protected provided that the subject matter is novel and non-obvious in light of the prior art.  Accordingly, any novel and non-obvious use of the above-described blockchain distributed ledger system may be protected.   

As of Aug. 31, 2018, a search in the USPTO's patent filings reveals over 1,000 published patent applications and over 150 issued U.S. patents directed to "blockchain" technologies; a large majority of those having issued last year, 2017. Additionally, these numbers account for the expansive nature of blockchain technology as it's applied to related technologies, such as e.g., distributed or decentralized ledger technologies, cryptocurrency, bitcoin, and smart contracts.

Across the spread of these issued U.S. patents, the majority has been assigned to Art Unit 3685; which specializes in data processing and reputes an exceptionally low patent allowance rate having granted only a third of the patent applications examined by the unit's team of patent examiners. However, the length of prosecution for applications claiming "blockchain" technology spans an average of fourteen months, seemingly favorable given the poor allowance rate.

An analysis of the overall "blockchain" related U.S. patent filings indicate that about half of the total U.S. filings originate from China, almost a quarter are held by U.S. applicants, with the remaining applicants filing from Australia and other countries. However, in light of China's more recent cryptocurrency ban, which reduced China's currency involvement in Bitcoin trades worldwide to less than 1%, and ongoing development of its national blockchain standards, this filing trend is expected to change during the latter half of 2018.

Please direct all questions and comments to Brian Colandreo at brian.colandreo@hklaw.com.

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