India: Patentability Of Block Chain Technology

Last Updated: 24 August 2018
Article by S.S. Rana & Co. Advocates

Blockchain technology is basically a type of technique or platform used to implement public ledger system. The blockchain is an indestructible digital ledger with respect to economic transactions that can be programmed to record not just financial transactions but virtually everything of value. Data can be sent across a network securely by implementing blockchain's ledger methodology and cryptographic techniques. The technique will ensure that the data is from the correct sources and that there are no interim obstructions interim. If this technology is used more widely then the probability of hacking can be decreased.

In contrast to conventional centralized data management system, blockchain technology integrates data in a unique ledger while maintaining consistency even with a decentralized management. The benefit of decentralized control is that it eliminates the risks of centralized control. With a centralized database, anybody with sufficient access to that database can destroy or corrupt the data within. Therefore, no centralized version of this information exists for a hacker to corrupt. Hence, decentralization is the essence and strenght of blockchain technology.

With the increasing popularity of cryptocurrency and other block chain/public ledger system based applications, block chain technology is attracting a lot of attention. The growth in prices of cryptocurrency is evidence of popularity of block chain technology. With increasing popularity of technology, there is a steep rise in filing of patent applications claiming invention based on block chain technology.1 The innovators of block chain technology are still confused about patentability of inventions based on block chain technology.

Generally, inventions covered in patent application are required to satisfy the test of novelty, nonobviousness and industrial applicability. There is no doubt about industrial applicability of block chain technology in areas like cryptocurrency, logistics, asset management, insurance, peer to peer lending platforms, Internet of Things, etc. Hence, the main issues in determining patentability of block chainbased inventions are:

  • Whether the invention is anticipated by prior art (patent literature or non-patent literature published before filing of patent application) or product already in use or offered for sale before filing date?
  • Whether invention is obvious to person ordinarily skilled in the art looking at state of art or closest prior art?

With respect to the first issue, there are assumption in the industry that block chain technology per se has limited novel features because innovators are merely using existing technology for making transactions.2 However, the implementation of technology at large scale has posed new challenges and problems. There is no doubt that block chain technology in its current form needs improvement considering high power usage, latency in execution of transaction, inefficiency in storage of records, efficient distribution of proof of work among miners, etc. This provides innovators in the field of block chain with opportunity of coming up with new solutions.3

With respect to second issue, it needs to be examined whether new techniques proposed for improving efficiency or security in block chain technology implementing public ledger system are similar to one existing in traditional platforms other than block chain (existing applications like electronic payment systems and other fin-tech technology) and whether it is obvious for person ordinarily skilled in the art to apply same technique in block chain technology. In such evaluation of similarity of proposed invention with existing technology, the focus should be whether such existing (known) platform is independent of trusted central entity for validation which is key feature of block chain technology. If the inventive feature of proposed inventions are implemented in existing platforms which is independent of trusted central entity, then proposed invention will not be considered patentable being obvious to person skilled in the art.

Apart from novelty and non-obviousness, the other key issue involved in patentability of block chain technology which is implemented as software platform is whether invention will be considered as patentable subject matter under Section 3(k) of Indian Patent Act which prohibits patentability of computer programme per se, algorithm, business methods, etc. The parallel provisions under US patent law is 35 USC Section 101 which prohibits patentability of business methods and abstract ideas.

In November 2008, Bitcoin's creator, known by the pseudonym Satoshi Nakamoto, published a paper via the Cryptography Mailing List titled "Bitcoin: A Peer-to-Peer Electronic Cash System" where he described blockchain. The bitcoin network is in operation since 2009 and qualified as "prior art" hence it is against any new attempt to get patented but important additions and variations which results in new utility can be patented.

In Alice Corp v CLS International4, US Supreme Court held that computer implemented methods of assessing settlement risk in financial transaction are ineligible for patent protection, and that laws of nature, natural phenomena, and abstract ideas are not patentable because they are "the basic tools of scientific and technological work.

Such limitation may create prejudice against block chain technology in fin-tech industry considering its implementation as method for performing financial transaction. However, the invention covering techniques which improves functionality of technology, processes or security of payment system may be considered eligible for patentability.5 In addition, where the invention is merely proposing the use of existing block chain technology with new business model, the proposed invention will not be considered patent eligible subject matter.6

Further, the claims for patent application claiming block chain technology-based inventions need to be drafted considering that such platforms involve multiple parties (e.g. in case of cryptocurrency, miners implement validation of public ledger records, cryptocurrency exchange provide platform for trade of cryptocurrency, cryptocurrency wallet manufacturers provides security solution for cryptocurrency traders) and all components of the invention might not be implemented by each party. Therefore, separate independent claims need to be drafted for each of the prospective invention keeping in mind entities involved in implementation of technology. Alternatively, separate patent application can also be filed for separate inventions, if these inventions are unique and distinguishable.7

Looking at complicated legal and technical issues involved in patentability of block chain technology, there is a need to develop and train legal practitioners in this specialized area so that innovators are provided with quality legal advice. Further, most of the innovators do not show interest in patent protection because they consider this technology as more suitable for open source. The innovators need to be made aware that patent protection can also be used as defense against infringement action filed by competitors. Therefore, the innovators in the field of block chain technology needs to be proactive when it comes to filing patent applications for improved techniques and systems.

Footnotes

1 https://ipspotlight.com/2018/01/22/trends‐in‐patenting‐blockchain‐technologies/

2 https://ipspotlight.com/2018/01/18/intellectual‐property‐strategies‐for‐next‐generation‐cybersecurity‐technologies/

3 https://ipspotlight.com/2018/01/18/intellectual‐property‐strategies‐for‐next‐generation‐cybersecurity‐technologies/

4 3 Alice Corporation Pty. Ltd. v. CLS Bank International, et al, 573 US, 134 S.Ct. 2347 (2014)

5 http://www.ipindia.nic.in/writereaddata/Portal/Images/pdf/Revised__Guidelines_for_
Examination_of_Computerrelated_Inventions_CRI__.pdf

6 https://www.alixpartners.com/media/3782/ap_the_race_to_patent_the_blockchain_sep_2016.pdf

7 https://ipspotlight.com/2018/01/26/defensive‐patent‐strategies‐for‐blockchain‐and‐distributed‐ledger‐technologies/

For further information please contact at S.S Rana & Co. email: info@ssrana.in or call at (+91- 11 4012 3000). Our website can be accessed at www.ssrana.in

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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