A New Frontier –
Bitcoin, a new “cryptocurrency,” continues to grow in use as a form of money. Although in the U.S., the IRS treats virtual currencies as property). The exchange rate for bitcoin has remained relatively stable recently (as exchange rates go in the present worldwide economy), with the rate at press time being 450USD/bitcoin. Anytime money changes hands, there is a money making opportunity, and when there is money to be made, there is an incentive to protect how the money is made. Hence we are seeing exponential growth in efforts to obtain patents relating to cryptocurrencies.
Data Snapshots –
We recently presented some simple data1 that is indicative of these efforts using a bar chart showing issued patents and published applications that contain the word “bitcoin.” The chart is provided nearby, updated to include the data for 2015 rather than a projection. It is apparent that from the invention date of bitcoin in late 2008, it took about two years for the term to first be used in patent applications, and then about another 1-2 years for those applications to be published starting in 2012. (Recall that a patent application in most cases is published 18 months after its filing date.)
From this data, one might conclude that there is exponential growth in both published patent applications and issued patents directed to bitcoin. Of course, on the issued patents side, the numbers are lagging as would be expected, but they appear to be trending exponentially.
However, this apparent trend is not accurate, as the data in the first chart illustrate a problem in performing patent searches using keywords as the only search criteria. Patents and published applications that contain the word “bitcoin” are not necessarily directed to inventions that use bitcoin in financial transactions or other related uses. For example, a patent application could be directed to an invention having little to do with bitcoin, other than it being one payment option listed in the written description along with several other payment options, i.e., “receiving payment by cash, credit card, debit card, or bitcoin.” Broad recitations like this are common in patent applications, and in this instance, they skew the data, causing the incorrect impression that more patent protection of bitcoin-related IP is being pursued than is actually the case.
In order to filter out this effect, we need to focus our search by patent classification. A quick review of the unfiltered search results turns up a few patents and published applications that are in fact directed to bitcoin related inventions. Those cases are classified under Class 705, “Data processing: financial, business practice, management, or cost/price determination. Of those cases, most are further classified under Subclass 71, “Business Processing Using Cryptography/Secure transaction/Including key management.”
“Anytime money changes hands, there is an opportunity for money to be made…and there is an incentive to protect how the money is made.”
Accordingly, when we filter our search to select patents and published applications within Class 705 that contain “bitcoin,” the picture becomes much clearer. In this graph, it is clear that there is in fact exponential growth in bitcoin-related patent applications. Of 221 published applications, 139 of those were published in 2015. However on the patent side… not so much. Only five patents containing “bitcoin” have issued in Class 705. Remarkably, none of these issued in 2015.
For the vast majority of bitcoin patent applications that have been filed but have not issued as patents, there are several possible explanations. Many of these pending applications may still await a first Office Action – the backlog of patent applications in the USPTO remains high, which means many patent applications sit in queue for a prolonged period of time. Other applications may have received one or more Office Actions in which the claims have been rejected, and prosecution is ongoing. A few applications may have been twice rejected and could be under appeal. Lastly, no doubt at least some of the applications have been abandoned for any of a variety of reasons.
The fact that no patents containing “bitcoin” were issued in Class 705 in 2015 indicates that it is very difficult to obtain patents for financial transaction methods directed to bitcoin and other cryptocurrencies. This may be due in part to the “covered business methods” provisions of the America Invents Act that was enacted in 2012. However, it is even more likely due to the recent ruling by the Supreme Court in Alice Corp. v. CLS Bank International2. The issue in this case was whether certain claims about a computer-implemented service for facilitating financial transactions were ineligible for patent protection. The Court ruled that CLS’s patents were invalid because the claims were directed to an abstract idea, and implementing the claims on a computer was insufficient to transform that idea into patentable subject matter. This conclusion is consistent with overall recent USPTO data in Class 705: following the Alice decision, the Office has issued patents at less than half the pre-Alice rate.
Serious Money –
These various possibilities notwithstanding, we don’t expect the pursuit of bitcoin and other cryptocurrency patents to abate anytime soon. A quick keyword search of various forms of “cryptocurrency” turns up 111 published U.S. patent applications. In eleven of these applications, Bank of America is the Applicant. This portfolio includes applications for cryptocurrency offline vault storage, transformation, risk detection, transaction validation, electronic payment, suspicious user alert, aggregation, transaction payment, real time conversion, and wire transfer systems and methods. All of these were filed in June of 2014 and await a first Office Action.
Bank of America seems to be making a bet on the future use of cryptocurrency, and the value of the underlying IP. We suspect that combing through the rest of the pending applications would turn up other major players. They are betting that anytime bitcoin (virtually) changes hands, there is money to be made.
- See The Limited Monopoly®, December 2015.
- Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014).
To browse the entire searchable library of prior issues of The Limited Monopoly® from 2005 to present, visit www.thelimitedmonopoly.com.
Authors John M. Hammond P.E. (Patent Innovations, LLC www.patent-innovations.com) and Robert D. Gunderman P.E. (Patent Technologies, LLC www.patentechnologies.com) are both registered patent agents and licensed professional engineers. Copyright 2016 John Hammond and Robert Gunderman, Jr.
Note: This short article is intended only to provide cursory background information, and is not intended to be legal advice. No client relationship with the authors is in any way established by this article.
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