Canadian Lawyer InHouse

June/July 2021

Legal news and trends for Canadian in-house counsel and c-suite executives

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8 www.canadianlawyermag.com/inhouse INTELLECTUAL PROPERTY The race to patent crypto- currency-related technology It is important to patent new and emerging areas of technology to guard against others exploiting the invention without a proper licence, writes Rita Gao SATOSHI NAKAMOTO, the person or group who originally published the concept of Bitcoin , likely did not expect the price of a single Bitcoin to soar to approximately US$57,800 in May 2021. In May 2014, the unit price of a Bitcoin hovered around US$612 at one point. The rise of Bitcoin, along with other types of crypto- currency, has led to one of the fastest-growing trends in patent applications worldwide. Blockchain is a distributed ledger tech- nology that enables units of a crypto-currency (including Bitcoin) to be generated, circulated and used for payment in various types of trans- actions across the internet. Acting as a virtual, encrypted and decentralized ledger of all trans- actions on a peer-to-peer network, blockchain can facilitate transactions without the need for a central clearing agent or authority. In the first half of 2020, China's Alibaba/Ant Financial Group has filed 1,457 patent appli- cations on the subject matter of blockchain technology (presumably including crypto- currency-related technology), far ahead of any western company. For the fourth consecutive year, Alibaba/Ant Financial Group has ranked first in the world for filing the most blockchain patent applications. Blockchain technology is considered to be a sub-category of "financial technology" (FinTech for short). While different countries may have different laws or rules regarding FinTech patent applications, an invention described in a blockchain patent application needs to have, among other requirements, a technical nature or technical effect. Abstract ideas, financial principles or pure business methods tend not to pass muster, so to speak, at various patent offices such as those in Canada, the United States, China and Europe. For example, a successful blockchain patent application can show that specific technology is implemented to make a blockchain platform (or part of the platform) more secure, more reliable or more efficient. For instance, US Patent No. 10,305,694 (MasterCard International Inc.) describes a blockchain system for propagating configuration data, where a new block in the blockchain includes encrypted data generated based on a lock or release time associated with a data item in the configuration data. Another example, US Patent No. 10,055,715 (Square Inc.), describes a payment service for providing financial transactions between a customer and merchant where the customer can pay in a crypto-currency and the merchant can be paid in a fiat currency, leveraging the blockchain system. A point-of-sale system determines a monetary value owed to the merchant and an exchange rate based on the monetary value between the crypto-currency and the fiat currency, and a payment service executes two separate transactions to enable the payment by the customer using the chosen crypto-currency. Aside from facilitating financial transactions and building configuration data, blockchain technology has also been adapted to generate and maintain smart contracts, which are computer programs stored and maintained on a blockchain. A smart contract can encode obligations that are automatically fulfilled — or at least triggered to fulfil — when certain prede- termined conditions have been met. As a simplified analogy, smart contracts may be compared to digital vending machines: When a coin (e.g., input data, which can be payment or other data) is deposited into the digital vending machine (e.g., the blockchain ledger), the digital vending machine can auto- matically execute codes to fulfil the obligations (e.g., delivery of goods or services) based on the conditions met by the deposit of the coin. For instance, a smart contract for a flight ticket may stipulate, among other conditions, that if the purchased flight is cancelled by the carrier that sold the flight ticket to the customer, then a refund may be automatically issued to the consumer for the cancelled flight. This removes the need for a customer to contact the carrier for a refund when flight cancellations occur. As blockchain and crypto-currency technolo- gies mature and improve, they may have a profound impact on people's daily lives in the near future. The global race for patent protec- tion for blockchain technology has already begun and Chinese companies appear to lead. Patent protection is rather important for any new, emerging area of technology as it provides the patent owner a right to exclude others from exploiting the patented invention without a proper licence, and in this case, it may be wise to file patent applications world- wide for new blockchain or crypto-currency- related inventions. "As blockchain and crypto-currency technologies mature and improve, they may have a profound impact on people's daily lives in the near future." Rita Gao is an associate of Ridout & Maybee LLP, in the firm's Toronto office. Her practice focuses on creating and protecting intellectual property assets in Canada, the United States, Europe and China.

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