Intellectual Property Law

Looking Through an IP Lens at Blockchain and Cryptocurrency

By Ehab Samuel, Counsel, Intellectual Property | Matthew Bottomly, Associate, Intellectual Property

Why it matters: With headline news ranging from J.P. Morgan CEO Jamie Dimon and Russian President Vladimir Putin to the Winklevoss twins and Floyd “Money” Mayweather, the hype surrounding cryptocurrency—think bitcoin, ethereum and an ever-expanding list of niche altcoins—has gone mainstream. As with any new industry, over the past five years there has been a rapid increase of applications for blockchain- and cryptocurrency-related patents filed with the U.S. Patent and Trademark Office by entrepreneurs and financial institutions alike looking to monetize some part of this technology. Notably, higher levels of patenting activity bring nonpracticing entities, aka patent trolls, out of the woodwork. In March 2017, the Blockchain Intellectual Property Council was formed to, among other things, play defense against the trolls.

Detailed discussion: The cryptocurrency industry is booming, and with it the underlying blockchain technology that makes it run. As with any new industry (think back on the advent of smartphones), over the past five years there has been a rapid increase in patent applications filed with the USPTO by entrepreneurs and financial institutions looking to monetize some application or variation of the blockchain. We explore the origin, developments and ownership of blockchain technology further below.

What is blockchain technology? Earlier this week, Vitalik Buterin, the mind behind ethereum, defined blockchain, in simple terms, as “a decentralized system that contains some kind of shared memory.” Buterin went on to explain that “a good blockchain application is an application that #1 needs decentralization and #2 needs some concept of shared memory.” In addition, consulting firm TechTarget further explained the processes handled by the computers responsible for building and verifying the blockchain as follows:

“When a transaction is made, it is packaged up with other transactions into a ‘block’ and recorded across a network of computers, a majority of which are required to confirm the transaction in order for it to be accepted as legitimate—a process referred to as achieving consensus. The block is then time-stamped with a cryptographic hash. Each block also contains a reference to the previous block’s hash, creating a ‘chain’ of records that is considered impossible to falsify.”

The origin of the blockchain: With most new technologies, the relatively short path from invention to implementation can be easily traced, and one or more inventors can be easily identified. However, bitcoin and the blockchain represent the evolution of prevailing demand for autonomy and anonymity during a period of market uncertainty and Wall Street distrust. The inventor(s) behind bitcoin is/are known only by the pseudonym Satoshi Nakamoto, who authored the 2008 white paper “Bitcoin: A Peer-to-Peer Electronic Cash System.” Whether Satoshi Nakamoto is a single individual or a group remains unknown.

Unfortunately, the challenges in determining cryptocurrency inventorship extend beyond the mysterious identity of Satoshi Nakamoto. Most blockchain-based projects, including bitcoin and ethereum, have been developed by loosely organized developer/enthusiast communities, complicating issues of inventorship and assignment, even when the development team is known.

Blockchain- and cryptocurrency-related patent applications are booming: Our patent system is built around a system of incentives and trade-offs for inventors, granting limited-duration monopolies to inventors in exchange for contributing their inventions to the common good. As such, if an inventor does not file an application to patent his or her invention within one year of the invention’s publication, public use or sale, the invention falls into the public domain. After that year passes, anyone can make, use or sell the invention, without compensating the original inventor.

Today, only improvements and nonobvious applications of the blockchain are eligible for patent protection. Many of the blockchain-based pending applications and issued patents focus on improvements related to fintech, security, off-chain records, and attempts to increase the responsiveness of the blockchain without sacrificing core tenets of decentralization and consensus verification. Some examples of issued patents include bitcoin mining derivatives, in-car cryptocurrency payments and blockchain-based shareholder voting.

On July 27, 2017, CoinDesk, an online news site specializing in bitcoin and digital currencies, estimated that nearly 400 patent applications published between January and July 2017 related in some way to the blockchain. It is impossible to search unpublished patent applications, but analysis of available records indicates that some major financial institutions are heavily investing and innovating in the space. From published records, it appears that Bank of America has filed for at least 20 patent applications relating to the blockchain and cryptocurrency, while Citibank and a number of other banks have developed their own internal blockchain-based coins for internal testing and development. Even governments are showing interest in the technology, with the Australian Securities Exchange investing in blockchain developers and Dubai announcing its goal of becoming the world’s first blockchain-powered government.

The number of issued patents relating to the blockchain is steadily increasing, as those applications have climbed their way to the top of the USPTO’s infamous backlog. Aside from the usual patentability questions of novelty, many of these applications face an uphill climb in view of the USPTO’s challenging subject matter eligibility guidance for patent examination. The key is to include significant technical support in the clients’ blockchain patent applications to avoid subject matter eligibility rejections for this disruptive technology.

The Blockchain Intellectual Property Council and patent trolls: In recognition of the rapid growth of the blockchain technology industry and in an attempt to get control of the IP issues related to it, in March 2017, the Chamber of Digital Commerce created the Blockchain Intellectual Property Council. On its website, the CDC states that its initiative promotes “innovation in blockchain and distributed ledger technologies (DLT) by addressing intellectual property issues. The council helps balance the protection of proprietary information with the openness necessary for innovation.” Notably, the BIPC executive committee includes a who’s who of blockchain and fintech stakeholders.

The BIPC will explore various IP protection models that have worked in other sectors, including (a) drafting nonaggression agreements, where industry players agree not to assert patents against each other; (b) developing patent pools, where cross-licensing options are available to all pool participants; and (c) reducing inventory, where groups are formed and the members agree not to sell patents without first granting a license to all group members.

What lies ahead? As adoption of blockchain technology continues to expand, various stakeholders across numerous industries are heavily investing not only in implementing—but also in building patent portfolios to protect and monetize—particular applications of the blockchain. In this area of rapid growth, it is crucial to talk to your counsel about how best to protect your innovation and avoid potentially infringing activity.

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Copyright Protection for AI Machine Created Works?

By Yasser M. El-Gamal, Partner, Intellectual Property | Ehab Samuel, Counsel, Intellectual Property

Why it matters: Should the artistic efforts of robots, computers or other artificially intelligent machines be afforded copyright protection? If so, who, or what, would be the “creator” or “author” of those works? It’s an intriguing question indeed—one that U.S. and foreign copyright laws and courts are scrambling to address as they attempt to keep up with the fast pace of AI innovations.

Detailed discussion: In a recent article, a senior lecturer in intellectual property law at the University of Sussex in England posed an intriguing question: “Should robot artists be given copyright protection?”

At the outset, the author pointed to examples of recent AI artistic creations, such as a painting unveiled in the Netherlands in 2016 titled “The Next Rembrandt,” which bore all the hallmarks of a long-lost painting by the artist, but instead was “a new artwork generated by a computer that had analyzed thousands of works by the 17th-century Dutch artist Rembrandt Harmenszoon van Rijn.” The author noted that the computer had used “machine learning to analyze and reproduce technical and aesthetic elements in Rembrandt’s works, including lighting, colour, brush-strokes and geometric patterns.” The result was “a portrait produced based on the styles and motifs found in Rembrandt’s art but produced by algorithms.”

Other recent AI projects include a Japanese computer program that produced a short novel in 2016 that made it to the second round of a national literary prize contest, as well as a Google-owned “Deep Mind” computer program that can generate music in the artistic styles of composers just by “listening” to a compendium of their works.

The issue becomes whether these AI-created works can be protected by copyright—as the individuals or companies commissioning them would surely demand—or whether due to their origin they cannot be granted copyright protection and are thus free to be used and reused at will. As no international copyright treaties have dealt with the issue to date, the legal ramifications become quite complicated because they can change based on the law of the jurisdiction where the work was created. For example, on the one hand, the copyright laws of Spain and Germany, and recent case law in Australia, specify that only works created by human beings can be afforded copyright protection. On the other hand, in the United Kingdom, Ireland and New Zealand, computer-generated works can be copyrighted by the individual or corporation that commissioned the work, i.e., by the person who made the arrangements necessary for the creation of the work.

As for the United States, the issue remains unresolved and has not yet been tested in the U.S. courts. The U.S. Copyright Office has weighed in, however. In 2014, in response to the notorious “monkey selfie” case out of the U.S. Court of Appeals, Ninth Circuit (Naruto v. Slater, which recently settled), the Copyright Office issued specific rules on this topic as part of the latest edition of the Compendium of U.S. Copyright Office Practices, Third Edition. Section 306 of the Compendium, titled “The Human Authorship Requirement,” reads in relevant part that:

“The U.S. Copyright Office will register an original work of authorship, provided that the work was created by a human being. The copyright law only protects ‘the fruits of intellectual labor’ that ‘are founded in the creative powers of the mind.’ … Because copyright law is limited to ‘original intellectual conceptions of the author,’ the Office will refuse to register a claim if it determines that a human being did not create the work.”

Section 313.2 of the Compendium gives examples of “Works That Lack Human Authorship” for purposes of Section 306. At the outset, Section 313.2 provides that “the Office will not register works produced by nature, animals or plants,” including specifically “[a] photograph taken by a monkey.”

Relevant here, Section 313.2 states that “the Office will not register works produced by a machine or mere mechanical process that operates randomly or automatically without any creative input or intervention from a human author.” Notably, none of the examples given for illustrating a lack of human authorship in this context—including “[r]educing or enlarging the size of a preexisting work of authorship”—apply to a situation where a computer or other AI machine is specifically programmed by humans to create a work of art along the lines of the examples discussed above. And it could certainly be argued that the language “without any creative input or intervention from a human author” applies to those situations and thereby removes the AI-created works from the parameters of Section 306.

As innovation in AI-created works forges ahead, the copyright laws in the United States and around the world are scrambling to keep up. We will keep you apprised of further developments in this interesting area of copyright law.

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DTSA Leads Escalation in Federal Trade Secrets Litigation

By Yasser M. El-Gamal, Partner, Intellectual Property | Ehab Samuel, Counsel, Intellectual Property

Why it matters: With the enactment of the federal Defend Trade Secrets Act in 2016, the IP bar has seen an escalation in litigation centered on the alleged pilfering of trade secrets, especially in the tech industry. In addition, large jury awards in recent trade secret misappropriation trials have helped make this once-underused cause of action an important tool to protect trade secret information in the digital age.

Detailed discussion: The Defend Trade Secrets Act of 2016 was signed into law on May 11, 2016, and gives trade secret owners a federal cause of action and standard for injunctive relief and monetary damages for the misappropriation of trade secrets, while also providing employee protections. Prior to the DTSA, trade secret misappropriation was governed primarily by state-adopted variants of the Uniform Trade Secrets Act in 47 states and by common law in New York, Massachusetts and North Carolina, where the UTSA was never adopted. The DTSA provides federal jurisdiction for trade secret misappropriation claims but does not preempt these state laws. Rather, the DTSA provides an additional federal cause of action for trade secret misappropriation, with remedies including injunctive relief or reasonable royalties for ongoing infringement, ex parte seizure, increased monetary awards, and treble damages and attorneys’ fees for willful or malicious misappropriation. To balance the interests of employees, the DTSA expressly forbids injunctions preventing employment and protects individuals who divulge trade secrets while reporting violations of the law or in court filings made under seal. See our June 2016 newsletter under “Defend Trade Secrets Act of 2016: An Overview” for a comprehensive summary of the DTSA’s provisions.

In a July 28, 2017, article in Legaltech News, reporter Zach Warren explored what he calls the “surge” in federal IP trade secrets litigation since the DTSA was enacted: “These days, many of the big IP litigation battles involving companies like Facebook (Zenimax Media Inc., et al v. Oculus VR Inc., et al), Uber (Waymo LLC v. Uber Technologies Inc., et al) and Epic (Epic Sys. Corp. v. Tata Consultancy Servs. Ltd., et al) have nothing to do with patents, trademarks or copyrights at all. Instead, it’s all about the perhaps forgotten part of IP: trade secrets.”

While every company has “secret sauce” trade secrets that help differentiate it from its competitors, Warren said, in the tech industry especially “the risks of compromising those secrets are higher than ever before, in part because of the nature of computer code, but also the high level of access partners have to one another’s systems” via cloud services or otherwise. This problem is further amplified when the know-how is shared with third parties as part of system integration.

Notably, the specter of large jury awards in federal trade secrets cases makes filing trade secrets litigation in federal court more attractive. An example is the ZeniMax case (referenced above), where in February 2017 a Northern District of Texas jury ordered virtual reality developer Oculus VR (owned by Facebook) to pay $500 million to computing firm ZeniMax Media Inc. for trade secret infringement, among other IP infringement claims.

As a federal cause of action, the DTSA is proving to be an important tool in a company’s arsenal to protect trade secret information in the digital age. Given the uptick in trade secret litigation since the DTSA’s enactment, businesses should consider the DTSA at both the beginning and end of any relationship concerning confidential information.

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Proposed Legislation Aims to Make Patent Owners "STRONGER"

By Yasser M. El-Gamal, Partner, Intellectual Property | Ehab Samuel, Counsel, Intellectual Property

Why it matters: In late June 2017, proposed legislation titled the “STRONGER Patents Act of 2017” was introduced in the Senate with the goal of amending the existing patent laws to “protect the property rights of the inventors that grow the country’s economy.” The stated intent of the legislation is to combat, among other things, patent owners experiencing “unintended consequences” arising out of the new post-grant proceedings instituted by the Leahy-Smith America Invents Act of 2011, which the bill’s proponents argue serve to cause a chilling effect on inventors and innovation.

Detailed discussion: In late June 2017, Sen. Chris Coons (together with Sens. Tom Cotton, Dick Durbin and Mazie Hirono) introduced proposed legislation in the Senate titled the “STRONGER Patents Act of 2017” (STRONGER Act) with the goal of amending the existing patent laws to “protect the property rights of the inventors that grow the country’s economy.” The term “STRONGER” is an acronym for Support Technology and Research for Our Nation’s Growth and Economic Resilience. The stated intent of the legislation is, among other things, to combat the perceived negative—and chilling—effects on patent owners and innovators arising out of the new post-grant review system.

Notably, the proposed legislation recognizes that “unintended consequences of the comprehensive 2011 reform of patent laws are continuing to become evident, including the strategic filing of post-grant review proceedings to depress stock prices and extort settlements, the filing of repetitive petitions for inter partes and post-grant reviews that have the effect of harassing patent owners, and the unnecessary duplication of work by the district courts of the United States and the Patent Trial and Appeal Board.”

Among the proposed legislation, the STRONGER Act would change the claim construction standard currently used at the Patent Trial and Appeal Board proceedings from “broadest reasonable interpretation” to “ordinary meaning” and raise the burden of proof, in both cases to better reflect the standards used by federal district courts in patent cases. The STRONGER Act would also allow for interlocutory appeal of PTAB decisions relating to whether or not inter partes review proceedings should be instituted in the first instance (which decisions are currently not subject to review under the AIA). In addition, the STRONGER Act would limit those who can challenge a patent to parties with a business or financial connection to the patent owner in an attempt to curb so-called patent trolls (i.e., nonpracticing entities, or NPEs).

Interestingly, the STRONGER Act appears to overrule at least five Supreme Court decisions from the past 12 years on such issues as permanent injunctions, induced infringement and divided infringement. Indeed, another of the congressional “findings” at the beginning of the legislation addresses the deleterious effects on patent owners of the Supreme Court’s 2014 decisions in Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management System, Inc. that “significantly reduced the burden on an alleged infringer to recover attorney fees from the patent owner, and increased the incidence of fees shifted to the losing party.”

It remains unclear whether this proposed legislation will make any headway in Congress, particularly in view of the current political climate. We will continue to follow the STRONGER Act’s progress as it makes its way through Congress, and will provide updates on further developments.

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