How We Think About Patents At Coinbase

There have been a few articles in the past week commenting on Coinbase filing for patents. I thought it might be helpful to give some context about how we think about patents.

I’d personally prefer to see a world where software patents don’t exist (I think they hurt innovation, and waste a lot of time/money), but since they do exist, we have to take them seriously. Patents in business are a form of warfare, and it’s a dangerous world out there.

Our ultimate goal in obtaining bitcoin related patents is to keep them out of the hands of bad people, use them defensively to protect Coinbase from patent trolls, and help ensure the bitcoin ecosystem continues to grow.

If you want software patents to be abolished, why are you applying for patents?

As Coinbase grows, it will not be a matter of if, but when, we get patent trolls coming after us trying to extract hundreds of millions of dollars. In fact, we’ve already seen one. One of the best ways to defend against patent trolls is to build your own portfolio of patents, and this is exactly what we are doing, along with just about every other tech company out there. It is an unfortunate game we all must play, but we didn’t invent the rules. (If you’ll forgive the colloquialism, don’t hate the player, hate the game.)

If you are running a tech company and not applying for patents at some point, I’d argue you are doing it wrong. The question is what you do with those patents (more on this below) and if they get awarded at all.

The bitcoin community was founded on ideals of openness and decentralization, so software patents feel especially bad in our industry. But that is not going to stop other large companies from going after bitcoin patents and using them offensively. By refusing to file bitcoin patents you aren’t helping bitcoin or “doing the right thing”, you are simply putting your own company at risk.

Why apply for them now? What was the reason behind it?

We applied for these about 18 months ago. Some of the articles incorrectly implied it had just happened.

There was nothing especially urgent about it at the time. We applied for them in the normal course of business (one of the many legal best practices you go through when running a business). I expect we will continue to apply for additional patents every year or so as we continue.

But your patent applications are so broad. Do you really think you invented these things or that they will get approved?

This stems from a misunderstanding about why companies apply for patents. There is a dual goal.

First, if the patent application is rejected, you still succeed in creating a prior record of the technology. This can serve as useful evidence in the defense of future frivolous infringement claims

Second, if the patent application is accepted, you cover as much of your technology as possible to reduce the risk that opponents of bitcoin can threaten you.

Through this lens, our patent strategy might make more sense.

Also, I want to be clear about something: getting patents is not 100% about defending against trolls. It also increases the value of your business (in the grand scheme of things, this is not a huge factor —for example, we’ve never discussed our patent applications when raising money) but this was certainly a factor as well.

Are you going to use your patents to go after other bitcoin companies? If not, how can you expect us to just take your word for it?

No, we didn’t file them for any offensive purpose and don’t intend to go after any bitcoin company. We filed them to defend ourselves against patent trolls, and help raise the value of our business. I personally think it is unethical when big companies go after small companies (offensively) using patents. This is usually an indication that the big company is in trouble, scared, or trying to pressure the smaller company into an acquisition.

“Taking our word for it” is a more difficult question.

• First off, we did sign The Patent Pledge which is a good start. Although, my understanding is that it is not legally binding, so it might not give people much comfort.
• The next step is that we need to figure out how to best solve this going forward. To be honest we are still getting educated on this.

I’m aware of a handful of different approaches out there. Some I’ve seen are:

• The Patent Pledge, which we signed.
• Twitter launched the innovators patent agreement, which they sign with the author promising to use patents for defensive use only.
• Google launched the “License on Transfer” network, which protects members of the network if other members sell a patent to trolls. They also did their own patent pledge.
• A group of law professors / advocates launched the defensive patent license.
• I know Brian Forde at the MIT Digital Currency Initiative is working on an idea for a defensive patent pool similar to the Open Invention Network. Not sure the exact status of it but I emailed him yesterday to check. (there is unfortunately some cost required to run/manage it if we want to go this route)
• Tesla “open sourced” its patents.

We are considering all these options, and don’t have it all figured out yet (and we don’t have any patents yet — we just filed applications, so we have some time to figure it out), but the ideal strategy in my mind (I think) is one which is defensive and open source.

Why don’t you open source your patents like Tesla did?

This is one of the options we are considering in the future. I’m a big fan of what Tesla did and we are following a pretty similar strategy so far.

1. Tesla was awarded well over 200 patents before Elon Musk blogged about open sourcing its IP (so clearly Tesla was in favor of applying for patents).
2. Tesla was also valued at many billions of dollars before open sourcing their IP (similar for Google, Twitter, etc in their pledges). So this is typically done by companies which are much later stage than Coinbase.

So we are much earlier in the process, but generally following a similar strategy.

Why didn’t you coordinate with other bitcoin companies before filing these?

In hindsight that would have been ideal. But if you rewind the clock 18 months, we were a tiny company moving fast (the nature of startups), and stopping to coordinate with a large number of companies would have been a big slow down (with design-by-committee and inefficiency). We opted to get something done quick and focus on more urgent matters.

Are you evil? Do you want to destroy bitcoin?

There have been some pretty crazy assertions made in the past week. The idea that we would want to harm bitcoin doesn’t make much sense — we’ve built our entire business on it, so I’m not sure how that would benefit us. Patent warfare is serious business, and the threats lie outside the bitcoin industry (not within it).

It might be frustrating for other bitcoin companies to see patents fall into the hands of Coinbase, but I think history will show that we’ll do the right thing with them (and if we didn’t apply for them, somebody else would have). It is much better for those patents to be in the hands of a bitcoin company than a non-bitcoin company (with something to lose if bitcoin succeeds).

Let us see if we can find the right structure to get these patents (if we are awarded them) into the right place to ensure the future success of bitcoin. I’ll update this post once we have researched some options and made a decision how to move forward.

Further Reading:
Paul Graham’s article on patents is worth a read.

Update Nov 16th, 2015:
We are currently leaning toward a Formal Patent Pledge and drafting some language. We also gathered some info from the Blockchain Patents Roundtable at the Berkman Center for Internet & Society, which was organized by Patrick Murck, Kat Walsh and Elizabeth Stark (thank you!) Further updates will be coming out as we make progress.