‘The Blockchain Race’ Has Begun: Big Tech Blockchain Patents
Companies around the world are starting to reinvent themselves. Big tech giants are gearing up for the financial and technological age of the 21st century. Faced with the challenge of upgrading their business models, these giants are not just dipping their toes into blockchain technology.
A similar shift happened with the advent of the Internet, as companies around the world started the .com race in the early 2000s. Businesses that couldn’t keep up or simply refused to board the innovation boat are now nostalgically remembered by Millennials.
Blockchain technology enables companies to shift from a product centered business models to a user centric business model, thanks to decentralization of trust. Blockchain decentralizes trust in money, but also trust in products and services.
Peer-to-peer services, instant payments and blockchain enabled supply chains are just a few of the areas where the technology is already silently permeating itself.
Numerous studies show that companies not engaged in blockchain are now in the minority, with the technology itself serving as a barometer for future market projections.
The transition has already begun, and today we are going to take a close inspection at some of the most prominent big tech blockchain patents.
Blockchain technology is viewed, by some, as “the future for financial services infrastructure,” as it combines the “peer-to-peer computing ethos of Silicon Valley with the money management of Wall Street.”
The technology has the capability of speeding up transactions, improving the security of financial infrastructure, and cutting operations costs by $20 billion annually, according to one estimate.
The R3 CEV consortium, a joint blockchain project bringing together more than 50 of the world’s leading financial institutions, noted that “distributed ledger technology has the potential to change financial services as profoundly as the Internet changed media and entertainment.”
In short, blockchain technology, according to Goldman Sachs, could “change everything.” Given the economic potential, it is no surprise that the financial services industry has looked into obtaining patents to protect concepts and technologies related to blockchain — and, possibly, to assert control over the use of those concepts in new trading platforms through such patent rights.
In general, banks can potentially use patents to create market exclusivity over their own trading platforms or they can use them to generate additional revenue by monetizing those rights through royalties from other platforms that use the technologies.
Patents also enable financial institutions to mitigate the risk of being sued as they implement the technologies.
Catherine Bessant of Bank of America said that owning patents in the blockchain space is “very important… to reserve our spot even before we know what the commercial application might be.”
Similarly, Andy Cadel of JPMorgan Chase said patents represent his firm’s “view of the future” and serve to protect the firm’s investments, adding that “If we invent something and we file a patent that means no one else can patent it. We don’t want to find ourselves locked out of using our own invention.”
Cadel also recognized the potential cross-licensing opportunities from owning patents.
Finally, banks may be filing patent applications simply to test whether the technology is indeed patentable. In the event that the United States Patent and Trademark Office determines that such applications are not patentable, then the risk of being sued for developing a blockchain technology may be immaterial.
Why blockchain matters to banks
Blockchain guarantees the provenance of every transaction — a service currently provided for banks by a cumbersome and bureaucratic set of back-office systems.
With blockchain architecture, there is no need for a central clearinghouse or financial institution to act as a third party to financial transactions, because trust in the system is vested in cryptography.
Moreover, according to Blythe Masters of Digital Asset Holdings, “one master prime record can eliminate the need for reconciliation (charge-backs), which is a very costly process for financial institutions, while improving compliance, security and privacy.”
The economic impact is that a cryptocurrency carries a very low transaction cost and, theoretically offers a cheaper electronic payment method.
The following summarizes the resulting and not unexpected flurry of activity around cryptocurrency:
· Citi and Bank of New York Mellon have created Citicoin and BK Coins, respectively, for internal testing of blockchain technology.
· UBS is working on a cryptocurrency called utility settlement coin and relying on an Ethereum-developed technology as well as on Clearmatics, a blockchain stock exchange technology specialist.
· RBS intends to pilot some form of payment service based on the blockchain.
· American Express took part in the $12-million funding round of Abra, the world’s first digital-cash, peer-to-peer money transfer network.
· Circle, in a relationship with Barclays, is now able to move sterling across the blockchain.
· The Australian Securities Exchange bought a minority stake in blockchain developer Digital Assets Holdings for $10.4 million, hoping to use blockchain technology to benefit public companies.
· Nasdaq launched Linq, a blockchain-powered system to help private companies keep track of their share ownership.
The incentive to patent
On October 30, 2014, Goldman Sachs filed a patent application entitled “Cryptographic Currency for Securities Settlement,” which has been dubbed SETLcoin. The application concerns a securities settlement system that would use a distributed ledger based on blockchain technology as well as cryptographic protocols to accomplish secure and almost instantaneous settlement of securities trades.
The system is intended for use in the settlement of securities trades involving the trading of stocks, bonds, and other assets. SETLcoin appears to be its own cryptocurrency that describes a particular exchangeable security and that is independent of Bitcoin. According to Goldman Sachs, SETLcoin is intended to be a new virtual currency with “the potential to redefine transactions.”
The Goldman Sachs application reads, “Settlements are nearly instantaneous because cryptographic currency transactions are independently and extemporaneously generated, verified, and executed within the network, without the risks associated with traditional clearing houses that can delay settlements for several days.”
However, the system allows for the possible introduction of an “authoritative source” such as the US Securities and Exchange Commission.
JPMorgan Blockchain Patents
Details of a patent filing by JPMorgan Chase & Co. (JPM) was published by the U.S. Patents and Trademark Office on June 2019, which was originally filed by the bank in October of the previous year and lists how the leading investment bank plans to utilize the distributed-ledger-based system. It plans to use the system to record payments sent from one bank to another using a peer-to-peer network. The filing goes on to explain the abstract as follows:
“In one embodiment, a method for processing network payments using a distributed ledger may include: (1) a payment originator initiating a payment instruction to a payment beneficiary; (2) a payment originator bank posting and committing the payment instruction to a distributed ledger on a peer-to-peer network; (3) the payment beneficiary bank posting and committing the payment instruction to the distributed ledger on a peer-to-peer network; and (4) the payment originator bank validating and processing the payment through a payment originator bank internal system and debiting an originator account.”
While the real-world financial industry, working under regulatory purview, often appears to be in opposition to open, anonymous, decentralized cryptocurrencies like bitcoin and ethereum, their underlying distributed ledger technology is being embraced by such banks with open arms owing to the several benefits it offers.
Blockchain by Bank of America
Bank of America also has been notably active in seeking patents in blockchain technology; back in 2013, it was among the first to openly claim that cryptocurrencies had “clear potential for growth.” Bank of America filed in 2014 for 11 blockchain related patents and in 2015 for an additional 20 patents related to some of the uses of Bitcoin technology.
Bank of America’s patent applications differ from the SETLcoin application as they appear to address the managing of cryptocurrencies. For example, Bank of America’s patent application entitled “System and Method for Wire Transfers Using Cryptocurrency” seeks to patent the concept of using a cryptocurrency in a transparent intermediate step for accomplishing legal-tender transfers; the process being funds are transferred to a cryptocurrency exchange to then be converted to a cryptocurrency and then sent to another exchange before finally being converted into another currency.
Another Bank of America application, entitled “Cryptocurrency Real-Time Conversion System,” describes a secure cryptocurrency storage system that can be implemented at the enterprise level and thereby reducing the dependency on third-party exchanges.20 And a third application, entitled “Online Banking Digital Wallet Management,” is directed to digital wallet management where multiple digital wallets can be aggregated onto a single system or device.
Blockchain Patents Stats
As financial services organizations ramp up their blockchain technology development, patent applications may proliferate.
Our search found at least 72 US patent applications related to the cryptocurrency and blockchain space submitted between 2012 and 2015.
Is blockchain even patentable?
It is likely that patent applications will proliferate, but the immediate question is whether they can overcome the hurdles presented in a 2014 US Supreme Court decision: Alice Corp. v. CLS Bank International, 573 U.S., 134 S. Ct. 2347 (2014).
The Supreme Court unanimously held that claims to a computer-implemented technique of mitigating “settlement risk” in financial transactions were ineligible for patenting. It clarified that a claim directed to an abstract idea is not eligible for patent protection when it “merely requires generic computer implementation” or “attempt[s] to limit the use of [the idea] to a particular technological environment.”
Subsequently, district courts have relied on Alice to invalidate patents that previously would have been litigated. The blockchain patent applications may likely be considered software patents, and under Alice, software patents that take an old idea and “apply it on a computer” or “apply it through the Internet” will be ineligible.
Accordingly, a patent application that takes existing blockchain technology and comes up with a new use may be rejected. As an example, in August 2013, JPMorgan Chase filed an application for an electronic mobile payment system with similarities to Bitcoin; however, all 175 claims were either canceled or rejected.
By contrast, an application that improves the technological functioning or processes of a computer itself — such as improving efficiency or security — may be eligible. It is our understanding that the US Court of Appeals for the Federal Circuit is attempting to draw the line for computer-implemented inventions.
The blockchain technology has created a whole new playing field, and the game could yet be very hard-fought.
It remains to be seen whether this becomes a winner-takes-all race and how the issue of standards for the technology will be managed. But in the face of a disruptive technology, banks will be keen to protect their innovations.
Blockchain: more than banking.
Blockchain is an emerging technology, so corporations are exploring implementation of blockchain technology in financial transactions, smart contracts, automotive, retail, healthcare, energy, utilities, travel, supply chain, gaming, and many more.
Naturally, the number of blockchain-related patent applications has increased significantly around the world in recent years. For example, there were only 126 filings in 2014, but by 2017 there were over 3,700 applications filed in the blockchain sphere. Full data for 2018 hasn’t been disclosed yet, but there seem to have been over 8,200 filings.
To date, over 10,000 blockchain filings occurred in China, more than half of all blockchain related filings worldwide. The top 10 filers of Chinese patent applications in the blockchain space are as follows (as of 10/1/2019):
Notably, the U.S. has the second most blockchain filings, with over 2,700 filings. In the U.S., the top ten filers of patent applications in the blockchain space are as follows:
In comparison, the top 10 U.S. patent owners in the blockchain space are as follows:
According to a recent report published by Accenture PLC, worldwide spending on blockchain solutions has a forecast annual growth rate (CAGR) of 76%, reaching $12.4 billion in 2022.
Major multinational companies have also shown immense interest in filing blockchain patents in China. The latest Global Times report suggests that 35 multinationals including Microsoft, Walmart, Mastercard, Sony and Intel, had applied for a total of 212 blockchain patents by the end of March 2020.
Of all the foreign companies with blockchain patents in China, Mastercard tops the list with 46 such patents to its name.
Nokia, Intel, and Oracle are next on the line with 13, 12, and 9 blockchain patents respectively in China.
Blockchain Patents and Innovation
The most notable patent filers in the blockchain technology space have been banks. Besides Goldman Sachs, Bank of America and Mastercard have also been aiming to patent some of the most promising blockchain technologies for themselves.
Tech giant IBM has tripled the number of blockchain patents secured in the United States since last year, currently boasting over 100 active patent families. That makes IBM’s growth in US patents the largest of the year 2018, according to a report by crypto-related news site BeinCrypto.
According to data gathered by Yuval Halevi, co-founder of crypto and blockchain PR company GuerillaBuzz, IBM’s number of active patent families dwarfs other notable corporations. This includes some primary tech companies, such as Intel, Microsoft, and Dell Technologies:
“In just 1 year the number of IBM blockchain patents has grown by 300%. When one of the largest companies in the world (366,000 employees) spends so much of their resources on developing a blockchain department, this tells a lot about the market potential.”
Tencent and Alibaba Blockchain Patents
Chinese tech giants Tencent and Alibaba filed the most blockchain patent applications in 2019, according to research conducted by The Block’s Steven Zheng.
Tencent and its affiliates filed for 718 blockchain patents out of a total of over 5,800, while Alibaba Group filed 470. Together, they accounted for over 20% of the total.
Chinese internet giant Alibaba Group has won two U.S. patents designed to make its blockchain network safer and faster.
One patent aims to reduce the time to verify block data, while the other is designed to help participants set a validity period for a transaction in a blockchain network.
Both of the patents were approved by the U.S. Patent and Trademark Office (USPTO) in December 2019.
The approvals comes at a time with Ant Financial, the fintech arm of Alibaba, announced the launch of its Ant Open Blockchain Alliance, a consortium that aims to finance small and medium-sized businesses on its blockchain-based platform.
According to the patent filing, when data are added to a node the new technology will determine the update verification value of the node by using just the newly added data, not all the data in the block.
“The application will alleviate a problem in the existing technology, that much time is consumed because a verification value is calculated by using all data in a block,” the filing said.
The other patent will be used to set up a validity period for a transaction, meaning participants of a blockchain network can only process the transaction during a certain period of time via either a physical clock or a logical clock, according to Alibaba’s filing.
For example, the blockchain can be a consortium blockchain consisting of a third-party payment platform server, a domestic bank server, a foreign bank server and several user node devices serving as member devices.
The operator of the blockchain can set up a validity period and deploy online services such as cross-border payment and asset transfers, the filing said.
According to a November report from Chinese blockchain analytics firm Block Data on Chinese blockchain patents, Alibaba is one of the top three companies in developing blockchain patents, along with China Telecom and OneConnect, a subsidiary of one of China’s largest insurers, Ping An Insurance.
Alibaba applied for the most blockchain patents in 2018 with 90 blockchain-related technologies, followed by IBM and Bank of America.
Who will win the race?
Vitalik Buterin, the Ethereum founder, is not impressed by these sorts of rankings. Most blockchain protocols are open source. The leader in these blockchain rankings, Alipay, has the Ant Financial Blockchain protocol which is one of the few that says it’s proprietary.
If you wonder why different blockchain patent reports show different rankings, it’s because the classification of a blockchain patent is not entirely straight forward. Some reports might include all applications relating to cryptography and business processes using cryptography. Those categories include blockchain but also several other security applications.
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