Beware of the crypto/blockchain patent troll

As the cryptocurrency and blockchain industries mature, they must prepare for a downside to their success – patent trolls. As technology charts clear routes and more money is at stake, Dykema patent attorney Michael Word said cryptocurrencies will be the next patent battlefield.

Word brings an interesting perspective to the fight. Before becoming a lawyer, he was an engineer. He understands the technology fundamentals and communicates more effectively with experts and inventors.

Learning from past patent trolls

To understand how crypto and blockchain patent trolling will evolve, Word said to consider the wireless industry in the 1990s. It brought novel technologies and designs for not only wireless but also Bluetooth, cellular and WiFi. It brought a rush of patent activity.

The early activity is more greenfield, and Word noted the patents can be broader in scope. That can make them more challenging to enforce. As the industry matures, it moves forward in several directions. The patents become more defined.

Struggling companies either go bankrupt or sell their intellectual property, which can be their only marketable asset. Some are bought by large companies, who may let them lapse if the technology is not helpful to them.

Much of the remainder is bought by patent trolls, which can also be more warmly called “non-manufacturing patentees.”

“You’ve got a mature industry, you’ve got patents that have gone out peaked, and companies that have fallen out,” Word said. “Now these patents are out in the wild, so to speak, and that creates the perfect opportunity for the rise of the patent troll and to go after all these juicy targets.”

The patent troll timeline

There tends to be a 10-15-year lag between when patents start being failed and when the trolls appear. The first blockchain patents were filed around 2016, meaning it’s soon time to beware of the trolls. Word said the signs are there, from exiting innovators to larger sums of money at stake.

“There already have been some filings out there, but you can expect that there’s going to be stronger and better patents that are emerging and will start filtering down to these patent monetization,” Word said. “You’re likely to see that same kind of campaign, these firms putting out packages of patents and then going after one institution after another and then just hitting them again and again.”

The best defence

Word said companies must have a detailed strategy to combat patent trolls. It begins with capturing and developing their intellectual property as much as possible. That helps fend off early trolling.

Michael Word said it’s never too early for a company to protect itself from patent trolls.

Word advised keeping an eye on potential future litigation and indemnification risks when considering agreements with other companies. As companies develop new products, they should continually keep litigation in mind.

“Make sure that you’re taking a close eye to these agreements,” Word advised. “You’re not just signing whatever paper gets put in front of you. You’ll probably have to accept some risk for your IP, but you shouldn’t be accepting risk for the IP the other companies are bringing.

“Having this in mind and who’s going to bear the risk of future litigations when entering agreements and doing transactions is also important.”

Start developing cash patent defence reserves, which brings the added benefit of making a company more attractive to potential suitors. Consider patent and litigation insurance. Modify services and processes to avoid patent conflict. Take threats seriously, but if you have a clear strategy, there’s no reason to panic, either.

The government gives, the government takes away

Because of the amount of novel technology that supports blockchain, it brings more tech into finance than what many are used to. That means more patents.

Regulators and administrators have prepared for this. The United States Patent and Trademark Office and the Supreme Court have spoken against broad patents. There is a new method to challenge patents that is cheaper and easier. Word said trolls hate it because, in court, they essentially have a gun pointed at small companies who cannot afford a $3 million litigation.

“Through the Patent and Trademark Office, it’s much cheaper to attack these patents,” Word said. “It’s faster and cheaper than District Court. There’s been a high success rate of invalidating these patents at the Patent and Trademark Office.”

The courts have also noticed. Some district courts in states like Texas have become patent litigation hotbeds. They offer quick adjudication and ad hoc dockets that attract patent trolls. That kneecaps the patent appeal process.

“The Patent Trial Appeal Board will undertake their discretion to deny your petition because of this district court litigation so far along,” Word said. “It’s a big frustration. A lot of these companies are unable to take advantage of this.”

Also read:

  • Tony Zerucha

    Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.