Banks Hate Cryptocurrency, But Are Filing Patents Anyway
Blockchain is a technological innovation underlying cryptocurrencies like Bitcoin. Given the importance of cryptocurrencies not only for buying and selling goods and services, but also as funding and investment vehicles, the underlying blockchain technology is obviously of interest in the fintech space.
The major investment banks have criticized cryptocurrency and blockchain. For example, in their 2018 form 10-k filings with the Securities and Exchange Commission, Bank of America, Goldman Sachs, and JP Morgan all noted the risks that blockchain and cryptocurrency posed to their bottom lines. Goldman Sachs presents the risk purely as a technological one, created by third parties and outside of their direct control:
Although the prevalence and scope of applications of distributed ledger technology and similar technologies is growing, the technology is also nascent and may be vulnerable to cyber attacks or have other inherent weaknesses. We may be, or may become, exposed to risks related to distributed ledger technology through our facilitation of clients' activities involving financial products linked to distributed ledger technology, such as blockchain or cryptocurrencies, our investments in companies that seek to develop platforms based on distributed ledger technology, and the use of distributed ledger technology by third-party vendors, clients, counterparties, clearing houses and other financial intermediaries.
BOA’s filing echoes the concern over technological vulnerabilities. But BOA took it a step further and also identified cryptocurrency as a competitive risk. Specifically, BOA expressed caution about how client preferences could lead them to migrate to cryptocurrencies that BOA currently does not support, explaining that “clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies.”
Interestingly, even though BOA publicly criticizes cryptocurrencies, they are also the most prolific patent filer in the cryptocurrency space. They have not commented on their strategy. But it is possible BOA may be developing products to respond to those client preferences and reduce the competitive risk they identified to the SEC. They may be filing patents with the hope of eventually excluding others from competing after a commercial launch. They may be using the patent filings to prevent others from developing blocking patents of their own, which could hamper a successful commercial launch of their own. They could be targeting blockchain use cases in the financial industry, outside the narrow cryptocurrency application. Or they simply could be testing the waters because they see little risk in filing patents and great upside in positioning themselves as a technological leader in this burgeoning space.
A crucial issue in obtaining patent rights in blockchain and cryptocurrencies in the United States is, of course, subject-matter eligibility. In 2014, the landmark Supreme Court case Alice v. CLS Bank International, 134 S. Ct. 2347 (2014), announced a two-step framework for determining eligibility of software patents under 35 U.S.C. § 101. The Patent Office and the courts have been struggling to define the contours of that framework ever since. In light of the Alice decision, applications in the blockchain and cryptocurrency space may receive close scrutiny if the claims attempt to cover the abstract idea of accomplishing a particular goal. To reduce the risk of a rejection under § 101, filers may consider looking for opportunities to direct their claims to unconventional, technology-specific improvements over the prior art. See Berkheimer v. HP Inc., 881 F.3d 1360, 1370 (Fed. Cir. 2018); Bascom Glob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341, 1351 (Fed. Cir. 2016) (Claims recited “a technology-based solution … to filter content on the Internet that overcomes existing problems with other Internet filtering systems.”).
It is safe to assume that, given the disruptive potential of blockchain technology and cryptocurrency in fintech, market participants are interested in ensuring their interests, and their clients’ interests, are protected. To this end, including a claim limitation that recites a purported improvement that is technology-specific and not provably conventional may improve the chances that the claim will successfully navigate the Alice framework and provide valuable rights in this burgeoning space.