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Blockchain and the Internet of Things: A New Frontier of Intellectual Property

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The cost and availability of computing power has drastically changed over the past few decades, facilitating the rise of the Internet of Things (“IoT”), an assortment of devices, like refrigerators, thermostats, or even healthcare accessories, that collect and convey data through the Internet.

IoT has pushed companies that are not traditionally associated with modern technology deep into the technology sphere. As a result, some IoT companies lack necessary experience in handling user data, creating security and privacy concerns. Hackers have been able to exploit inconsistent security measures to access and control IoT devices.1 Additionally, data generated by IoT devices is often stored and used contrary to the privacy expectations of the device owners.2

Enter blockchain, a technology popularized by Bitcoin, that could provide solutions to these problems. Blockchain distributes transaction records, called ledgers, across several computers rather than store them on a centralized server.3 At predetermined time intervals, these computers receive updates to the ledger, which they verify and record.Any changes made to the ledger must be confirmed by a majority of the participating computers, rendering modifications practically impossible.5 Ultimately, blockchain provides a reliable method of storing data and has the potential to impact a variety of fields. However, as with most technology tools, patents and other rights protecting proprietary information may intersect with the use of blockchain.  Several of the key IP issues associated with that intersection are discussed below.   

Securing the Internet of Things
Over the past few years, security flaws in IoT products have been exploited for troubling uses. In 2016, an IoT botnet was used to initiate the largest Distributed Denial of Service (“DDOS”) attack ever.6 The DDOS attack temporarily rendered popular websites, like Twitter, Netflix, and CNN, inaccessible.7 Even more worrisome, the U.S. Food and Drug Administration has found vulnerabilities in healthcare devices such as heart monitors that could be used to deplete a device’s battery or administer shocks to a patient’s heart.8 Other IoT devices like webcams and cars, have also been hacked.9

Zingbox, an IoT security company, found that 33% of medical device security issues are caused by outdated firmware or software.10 As the number of IoT devices continues to grow,11 the risk created by inadequate security measures grows with it.12 Because many IoT companies are newcomers to the technology industry, some do not have software update infrastructures comparable to those of companies who have been operating in this space for some time.13 Thus, IoT devices often operate on out-of-date software, risking security crises, such as those previously mentioned.14 Blockchain systems could be used to create more stable infrastructures, even on devices with limited memory and processing power, without requiring excessive cost or labor.15 In this scenario, the IoT device would periodically check a blockchain to see if a new update was available, authenticate the update, and download it. Several companies have already implemented this technology in hopes of patching major IoT security flaws.16

Protecting Private Information
The scope of information collected by IoT devices is staggering and can be used for nefarious purposes. For example, if a burglar had access to thermometer data, he could use it to predict when a target house will be unoccupied. Likewise, insurance companies could scale rates depending on heart monitor data. Typical IoT devices provide little protection from authorized and unauthorized access to data, leaving users with little control over how their data is used.

Blockchain provides at least two remedies to this problem. First, blockchain technology can be used to create digital identities that control access to sensitive online information.17 Using an encrypted form of blockchain, users can provide identified recipients with access to private information while prohibiting unauthorized access.18 For example, a user could temporarily share personal health information, like a vision prescription, to a service provider, like a contact lens manufacturer, through a blockchain.19 This protection could be paired with devices that automatically upload sensor data to a blockchain to further ensure tamperproof storage and data privacy.20

Second, “zero-knowledge proofs” can further protect privacy by verifying data without exposing raw numbers.21 Zero-knowledge proofs have been used by a cryptocurrency called Zcash to guarantee a transaction’s validity without revealing any information about the sender, the recipient, or the amount transacted.22 This technology could soon extend beyond finance into “smart contracts,” self-executing code that is stored on a blockchain, to facilitate licenses between IoT devices without revealing user information. Devices, like smart thermostats, can be intersected with software and artificial intelligence analysis to identify the contract offerings for users or companies that provide optimal deals based on usage timings and levels.23

The Future is (Likely) Patentable
The future of blockchain is still uncertain. Advancements in the technology, from zero-knowledge proofs to smart contracts, are solving problems of security and privacy with each successive generation. It is even possible that another technology will pose better solutions to IoT problems. For example, IOTA, a cryptocurrency that uses “the Tangle” rather than blockchain, offers high scalability, secure data transfer, and zero-fee machine-to-machine transactions for IoT devices.24

Although many participants in the blockchain community prioritize open-source practices, aspects of that technology may be patentable.25 In fact, over fifty blockchain-related patents have been issued in the United States, with many more on the way.26 These patents will have to overcome the obstacles for software patents set in place by Alice Corp. v. CLS Bank Int’l.27 In Alice Corp., the United States Supreme Court set forth patentability requirements to determine whether software patents are directed to abstract ideas and therefore not patentable.28 Lower courts has used this analysis to reject patents involving software patents concerning algorithms, mathematical formulas, and business concepts.29 Blockchain will likely face similar challenges.30 In fact, examiners often reject blockchain-based patents under § 101, finding that the claims amount to nothing more than an abstract idea.31

Fortunately, there are several ways to overcome § 101 obstacles. In Mayo Collaborative Services v. Prometheus Laboratories,32 the Court held that abstract technology can be rendered patentable if additional claim elements amount to “significantly more” than one of the judicial exceptions.33 While the language is Mayo is undeniably vague, recent case law has identified technological functions that fall under it, from solving network problems to improving computer functionality, among other things.34 Blockchain patent applicants have successfully overcome § 101 rejections by asserting that their technology belongs to one of these categories.35  

One strategy that may be effective in overcoming the abstract idea challenges concerns targeting patents to art units with high allowance rates to improve their chance of acceptance. When applying for a patent, applications are sorted into art units depending on the technology they disclose and the language used to describe that technology.36 These art units have varying allowance rates; some as high as 90%, and others as low as 30%.37 Focusing a patent’s language toward a desired art unit could drastically change the probability of success for an application. Similarly, framing a blockchain patent as a database technology could provide protection in court. Recent lower court decisions have implied that “innovative database technologies that improve a network of computers” are patentable.38 Since blockchain is, at its heart, a database technology, it would likely fall under the same ruling.39  In the blockchain context, for example, Coinbase, Inc., a leading cryptocurrency exchange, has been issued patents directed to point-of-sale using a mobile device, identity software based on blockchain, using bitcoin in a transaction to perform tipping.

While the current blockchain patent landscape contains several unknowns, the technology promises to push the boundaries of intellectual property law, as other software patents did with Alice. The field is quickly expanding and is deserving of the legal community’s attention, as it appears set to revolutionize how inventors develop technology.

*Chris Sabbagh, a Baker Botts Summer Associate, assisted in the preparation of this article.


1 Andrew Meola, How the Internet of Things Will Affect Security & Privacy, Business Insider (Dec. 19, 2016, 2:43 PM), http://www.businessinsider.com/internet-of-things-security-privacy-2016-8.

2 Id.

3 Jonathan Hassell, What is Blockchain and How Does It Work?, CIO (Apr. 14, 2016, 2:48 AM), https://www.cio.com/article/3055847/security/what-is-blockchain-and-how-does-it-work.html.

4 Id.

5 Id.

The 5 Worst Examples of IoT Hacking and Vulnerabilities in Recorded History, IoT For All (May 10, 2017), https://www.iotforall.com/5-worst-iot-hacking-vulnerabilities/.

Id.

8 Id.

Id.

10 Threat Report Medical Devices: Detailed Analysis of Connected Medical Devices Across 50 Hospitals in 2017, Zingbox, 8 (2017), available at https://www.zingbox.com/resources/threat-report/.

11 See 5 Worst Examples of IoT Hacking, supra note 6 (projecting the number of IoT devices to reach 80 billion by 2025).

12 Id.

13 Nir Kshetri, Using Blockchain to Secure the “Internet of Things”, Scientific American (Mar. 10, 2018), https://www.scientificamerican.com/article/using-blockchain-to-secure-the-internet-of-things/.

14 Id.

15 Id.

16 Id.

17 See Peggy Johnson, Partnering for a Path to Digital Identity, Official Microsoft Blog (Jan. 22, 2018), https://blogs.microsoft.com/blog/2018/01/22/partnering-for-a-path-to-digital-identity/ (partnering with ID2020 Alliance to create a “blockchain-based identity system”); Elizabeth Durant, Digital Diploma Debuts at MIT, MIT News (Oct. 17, 2017), https://news.mit.edu/2017/mit-debuts-secure-digital-diploma-using-bitcoin-blockchain-technology-1017 (using blockchain to issue graduation diplomas, eliminating the need for cumbersome verification processes).

18 Conor O’Higgins, Digital Identity Part I – Storing Sovereign Identities on the Blockchain, Crypto Insider (May 9, 2017), https://cryptoinsider.com/content/digital-identity-part-storing-sovereign-identities-blockchain/index.html.

19 Shaan Ray, How Blockchains Will Enable Privacy, Towards Data Science (Mar. 3, 2018), https://towardsdatascience.com/how-blockchains-will-enable-privacy-1522a846bf65.

20 See U.S. Patent No. 9,849,364 (issued Dec. 26, 2017) (describes an IoT device that stores accelerometer information on a blockchain).

21 Mike Orcutt, A Mind-Bending Cryptographic Trick Promises to Take Blockchains Mainstream, MIT Technology Review (Nov. 9, 2017), https://www.technologyreview.com/s/609448/a-mind-bending-cryptographic-trick-promises-to-take-blockchains-mainstream/.

22 Id.

23 See Bitcoin Could Help Cut Power Bills, BBC (Feb. 19, 2016), https://www.bbc.com/news/technology-35604674 (using a blockchain to automatically contract with power companies and reduce energy costs).

24 What is IOTA?, IOTA, https://www.iota.org/get-started/what-is-iota (last visited June 13, 2018).

25 Jeffrey Neuburger, Wai Choy & Trevor Dodge, Patenting the Blockchain, Blockchain and the Law (Jan. 5, 2018), https://www.blockchainandthelaw.com/2018/01/patenting-the-blockchain/.

26 Id.

27 134 S.Ct. 2347 (2014).

28 Alice, 134 S.Ct. at 2354 (citing Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 669 U.S. 576, 589 (2013).

29 Inayat Chaudhry, The Patentability of Blockchain Technology and the Future of Innovation, 2018 A.B.A. Sec. Intell. Prop. L. (Mar. 2018), https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2017-18/march-april/patentability-blockchain-technology-future-innovation.html.

30 Id.

31 See, e.g., Non-Final Office Action for U.S. Patent App. No. 14/971,027 (Aug. 7, 2017); Non-Final Office Action for U.S. Patent App. No. 14/826,028 (Nov. 14, 2016); Non-Final Office Action for U.S. Patent App. No. 14/809,062 (June 2, 2016). 

32 566 U.S. 66 (2012).

33 James Gatto, Drafting Effective Blockchain Patents, Law of the Level (Mar. 28, 2018), https://www.lawofthelevel.com/wp-content/uploads/sites/187/2018/03/Drafting-Blockchain-Patents-Article-.pdf.

34 Id.

35 See, e.g., Non-Final Office Action Response for U.S. Patent App. No. 14/826,028 (Dec. 19, 2016) (asserting the technology solves computer network problems, resulting in allowance); Non-Final Office Action Response for U.S. Patent App. No. 14/809,062 (Aug. 31, 2016) (describing the technology as an improvement on data storage, integrity, and security, resulting in allowance).

36 Gatto, supra note 33.

37 Pedram Sameni, Patexia Chart 19: USPTO Art Units with the Highest and Lowest Allowance Rates, Patexia (Nov. 9, 2016), https://www.patexia.com/feed/weekly-chart-19-uspto-art-units-with-the-highest-and-lowest-allowance-rates-20161108.

38 Neuburger, supra note 25.

39 Id.

 

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