BLOCKCHAIN APPLIED TO PATENTS: PERMISSIONED OR PERMISSIONLESS? WHY IT DOES MATTER?

Introduction

As expressed in recent articles, there is a growing consensus that blockchain is the right technology for handling IP rights, and patent rights in particular.

Patents are, by definition, domestic rights granted by national patent offices which means that their repositories are therefore scattered around the globe. This scattering of rights results in a natural barrier which reduces the ease of transactions. When a buyer is interested in a patent, that buyer is generally interested in the whole patent family (i.e. its foreign counterparts). The distributed nature of blockchain elegantly solves this issue and provides the right infrastructure for various entities (or nodes) to connect, populate and validate the content (see Fig. 1). For example, the blockchain can be configured to link those patents or patent applications filed at the various patent offices together that all claim priority to the filing date of the same national or international patent application(s)in their filings to those patent offices.

blockchain for patents diagram

Blockchain offers a distributed ledger where patent titles can be stored in a way offering:

Security,
Transparency,
Auditability, and
Immutability.

These attributes provide the foundations for a liquid market and thereby help transform patents into an asset class.

After having more than one year of blockchain development focused on the patent space behind us, we can highlight another crucial cornerstone of blockchain and how it serves different constraints: the consensus mechanism.

Permissioned vs. Permissionless Blockchains

In a blockchain environment, connected peers decide whether a piece of information (a block) is valid and should be appended to the blockchain. In Satoshi Nakamoto’s original vision for Bitcoin, any peer can be a verifier. The Bitcoin network has no central authority, like most cryptocurrencies. It is a permissionless blockchain network. Users give their trust to unknown verifiers running the same software whose algorithms ensure a consensus mechanism.

Because delegation of trust to unknown verifiers is not always desirable, a new type of blockchain appeared where verifiers are a set of known peers. This kind of blockchain is known as a permissioned blockchain. It enables secure interactions among a set of known participants who have a common goal, but do not fully trust each other.

Transaction confidentiality

Permissioned blockchains offer fine-grained control over transaction details. For example, the patent industry has a passion for the confidentiality of terms. If desired, a permissioned blockchain can allow for any on- or off-blockchain clearing mechanism to agree on a price and keep the amount confidential.

Governance

Governance is addressed differently in permissionless and permissioned blockchains. In a permissioned blockchain, governance is agreed upon by the members of the blockchain network. In the patent world, a strong legal environment, regulation framework and the scale of the market require a governance mechanism acceptable to established industry players: patent offices, patent owners, transaction partners and financial regulators. Only with a governance mechanism that permits key participants to set the rules for access to certain information can a patent blockchain gain global acceptance. Patent numbers and patent owners should not be confidential. While we advocate for pricing to be public, we understand that there is a large segment of the market that is not there yet and any blockchain system needs to accommodate this reality.

Conclusion

General blockchain articles on the respective merits of permissioned versus permissionless blockchains usually provide no clear conclusion. However, our focus is on the patent market, with its dynamic nature and established players. This allows us to state a clear preference for a permissioned blockchain. In our view, a permissioned blockchain for patent transactions is the smoothest way to transition to an open, liquid and transparent patent market.

by Dan Bork   //   April 16, 2018

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