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Major Banks Enter Blockchain Patent War, Led by Former R3 Members

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Major multi-billion dollar banks and financial institutions have begun to compete with one another regarding patent registry. Leaders of the global financial industry including Goldman Sachs and Bank of America have assembled a series of patents necessary to commercialize the blockchain.

Marc Kaufman, a fintech intellectual property specialist at global law firm Reed Smith, revealed that around 356 blockchain-related patents were filed by November of 2016, demonstrating over 100 percent increase in blockchain patents since January.

Analysts such as Kaufman expect the number of blockchain patents to rise significantly in the upcoming months, presenting a competitive market towards bitcoin and other cryptocurrency-focused startups.

Leaving Consortiums, Independent Blockchain Development

Under a consortium, it is possible to amass a lot of patents to conduct various trials using the blockchain. The R3 Consortium for instance, despite the absence of founding member banks including JPMorgan, Macquarie Group, and U.S. Bancorp, all of the other member banks that possess blockchain patents can support the consortium’s blockchain implementation and commercialization.

Specifically, if a startup or a contractor under the R3 consortium’s oversight plan to experiment or run trials with a technology that already has a patent registered for by one of the member banks, they can only request the consortium to provide a license.

In a competitive global industry, wherein banks are pushing independent development of the blockchain; such leeway is not provided to contractors nor banks. Financial institutions can only operate within the capacity set by patents. If banks hope to create new systems that run in conflict with other patents registered to the name of other banks, they will be required to pay to gain a license.

As Peter Smith, the CEO of Blockchain, wrote in a report entitled “Blockchain technologies entered the trough of disillusionment in 2016, but 2017 will be brighter,” the blockchain market is still open to mainstream adoption and utilization.

Because the technology has not seen much commercial success yet, and global consumers haven’t seen the applicability of the blockchain in current financial networks, the potential of blockchain-based systems and blockchain implementation is limitless.

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Thus, to ensure that their plans of blockchain implementation and adoption can be pursued in the future, major banks and financial institutions are trying to obtain as many blockchain patents as possible to maximize the technology’s potential.

Even credit card networks such as Mastercard have begun to officially develop a patent portfolio specifically for blockchain development to secure their inventions within the blockchain market.

Justin Pinkham, head of payments innovation at Mastercard Labs stated, “We have expanded our patent portfolio to protect the company’s thinking, innovations, and intellectual property.”

Open-Source Code Against Patents

Some of the largest cryptocurrencies and cryptographic projects such as Bitcoin & Monero are open-source projects in which anyone can contribute to the underlying code. Cryptocurrencies like bitcoin and monero do have core development teams that lead the development of their communities and networks, but in essence, anyone can freely contribute to the code or propose improvements to the protocol.

One issue banks and financial institutions have with regards to open-source projects is their inability to decide the ownership of a technology appropriately. An open-source project can be modified and developed by any developer in the space, so it is hard to justify ownership.

‘‘Open-source code — that doesn’t necessarily restrict the ability to patent the underlying innovation. Anybody who’s investing in the ecosystem, anybody who’s interested in the technology should be worried about this,” said Patrick Murck, Cooley LLP Blockchain legal expert.

Vitalik Buterin, co-founder and lead developer of Ethereum, also presented a similar point, stating that a patent war between software developers and patent owners is inevitable. Over time, companies will most likely find themselves sued by collaborators and joint-project members, leading to ambiguity in ownership.

Buterin also explained, “Blockchain software companies may end up being amalgamated into existing software giants, at which point blockchain patents will just become part of the existing patent war.”

Shortly, the war on patent registry amongst banks and financial institutions attempting to solidify their position in the blockchain market will intensify and organizations will allocate more capital and resources to amass blockchain patents.

As seen in the conflict between Bank of America and BitX, in which Bank of America filed a patent for software and technology currently utilized by BitX, existing cryptocurrency startups could become defenseless against multi-billion dollar startups garnering blockchain patents to establish their position in the market.