Blockchain companies can’t afford to stay on the patent sidelines

Twitter plays defense with its patents, Square has launched a consortium — which includes Coinbase — to pool crypto patents and Alibaba is well on its way with its mission to overtake IBM in the blockchain patent wars. 

Many startups don’t take the necessary steps to protect their innovations, and that’s a big mistake. Particularly in blockchain, an open-source philosophy embedded in the space makes many entrepreneurs eschew the competitive, territorial landscape of patent applications. In fact, a lot of startups believe patents can’t be enforced on decentralized autonomous technology. That’s not true. In keeping their distance, they do themselves, and the community, a disservice.

If founders and entrepreneurs remain on the patent sidelines, they will forfeit the benefits of their innovations and inventions to the tech giants, which will have no remorse in squeezing them out and gobbling up even more markets.

Blockchain companies should also be wary of their ideas being stolen. Steve Jobs, the late CEO of Apple, once said:

“We have always been shameless about stealing great ideas.”

The Wall Street Journal wrote in 2017 that Facebook employees’ new motto seemed to be: “Don’t be too proud to copy.” But the evidence, so far, is that too few blockchain startups are paying enough attention to the potential threats.

In our study on the state of patents, we discovered that blockchain patents are skyrocketing. More blockchain-related patents were published in the first half of 2020 than in all of 2019, which itself saw three times as many blockchain patents published as in 2018. Alibaba and IBM are the top two patent publishers, with the Chinese giant on track to overtake its American rival. Mastercard said on a recent earnings call that it had amassed blockchain patents for payments that positioned it to take advantage of central banks’ appetite for digital currencies.

While the biggest corporations jockey for a position to stake out new markets, blockchain-only companies are barely filing for patents.

Strategic decisions

One of the most important strategic decisions a business can take is to get a patent. Patenting an invention has an impact on the value of the company. It not only protects it from copycats, but it also blocks others from a particular market.

The issue of patent applications can be controversial in a space full of passion for collaboration and decentralization. But attitudes are not monolithic, and I have seen in recent years more acknowledgment that blockchain companies cannot ignore the patent wars.

Sure, there will always be people who will have a posture against anything that has to do with patents, and that’s respectful. The problem is that this helps clear the way for multinational corporations to dominate the technology.

On the other side of the spectrum, there are pragmatic business leaders who have decided that the world of innovation will always involve patents. They may be a minority for now, but they are firmly committed to applying for patents and protecting their ideas — and potential profits.

Thirdly, there is a cohort that holds the middle ground. They advocate for the open-source philosophy but accept real-world practicalities. Given the balance of interests in the industry, their’s is the best way forward. Blockchain companies need to play defense.

The defensive model here has been exemplified by Red Hat, which is admired by open-source proponents. Red Hat has established itself in a core position at the center of invention by guarding Linux innovations against patent attacks. Following this model means that companies can obtain patents and then pool them, providing strength in numbers to fend off larger corporations while retaining the flexibility of how to use their patents.

Twitter was also a leader in defensive patents, creating the Innovator’s Patent Agreement with the express goal that “patents will be used only as a shield rather than as a weapon.” Twitter’s CEO, Jack Dorsey, also heads payments company Square, which has launched a consortium of blockchain companies to pool patents and establish a consolidated defense should the big tech corporations seek to muscle in on their innovations. Coinbase was one of the first major blockchain-native companies to join the Cryptocurrency Open Patent Alliance.

This show of collective force is a step in the right direction. If blockchain companies do start taking advantage of the benefits of patents, they can stake out business growth strategies armed with the knowledge and confidence that nobody can steal their inventions.

Patents can help make blockchain companies commercially viable. That is good for the companies, for the blockchain industry and for a world that will enjoy the fruits of innovation.