Blockchain & Patents Part III: What Is a Blockchain Patent & How Can It Help A Startup?

Key Takeaway:

In Part III of our Blockchain Patents series, learn about what blockchain patents are and why they are important to blockchain startups.

Table of Contents

This post is the third Part of a three-part Blockchain Patents series. If you haven’t read the other parts yet, click here to read Part I to read about why blockchain patents are important and here to read Part II about how to obtain blockchain patents.

Why are patents valuable?

Whether it be a patent, patent application, trademark, trade dress, copyright, or trade secret, a business’s intellectual property is often considered among its most important assets. Since it can be licensed, bought, sold, and more, intellectual property is often one of the foremost considerations for potential purchasers of a business, venture capitalists, or other investors. Why did Google purchase Motorola for over $12 billion and then sell everything but the patents for less than half of that price? Google wanted to acquire Motorola’s patent portfolio. Don’t take it from us, Larry Page said it himself.1Zach Epstein, Google bought Motorola for $12.5B, sold it for $2.9B, and called the deal ‘a success’, BGR (Feb 13, 2014 at 1:12 P.M.), https://bgr.com/general/google-motorola-sale-interview-lenovo/.

What does a patent do?

A patent provides its holder a nationwide right to exclude others from making, using, selling, offering for sale, or importing the patented invention during its enforceable term. It gives the patent holder a temporary monopoly on the invention, enforceable by the holder against others. However, it does not itself enable the patent holder to make, use, or sell the invention.

An illustrative example could be a patent on a new DeFi platform that includes a state-regulated service. A lack of necessary licenses and approvals (e.g., from the SEC or the New York State Department of Financial Services) may hinder the patent holder from actually providing the service. However, even if the patent holder personally lacks the license from providing the service, the patent holder may nonetheless exclude others from making, using, or selling the patented DeFi platform and may license or transfer that right.

What are the three different patent applications applicable to blockchain inventions?

Generally, three types of patent applications are applicable to blockchain inventions in the United States. An important consideration, of course, is whether an international strategy will be pursued to protect the invention in different countries. Here in the United States, there are three types to consider for blockchain inventions:

Utility Patent

A utility patent protects what something does using carefully-drafted claims. It is the most common patent granted in the United States and can protect any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof. For blockchain inventions, this means protection for the functionality of the platform (e.g., how it works), though, not the code itself.

Design Patent

A design patent protects what something looks like. It can protect any new, original, and ornamental design for an article of manufacture. Design patents may cover a variety of ornamental designs, ranging from decorations to, more importantly in a DeFi or Blockchain app setting, graphical user interfaces (e.g., what it looks like).

Provisional Patent Application

This one is technically not a patent. A provisional patent application is not examined by the patent office, and it yields no enforceable property right by itself—thus it remains only an application. However, one can be used to get to “patent pending” for one year to test and market the blockchain product or service, delaying filing a full utility patent application for one year. A provisional patent application must disclose the invention such that a later full utility patent application is supported. Provisional patent applications are particularly relevant to blockchain startups, as they are often a cost-effective option to get a filing date locked in early on, which is important.

How can patents help blockchain startups?

Much of a startup’s value is in its accumulated and developed innovation and knowledge. Patents provide a means to protect that innovation and knowledge, and thus provide a means to protect against a higher-funded and higher-staffed company from edging the startup out of the market by sheer force. Patents further provide to startups a form of definable and protectable value, which can be used in determining valuation of the startup. This is why a strategic and quality patent portfolio can present an attractive opportunity to investors, both during the growth of the startup and ultimately, on exit.

Want to learn more about the patent process in the United States? Check out our post on that by clicking here.

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