blockchain & crypto- currency - ipcg · blockchain technology although a cryptographically...
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1 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
INDUSTRY REPORTJUNE 2018
BLOCKCHAIN & CRYPTO-CURRENCY
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2 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
1.0 Executive Summary __________________________________________ 41.1 FirmBackgroundandQualifications ______________________________ 41.2 Disclosure ________________________________________________ 4
2.0 Blockchain Technology ________________________________________ 52.1 WhatistheBlockchain? _______________________________________ 52.2 ProofofWorkvsProofofStakeBlockchains _________________________ 62.3 WhoisusingtheBlockchain? ___________________________________ 62.4 State of Blockchain __________________________________________ 8
3.0 Blockchain and Intellectual Property _____________________________ 103.1 PatentLandscape __________________________________________ 103.2 PatentInsights ____________________________________________ 113.3 BlockchainIPPortfolios,Litigation,andStrategies ____________________ 15
4.0 CurrentIPBlockchainEfforts ___________________________________ 174.1 Loci ____________________________________________________ 174.2 IPwe ___________________________________________________ 184.3 KodakCoin _______________________________________________ 184.4 IPC Group _______________________________________________ 194.5 BlockchainPurchasesandLicenses ______________________________ 20
5.0 Conclusion _______________________________________________ 21
6.0 AbouttheAuthors __________________________________________ 22
BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORTTREVOR KRAJEWSKI & EVAN MAIR
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3 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
Ourfinancial,marketandtechnicalexpertsprovideauniqueunderstandingofthecontributoryvalueofproprietaryinnovation.Thisisthecornerstoneofourbusiness. Thisinsightpermeateseverypracticeandclientengagement.
OceanTomoispleasedtoprovideacomprehensivelookatcurrentindustrytrendsanddealactivityinanumberoftechnologyareas.Asafinancialadvisorwithafocusontechnologyandintellectualproperty(IP),OceanTomohasgaineduniqueinsightsrelatedtotheIPdrivingavarietyoftechnologyareas,including:
Ocean Tomo, the Intellectual Capital Merchant Banc™
firm, draws upon more than three decades of experience
valuing intellectual property in the most rigorous of
venues – State, Federal and international courts.
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4 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
1.0 EXECUTIVE SUMMARY
1.1 FirmBackgroundandQualificationsEstablishedin2003,OceanTomo,LLC,theIntellectualCapitalMerchantBanc™firm,providesOpinion,ManagementandAdvisoryservicescenteredonintellectualpropertyassets.OceanTomoprovidescompanieswithfinancialservicesrelatedtointellectualpropertyandintangibleassetsincludingfinancialexperttestimony,valuation,strategyconsulting,investmentadvisory,innovationmanagementconsultingandtransactionbrokerage.
OurOpinion,Management,andAdvisoryServicesarebuiltuponmorethanthreedecadesofexperiencevaluatingIntellectualProperty(IP)inthemostrigorousofvenues–State,Federalandinternationalcourts.Ourfinancial,marketandtechnicalexpertsprovideauniqueunderstandingofthecontributoryvalueofproprietaryinnovation.Thisisthecornerstoneofourbusiness.Thisinsightpermeateseverypracticeandclientengagement.
Collectively,OceanTomoprofessionalshave:
• Executedover1000engagementsinvolvingIPworthinexcessof$10billion;• Successfullyclosedtransactionswheredisruptivetechnologyplayedakeyrole,withcumulativevalueinexcessof
$750million;• Conductedover300valuationengagementsand500financialdamagesexperttestimonyengagements.• ServedasatrustedadvisorinvolvingthebiggestIPtransactionsinhistory;• OriginatedmoresuccessfulIPmonetizationsolutionsthananyotherfirm,includingthecreationoftheworld’s
oldestandmostsuccessfullivepatentauction.
OceanTomoassistsclients–corporations,lawfirms,governmentsandinstitutionalinvestors–inrealizingIntellectualCapitalEquity®valuebroadlydefined.
1.2 DisclosureThisreportiswrittenbyandforintellectualpropertyprofessionalsaswellasforthoseinvolvedintheblockchainindustrylookingtoenhancetheirknowledgeofhowIPcanaffectthem.OurgoalistoeducateIPandblockchainprofessionalsalikeonhowthisnewtechnologymaychangetheintellectualpropertyspace,orvice-a-versa,howintellectualpropertymaybecomeapowerfulforceinthefutureofblockchainapplicationsacrossvariousindustries.
OceanTomoInvestmentGroupistakingstepstowardproductionofanelectronictradingsystemcompliantwithallSECregulation,aswellasmeetingwithlicensingprofessionalsinregardstothedevelopmentandpromotionofthedigitizationoflicensingIPusingtheblockchain.Theseefforts,whilerelatedtotopicsdiscussedinthereport,havenoteffectedthegoalsofthisreportstatedabove.
Theauthorsofthisreport,whilepossiblyholdingtheirownpersonalpositionsincryptocurrencies,havewrittenthisreportwithoutbiasandarenotattemptingheretopromoteanyvirtualcurrencyorsecurity,norprovideinvestmentadvice.
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5 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
2.0 BLOCKCHAIN TECHNOLOGY
Althoughacryptographicallysecuredchainofblockswasdescribedinworkdatedasearlyas19911,theinventionofblockchaininitscurrent,mostpopularform,asadistributedledgerfortransactionsonanetwork,iscreditedtothepseudonymousSatoshiNakamoto,theinventor(s)ofBitcoin,in2008.
Cryptographyhasbeenaroundforcenturies,butthecryptocurrency&blockchaincommunityasawholelargelyconsidersSatoshiNakamoto’sBitcoinasthefirstblockchain.Asimilarcomparisonwouldbetothesmartphone.EventhoughsmartphonessuchastheBlackberrywerearoundsincethemid-2000sandtheearliestversionofasmartphonecanactuallybetracedbacktoIBMthemid-1990s2,mostpeopleconsidertheinventionofthe“smartphone,”initscurrentformandasweusethetermtoday,tobetheiPhone,introducedin2007.
Bitcoinwasdesignedtobea“purelypeer-to-peerversionofelectroniccash,”completelydecentralizedfromanytrustedthirdpartysuchasbanks3.Althoughinitiallyintendedasthesupportingtechnologybehindadigitalformofmoney,blockchainisbeginningtoshowit’spotentialtoexpandtonumerousapplicationswithrealworlduse-casesinpreexistingindustries.
2.1 WhatistheBlockchain?Theblockchainisadistributed,shared,encrypteddatabasethatservesasanirreversibleandincorruptiblepublicrepositoryof information.4Putsimply,itisawaytostructureandstoredata.Thebenefitofblockchaindatabasesovertraditionalmethodsofstoringdataistheabilitytotrackinformationovertime,whereasatypicaldatabaseisjustasnapshotoftheinformation at a particular moment.5Withthisexpandedinformationset,ablockchaindatabasecantrackthehistoryofitselfatanygivenpointintime,afeaturethatopensinformationstoragetoabreadthofnewuse-casesandopportunities.Thedataexistsingroupscalled“blocks”whichappearintheblockchaininsequentialorder.Eachblockisarecordofdata,whichcanmeancryptocurrencytransactions,information,licenses,oraslewofotherpossibilities.Onceeachblockofdataiscompleted,or“mined,”itisaddedtothechainandthenextblockofdatabeginstoform.6
Eachtransactioninthesetthatmakesupablockisfedthroughaprogramthatcreatesanencryptedcodeknownasthehashvalue.
HashvaluesarefurthercombinedinasystemknownasaMerkleTree.
Theresultofallthishashinggoesintotheblock’sheader,alongwithahashofthepreviousblock’sheaderandatimestamp.
Theheaderthenbecomespartofacryptographicpuzzlesolvedbymanipulating a number called the nonce.
Onceasolutionisfoundthenewblockisaddedtotheblockchain.
INPUT OUTPUT #A
TransactionATransactionA
HashValue#A
#DFCD24D9AEFE93B9
HashValue#AB
TransactionB
HashValue#B
TransactionC
HashValue#C
TransactionD
HashValue#D
HashValue#CD
Block 09Block 10
Block 11
Block 10#
Combined hash value #ABCD
Timestamp Nonce
FIGURE 17
HowTransactionsEntertheBlockchain
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6 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
Asnewblocksareformedfromnumerous,verifiedtransactionsbyminers,theyaregivenadigitalIDintheformofanumber,knownasahashvalue.Thishashvalueisusedinconjunctionwithaninputfromthepreviousblock,aswellasatimestamp,ensuringthatthisblock,itspredecessor,andanyfutureblockswillbelinkedinthecorrectorder.Finally,thiscombined“header”beginstosolveanequationusinganarbitrarynumbercalledthenonce.Thisequation,alsocalledacryptographichashfunction,isamathematicalalgorithmforturninganysetofdataintoarandomhashnumber.IntheBitcoinblockchain,onlyblockswithhashesbelowatargetvalueareacceptedbythenetwork.Ifamineristocompleteablockofverifiedtransactionsyetthehashvaluereturnisabovetheirtargetvaluetheymustcomeupwithanewhashvalue.
Fortunatelytheminerneednotverifyawholenewsetoftransactions.Inacryptographichashfunction,ifthedatainputsareevenslightlydifferent,theywillproducecompletelydifferenthashesandbecauseofthis,theminercansimplychangethenoncetoreturnabrandnew,randomhashwhichishopefullyunderthetargetvalue.Aminerinthissense,isactuallycomputersoftwarecapableoftestingbillionsofdifferenthashesagainstthetargetvaluepersecond.Onceahashfromasetofverifiedtransactionsisunderthetargetvalue,itissentouttoandacceptedbythenetworkandminersrepeattheprocessover again for the next block.
2.2 ProofofWorkvsProofofStakeBlockchainsThebenefitfortheminersinthesystemdescribedabove(called“ProofofWork”)isacryptocurrencybasedrewardgiventotheminerwhosolvestheproblemandcreatesthenextblock,therebyincentivizingnetworkparticipantstocontinueandverify the blockchain.8
ThereisanotherwaytoverifyablockchainthatiscurrentlygainingpopularityoverthisProofofWorkminingmethodasitismuchmorecosteffective.Thismethodiscalled“ProofofStake”andisquitedifferent,yetstilloffersasolutiontoachievedistributedconsensus.ProofofStakechoosestheminerofanewblocknotbasedonacompetitiontosolveanalgorithm,butdeterministically,dependingonwealth,orstake.9Miningpowerisattributedtostakeholdersbasedontheproportionofcoinsheldbytheminers,limitingeachminertoapercentageoftransactionsreflectiveoftheirstake.Forexample,ifaminerowns5%ofaparticulartoken,theycannotminemorethan5%oftheblocks.10Intheproofofstakemethod,allcoinsarealreadyavailable,notmined,andtherewardforverifyingnewblocksissimplythetransactionfeesaccruedfromthetransactionswithintheblock.
AlthoughtherearenotmanyProofofStakeblockchainsfunctioningatthemoment,theenergyconsumptionandpricingbenefitsareclear,andthereisageneralagreementintheblockchaincommunitythatProofofStakevalidationwillbecomemoreprevalentthanProofofWork.ProofofStakesignificantlyreducestheenergyconsumptionofvalidatingtheblockchain,allowingforamorecostefficientmethodoftransactions.Ontopofthis,andquitepossiblymorebeneficial,isthepotentialtostabilizethevalueofacoin.AslaidoutinanarticlebyMichaelKoganofHackernoon,currently,cryptocurrenciescanbeworthX,0.5X,2Xoreven100Xatanygivenpointintime.Theanalyticalframeworkbehindthepricingofacryptocurrencydoesnotexist.InaProofofStakesystem,aclear,unambiguouseconomicincentivetoholdcoinsforthelongtermiscreatedbycoinholdersbeingpaidtransactionfeesforvalidatingtransactions.Kogangoesontostate,“thepriceofthecoincanbeanalyzedbasedonexpectedfuturecashflows,whicharegeneratedintheformofnetworktransactionfees”11whichinturn,canbringstabilizationtotheprice.
2.3 WhoisusingtheBlockchain?Farandawaythemostcommonuseofblockchaintechnologyatthispointintimeiscryptocurrencies.Infact,thefirstblockchaininwideuse,theBitcoinblockchain,facilitatestheuseoftheBitcoincryptocurrency.Cryptocurrenciesaresimplyadigitalassetusedforthepurchaseandsaleofgoods,asastoreofvalue,orforsomeotherutility/uniquebenefit,muchlikeanytraditionalfiatcurrencyorgold.However,withtherecentandsignificantriseinpopularityofblockchaintechnology,manyotheruse-casesandapplicationsoftheblockchainhavebeenemerging.Belowareafewexamplesofcompaniesbeingpoweredbytheblockchain,andhowtheyarebenefittingfromit.
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7 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
Ripple–PaymentProcessingRippleNet(or“Rippleprotocol,”“RippleNetwork”)isareal-timegrosssettlement(RTGS)transactionprotocolbuiltbyRippleonadistributedledger.12ValueistransferredviaXRP,thecryptocurrencyusedontheRipplenetwork.RippleNetisuniqueinbeinga“Centralized”blockchain—whileithasmanyofthesamefunctionsasdecentralizedblockchains,“thenodesit’sprotectingaren’tindividualsbut‘trusted’operatorsregisteredintheRipplenetwork,”allowingforthesameadvantagesofablockchainledgerwithincreasedspeedandefficiencyfromaclosedecosystem.13Tojointhenetwork,membersanduserssignanagreementtoadherebyrulessetforthintherulebook,creatingalegalframeworkforworkingrelationshipsontheplatform.14AnadvisoryboardconsistingofindustryleadersfromTransactionalBanking,DigitalServicesandCashManagementservicesprovidesgovernancetoensuretherulesandstandardsarealignedwithbanksandtheircustomers.Ripple’sofferingscanbebrokendownintothreecategories:xCurrent,forbanks;xRapid,forpaymentproviders;andxVia,forbusinesses.
xCurrentisthefirstglobalRTGSsystemthatallowsbankstosettlepaymentsinstantlyandtransparently.15 There are four componentstothexCurrentsolution:(1)Messenger,whichfacilitatescommunicationbetweenRippleNetbanks;(2)FxTicker,whichfacilitatesexchangebetweenledgersbyenablingFxrateposting;(3)Validator,whichcryptographicallyconfirmspayments;and(4)IPLLedger,asubledgerofeachtransactingbank’sgeneralledgerthattracksalltransactions.16 ThesecomponentsandtheirinteractionsareillustratedinFigure2.
xRapidisaliquiditysourcingplatformdesignedforpaymentprovidersprocessingpaymentstoemergingmarkets.18TheplatformispoweredbyXRP,loweringthecapitalrequirementspaymentprovidershavewithrequiredpre-fundedlocalcurrencyaccountsaroundtheworld.xViaallowscoprorations(aswellaspaymentprovidersandbanks)totapintoRippleNet’sglobalnetworktosendpaymentsacrossvariousnetworksusingastandardinterface.19
Sia–DecentralizedStorageSiaisadecentralizedcloudstorageplatformsecuredbyblockchaintechnologythatintendstocompetewithexistingstoragesolutions,atboththeP2Pandenterpriselevel.Insteadofrentingstoragefromacentralizedprovider,peersonSiarentstoragefromeachother.Siaitselfstoresonlythestoragecontractsformedbetweenparties,definingthetermsoftheirarrangement.20 “Hosts”ontheSianetworkcanofferupextraspaceontheirharddrives,whetheritbeontheirpersonallaptops,externalharddrivesorotherdrives,forstoragethroughcontracts.Anyonewiththerighttechnologyavailabletothemcanbeahost.Byformingacontract,ahostagreestostoreaclient’sdata,andtoperiodicallysubmitproofoftheircontinuedstorageuntilthecontractexpires.Thehostiscompensatedforeveryprooftheysubmit,andpenalizedformissingaproof.Sincetheseproofsarepubliclyverifiable(andarepubliclyavailableintheblockchain),networkconsensuscanbeusedtoautomaticallyenforcestoragecontracts.Importantly,thismeansthatclientsdonotneedtopersonallyverifystorageproofs;theycansimplyuploadtheirfileandletthenetworkdotherest.21
Withtheuseofadecentralizedblockchain,Siaisabletoencryptanddistributeclient’sfilesacrossthenetwork.Nooutsidecompanyhasaccessorcontroloverthefiles,unliketraditionalcloudstoragesystems.Siaisalsoabletoreducecostsofstorageusingthismethod,with1TBofdatastoragecostingabout$2permonth,comparedtoaround$20oncompetitorservicessuchasAmazonS3.Theselowpricesareduetoamarketplaceinwhichhostscompeteforclients’storagespace.TransactionsontheSianetworkarecompletedusingSiacoin,Sia’scryptocurrency,whichcanalsobeminedandtraded.22
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8 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
VeChain–SupplyChain,TrackingandLogisticsVeChainisanenterpriselevelpublicblockchainplatformthatcombinesphysicalsensorsandblockchaintechnologytoincreasetransparencyandefficiencyinthewaygoodsaremonitoredandtransported.23VeChainmanufacturesIoTsensordevicesformultipleapplicationsincludingthemonitoring,tracking,andverifyingofitemsinwhichsensorshavebeenimbedded.ThesedevicesrunontheVeChainThorblockchain,wheretheyarevalidatedandrecordcollecteddata.Usecasesinclude:24
• Forautomobiles,avehicle“passport”wheremaintenanceandrepairhistory,insurance,registrationanddriverbehaviorarecollectedandmaintainedwithadeviceimbeddedduringthemanufacturingprocess.Thedataincreasestransparencyintheinsuranceandusedvehiclemarkets,aswellasallowsownerstotakebettercareoftheirvehicles.
• Forcold-chainlogistics,continuousmetrictrackingofmicro-environmentsthroughouttheitem’sjourneyarerecordedbyIoTdevicesanddocumentedintheledger.Thiscreatesmorereliabilityintransportationandtransparencyindiagnosinglogisticalproblems.
• Forluxurygoods,thetrackingofauniqueproductisaccomplishedbyanimbeddedchipwithanassignedIDverifiedontheblockchain.Thisallowsfortransparencytotheauthenticityofpremiumproductsthatarefrequentlyfaked.
TransactionsontheVeChainnetworkarecompletedusingVEN,VeChain’scryptocurrency.VENisatwo-coinsystem,providingastoreofvaluemechanismandsmartpaymentcurrency,aswellasameansofmanagingcostsusingtheVeChainThor protocol.25
2.4 State of BlockchainMassadoptionofblockchaintechnologyiscurrentlyunderwayinnearlyeveryindustry,ascompaniesfromstartupstofortune500corporationslookforwaystoadaptitfortheirgivenneed.OftentimesstartupsturntoICOs(InitialCoinOfferings)forfundingratherthanfollowingatraditionalseed,series,IPO/acquisitionformat,whichinitselfisanadoptionofblockchaintechnologybythecreationofnewcryptocurrencies.ICOsalloworganizationstocreatetheirowncoinandofferitforsaleonline,althoughunlikeequityorstockinacompany,theyoffernoownershiprights.Coinsusuallyoffersomeotherbenefitsuchasthecompany’sproductorservice,orevenadividendpayment,aswellassimplyofferingthepotentialtoappreciateinvalueandcreateprofitforthecoinholders.InitialCoinOfferingshavebecomethemainsourceoffundraisingfornewblockchainefforts.ThefigurebelowrepresentstotalfundingforblockchainsinceJanuary2012,andgivesavisualofthesheerexplosionofinvestmentintheblockchainspace,particularlythroughICOs.
InQ42017alone,blockchaininvestmentsraisedatotalof$3.2billionfromICOs,alongsideanother$200millionviaventurecapital.27Thisgrowthinpopularityisfurtherevidentinthesignificantincreaseinmarketcap of nearly every cryptocurrency over thepastyear,theapprovalbytheCFTCforbitcoinfuturescontracts,andtheincreasedattentionthecryptocurrencyspacehasreceivedbygovernmentregulatorsandthegeneralmedia.
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9 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
Asoflate,therehavebeenanumberofdevelopmentsintheregulationofcryptocurrenciesaroundtheworld,andespeciallyintheUnitedStates.InMarch2018,theSECannouncedthatitwouldrequiredigitalassetexchangestoregisterwiththeagency,andasofJune4,2018,appointeditsfirst“CryptoCzar,”ormoreformally,SeniorAdvisorforDigitalAssets.28 The rolehasgonetoMs.ValerieSzczepanikandshewillbetaskedwith“coordinatingeffortsacrossallSECDivisionsandOfficesregardingtheapplicationofU.S.securitieslawstoemergingdigitalassettechnologiesandinnovations,includingInitialCoinOfferings(ICOs)andcryptocurrencies.”29Notably,Szczepanikisaseasonedattorney,practicingpatentlawinthe1980s,workingasaclerkindistrictandappellatecourtsintheDistrictofColumbiaandservingasSpecialAssistantUnitedStatesAttorneyintheEasternDistrictofNewYorkbeforejoiningtheSECin1997.30Szczepanik’sextensivebackgroundinIPcouldbodewellforIPassetsandasset-holdersinthespacemovingforward.
TheSEChastakenthestancethatcryptocurrenciesaresecurities,atleastthetokensanddigitalassetsusedinICOs.TheagencymakesthisdeterminationaccordingtotheHoweyTest,whichdefinesasecurityasaninvestmentofmoneyinacommonenterprise,inwhichtheinvestorexpectsprofitsprimarilyfromothers’efforts.31Whenitcomestocryptocurrencieswhichaimtoreplacefiatcurrencies,suchasBitcoin,SECChairmanJayClaytonhassaid,“thattypeofcurrencyisnotasecurity.”32TheCommissionhasmadeitcleartheywillnotbebendinganyrulesinordertodefinewhatisorisnotasecurityregardingcryptocurrencies.33Althoughthespaceisstillintheearlystagesofregulation,itcanbeseenasaninevitability.AsClaytonsaid,“ifit’sasecurity,we’reregulatingit.”34
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10 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
3.0 BLOCKCHAIN & IP
3.1 PatentLandscapeAsarelativelynewspace,blockchainpatentsarelowinnumbers,butgrowing,withatotalof3,974related,activepatentfilings(grantsandapplications)worldwideasofJune2018.35Mostfirmsholdingblockchainrelatedpatentsareinthebanking,finance,andtechindustries,althoughthiscouldchangewiththeexpectedadoptionofblockchainbymanyothersectors.Thenumberofblockchain-relatedpatentshasbeengrowingdramatically,andpatentapplicationshaveincreasedbynearly700%inthepastthreeyears.AccordingtoThomsonReuters’PracticalLaweditorAlexBatteson,“companiesaremovingfastinordertoprotecttheirideasinnewareasoftechnologicaldevelopment–longbeforethetechnologyactuallygoestomarket.”36Thisallowscompaniestoattractinvestmentthroughtheirpotentialtocapitalizeonintellectualpropertyaswellastherighttoexcludeotheremergingcompetitorsfromthemarketgoingforward.37Theradicalincreaseinblockchainpatentapplicationsandgrantsisshowninthefigurebelow.
The growing amount of applications,andthediversityinassigneesofthepatentsalsomeansthereisapotentialforincreasedlicensingandlitigationacrossindustries,involvingcompanieswhointhepastwouldneverhavecrossedpaths.According to the USPTO thereareatleast820organizationsorindividualslistedasassigneesonblockchainrelatedpatentsandpatentapplications.39
Notonlywillthesepatentsbridgeindustries,butgeographiesaswell.TheWorldIntellectualPropertyOrganization(WIPO),supportedbydatafromThomsonReuters,showedthattheUSandChinaaretheclearleadersinblockchainpatents,withChinagrowingsignificantlyin2017,accountingforoverhalfofallblockchainpatentapplications.40Belowisafigureshowingtheblockchainpatentsandpatentapplicationsbyjurisdiction.
Itisusefultonotethatmanyofthepatentsbeingissuedareforimprovementsinblockchainprocessingoperationsornewusesofblockchaintechnology,astheoriginalblockchaincodesareopensource.42
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11 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
3.2 PatentInsightsThepredictivepowerofpatentsinmarketsisoftenoverlookedorunderappreciated.Sincethe1970s,intangibleassets,likepatentsandotherintellectualproperty,havegrownfromroughly17%oftheS&P500marketvalue,toover80%by2015.43 Astherepresentationofintellectualpropertyasaportionofvaluehasincreased,sohasitsinfluenceonmarketandfirmperformance.AdiversifiedindexcalledtheOT300PatentIndex(OTPAT),trackedforadecadeaportfolioof300companiesthatownthemostvaluablepatentsrelativetotheirbookvalue.TheOT300PatentIndexhasoutperformedtheS&P500byover3,000basispointsasofJanuary2018.44
Patentsaddvaluetoacompanythroughqualityintangibleassetswhichcanprovidestreamsofrevenue.However,theycanalsoofferforecastsastowhowillbesuccessfulinthemarketplace,inanyindustry,orevenwhichindustrieswillbefirsttoadoptnewtechnologies.Takingcomprehensivedataofallworldwide,blockchainpatents,theirassignees,theirstrengths,andmore,wecanmakeanumberofpredictionsabouttheblockchainindustry.
Figure6showsthetop10blockchainpatentholdersbyorganization,alongwiththeirblockchainrelatedpatentcounts.Thesearetheearlyadoptersofblockchainpatents,andtheycomprisesomeofthemajorplayersinthetechandfinanceindustries.WecanexpecttoseethesecompaniesandtheircompetitorsineachoftheseindustriescontinuetheirdevelopmentofblockchainIPintheneartomid-termasthetechnologybecomesmorecommonplace.Thesoonerorganizationscanobtainastrongblockchainpatentportfoliofortheirgivenuse-case,themoreopportunitiestheywillhavetocapitalizethepatentedtechnologiesthroughapplication,licensing,andsale.
MASTERCARD,92
COINPLUG,90
IB,86
nCHAINHOLDINGS,62
ALIBABAGROUP,55
BANKOFAMERICA,52
INTEL,52
MICROSOFT,39
QUALCOMM,38
TORONTO-DOMINIONBANK,34
FIGURE 541
BlockchainPatentsperInventorLocation
FIGURE 645
BlockchainPatentsbyOrganization(Top10)
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PaymentProtocolsleadthepack,accountingfor23%ofallblockchainpatentapplications,whichisunsurprisinggiventheamountofcryptocurrenciesandpaymentapplicationsthathavebeendevelopedinrecentyears.However,PaymentProtocolsarenottheonlypatentclassificationapplicabletothefinanceindustry.Encryption,DigitalSecurity,andcertainlyFinanceareallimportantfeaturesofafinancialblockchainapplication,whichtogetheraccountfornearly60%ofallapplicationsandgrants.Inorderforfinancialfirmsandstartupstosuccessfullyutilizetheblockchain,itisimperativetheycoveralltheirpatentablebases,includingtheencryptionofthedata,computingprocesses,accessingofmemorystorage,andmanymoresubjectmatters.
Further,whenexaminingstrictlythe“Encryption”classificationofblockchainrelatedpatents,wefindthatnearlyallthemajorassigneesaretech-centricorganizations.Thiswouldseemstandardgivenseveralotherpatentclassifications.YouwouldexpectLEDpatentstobeownedbylightingcompanies,orpharmaceuticalclasspatentstobeheldbypharmaceuticalorganizations,butthereisawiderangeoftechnologiessupportingblockchain.Acompanywouldneedtonotonlyhaverightstotheirspecificusecaseoftheblockchain,butthesecurity,verification,andsystemssupportingit.
Giventheimportanceofsecurityinbanking,financialfirmslookingto implement blockchain into their processeswillneedtobroadentheirintellectualpropertyfromafinancialorpaymentprotocolfocustoonethatincorporatesavarietyoftechnologiestosupporttheirservices,eitherthrough internal development or acquisitionsandlicensing.
It’slogicalthatthefinanceandtechindustriesarewellrepresented,asblockchain’sfirstandmostestablisheduse-casewascenteredaroundanewtechnologytosupportfinancialtransactions.Itisalsonotablethatfinancialapplicationshavebeen,andareexpectedtobe,thefirstwidelyadopteduseofblockchain.Already,nearlyeverymajorU.S.bankhasbeguntheirownblockchaininitiatives,alongwithnumerousstartupslookingtoenterthefintechspaceusingblockchain.46Thefigurebelowshowsjusthowdominantfinancialapplicationshavebeenuptothispointinthepatentapplicationprocess.
FIGURE 747
NumberofPatentsbyClassification
FIGURE 848
TopAssigneesinEncryptionClassificationPatentsSizedbyPatentCount
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13 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
Thisanalysismayseemparticulartothefinancialindustry,howeveritisanalogoustonearlyeveryindustrylookingtoadoptblockchain.OrganizationsmustbuildaqualityIPportfolioinordertodefendthemselvesandtheirproducts,developnewproductsandservices,andsimplystayrelevantduringthe“blockchain-ization”oftheglobaleconomy.Organizationsthatdonotriskthedistressingcostsoflitigation,poorbargainingpositionswhilelicensingor,inextremescenarios,completeobsolescenceintheindustry.Asmorepatentsarefiledeachday,thepressurerisesforfirmstobegintheprocessofbuildingnotonlyadefensiveportfolio,butideallyavaluableone.
Itistypicalforpatentstoexpire20yearsaftertheirfilingdate,andbecauseofthesubstantialincreaseinapplicationsoverthepastfewyears,mostblockchainpatentswillnotexpireuntilthemidtolate2030s,asshowninthefigureabove.Thisissignificanttoanyorganizationlookingtoutilizeblockchaintechnology,astheywillneedtohastilydeveloporacquirepatentstoavoidthepotentialofsufferingfromlengthyandexpensivelicensingagreements,litigation,orworseyetandpotentiallymorecostly,exclusionfromthemarket.
Foranorganizationtosucceedusingblockchain,whetherthatbeviaablockchainsupportedproduct,orthelicensingofblockchainrelatedpatents,itisequallyasimportanttoensurethequalityoftheIPasitistoensureitssuccessfulfiling.Infact,whetherapatentispresumedvalidorsimplyissuedgivesnoguaranteethatitwillremainthatway.AccordingtoStephenKunin,formerDeputyCommissionerforPatentExaminationPolicyattheUSPTO,“Patentexaminationisanimperfectprocessthatresultsintheissuanceofpatentsthatshouldhavenotissued.ThisisevidencedbythefactthatinconcludedIPR[InterPartesReview]proceedings,only10%ofchallengedpatentshadalloriginalpatentclaimsconfirmed,andempiricalstudieshavereportedthat43%to50%ofalllitigatedpatentsareheldinvalid.”50
Acommondeterminationofpatentqualityisitsstrength.Apatentsstrengthtakesintoaccountanumberoffactorsincludingtheageofthepatent,references,citations,priorlitigation,andjurisdiction;often,someofthesefactorsgooverlooked.Citations,forexample,areapowerfultoolintheassessmentofhighqualitypatents.Apatentcitationisadocumentcitedbyanapplicant,thirdpartyorapatentofficeexaminerbecauseitscontentrelatestoapatentapplication.Anypubliclyavailabledocumentcanbecitedincludinganexistingpatentpublication,journalarticle,internetpublication,conferenceabstractororaldisclosure.51 There are twokindsofcitations:forwardcitationsandbackwardcitations.Abackwardcitationwouldbegiventoapatentapplicationduringtheapplicationprocess,whenthepatentexaminernoticesareferencetoanexistingsourceor“priorart.”Forwardcitationsworkintheoppositedirection,giventoapatentwhenthepatentitselfiscitedbyamorerecentsource.Forwardcitationsinparticularareoftengiventhemostweightorarethemostsignificantfactorinanumberofpatentrankingtoolcalculations.Theycanbeseenasaproxyforindustry-wideR&Dinvestmentinatechnologyarea,andwithmoreinvestment,therearegenerallymoreproducts.Moreproductsleadstoahigherchanceofinfringement,andinfringementdrivesvaluethroughthepurchaseorlitigationofpatents.52Thestrongerthepatent,themorelikelyitistoholdupincourt,andthemorevaluableitiswhenitcomestimetolicenseorsell.Thetablebelowshowsthepoolofblockchainrelatedpatentsandtheirassociatedpatentstrengthpercentiles.
FIGURE 949
BlockchainPatentsbyExpirationDate
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Asyoucansee,itisquiterareforapatenttorecordastrengthintheupperthirdoftherange,howeverthesearethepatentsthatwilllikelybeofimmensevalueinprotection,litigation,andlicensing/sale.Belowweprovideananalysisonsomeofthestrongest,oldest,andmostcitedpatentsinthepooltoillustratewhatmakesblockchainpatentsvaluable.
StrongestBlockchainPatentsIntheblockchainpatentpoolofnearly4,000patents,therearefourtiedforthestrongest,withapatentstrengthratinginthe 93rd percentile.
• U.S.PatentNo.8,180,051(the‘051Patent)• U.S.PatentNo.8,265,272(the‘272Patent)• U.S.PatentNo.7,975,147(the‘147Patent)• U.S.PatentNo.7,844,053(the‘053Patent)
The‘051Patentistitled“Methodsandapparatusforsecuringcommunicationsofauseroperateddevice”andisownedbyCiscoTechnology,Inc.Itcontains28claimsand25forwardcitations,5timestheaverageforsimilarpatents.The‘051Patenthasneverbeenlitigated.The‘272PatentisownedbyRedHat,Inc.andtitled“Methodandanapparatustogeneratepseudorandombitsforacryptographickey.”Ithasonly20claims,butover50forwardandbackwardcitations,puttingitat1.4and2.7timestheaveragesforforwardandbackwardcitationsrespectively.Thiscoupledwiththeexpectedexpirationnotuntil2030propelsthispatenttothefrontofthegroup.Likethe‘272,the‘147Patentexpiresin2030,andshowsexcellentcitationsnumberswith3.6and5.3timestheaverages,and41claims.It’stitled“Electronicdevicenetworksupportingencipheringanddecipheringandupdategenerationinelectronicdevices”andtheassigneeisQUALCOMM,Inc.Lastisthe‘053Patent,titled“Microprocessorapparatusandmethodforperformingblockciphercryptographicfunctions.”The‘053Patentexpiresin2026,andboasts24forwardand105backwardcitations.
Allfourofthesetopblockchainpatentshavecommoncharacteristics:theyarehighincitations,forwardsandback,theyhavealengthyexpectedlifebeforetheirexpiration,andtheyhaveplentyofclaims.Theclaimslistedineachdrawuponprevioustechnologies,yetoffergroundonwhichfuturepatentscanstandon,allwhilespecificallydetailingtheunique,patentabletechnology.Allofthesefeaturescontributetoastrong,valuablepatent,andtobeabletocapturetheminreferencetoanewtechnologysuchasblockchainwouldresultinanextremelyhigh-qualityIPasset.AdditionalkeystodevelopingaqualityblockchainIPportfolioarealsodiscussedfurtherinthesectionstofollow.
FIGURE 1053
BlockchainPatentsbyPatentStrengthPercentile
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15 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
OldestBlockchainRelatedPatentsTheoldestblockchainrelatedpatentsfromthepoolareU.S.Patent6,324,656and6,282,546.BothpatentsareownedbyCiscoandwerefiledonJune30,1998.The‘656Patentistitled,“Systemandmethodforrules-drivenmulti-phasenetworkvulnerabilityassessment,”andthe‘546“Systemandmethodforreal-timeinsertionofdataintoamulti-dimensionaldatabasefornetworkintrusiondetectionandvulnerabilityassessment.”DespitetheirexpirationsonJune30,2018,the‘656and‘546Patentsremainrelativelystrongamongblockchainpatents,bothscoringinthe91stpercentile.Thiscontinuedstrengthispartlyduetothepatents’impressiveamountofforwardcitations.The‘656boasts464,whilethe‘546has469.Thisplaceseachat5thand3rdintotalforwardcitationsinthepool,respectively.
MostCitedBlockchainRelatedPatentThepatentmostcitedintheblockchainpatentpoolisU.S.Patent6,301,668,a“Methodandsystemforadaptivenetworksecurityusingnetworkvulnerabilityassessment.”TheassigneeisCisco,anditrecords709forwardcitations.Thepatentwasfiledin1998andexpiresinDecember2018.Thispatentcontains116claims.Claim1ofthe‘668Patentreads:
A method for adaptive network security comprising: directing, by a device coupled to a network, a request onto the network; assessing a response to the request to discover network information associated with determining at least one potential network vulnerability; and prioritizing a plurality of analysis tasks based upon the network information, the plurality of analysis tasks to be performed on network data traffic which is monitored in order to identify attacks upon the network.
3.3 BlockchainIPPortfolios,Litigation,andStrategiesOftengarneringallusionstothedot-combubbleandtheinfluxoflegalbattlesinvolved,blockchainlookstobethenextarenaforpatentlitigation.Companiesarerushingtofilepatents,developtechnology,andexpandtheirblockchaineffortstoprepareforthisincreasinglypopulartechnology.54
ThreatsInmakingstridestowardtheadoptionofblockchaintherewillbeanumberofthreatstobusinesses.Oftencompanieswillfacelitigationfromcompetitors,orpossiblyNon-PracticingEntities(“NPEs”or“patenttrolls”),astheyadoptnewtechnologies.Thesameassumptioncanbemadewithblockchain—asmoreorganizationsbegintoimplementandpatentit,therewillbemorelitigationofintellectualpropertyassociatedwithit.ThereisalreadyevidenceoforganizationsandNPEsgearingupforlawsuitsregardingblockchainpatents.NickSpanos,founderandCEOofBlockchainTechnologies,whichhaspatentedablockchainbasedelectionvotingsystem,hassaidapatentwar“isinevitable”andthat“legalbattleswillensue.”55 Eventhoughblockchainbasedpatentinfringementlitigationhasbeenalmostnonexistent,expertssaylawsuitsarealmostcertain,and“thewaveofpatentlitigationisonthehorizon.”56
AnotherpotentialthreattocompanieslookingtoexpandintoblockchainisAlice-basedSection101rejections.Sincethe2014decisioninAliceCorp.Pty.Ltd.v.CLSBankInt’l,courtshaveofteninvalidatedsoftwareand“computer-implementedinventions”atanearlystage.57AlicebuildsonU.S.PatentLawSection101ofTitle35instatingthat“merelyrequiringgenericcomputerimplementationfailstotransformthatabstractideaintoapatent-eligibleinvention.”58Newusesofblockchainsmayfacerejectionsifthenewusesonlyrequireanetworkofstandardcomputersperformingstandardcomputerfunctionswithoutsignificantlymore.59
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IP ProtectionTheimportanceofIPprotectiongoingforwardforthistechnologycannotbeoverstated.Althoughmuchofthecoreblockchaintechnologyisopensource,companiescanexpecttoseepatentscoveringaparticularusecaseintertwinedwithblockchaintechnologiestosolveaparticularproblemwithinspecificindustries.60
Blockchainlitigationmaybeyearsaway,butthetimetobegindefendingpositionsisnow.Patentfilingshavegrownatanexponentialratewithover740blockchainpatentpublicationsworldwideinjustSeptember2017,a300%increasesinceJanuary2016.Expertsdon’texpectthattypeofgrowthtoslowdownanytimesoon,somebelievingitwill“besustainedforseveralyearsandthatwe’llbelookingatthousandsofpatentsinacoupleyears.”61
Whileprotectingthemselvesagainstlitigationfromcompetitorsortrolls,organizationsmustalsobeawareoftacticstoavoidissueswiththeAliceruling.Someofthesetacticswouldbeincludingintheclaimssecurityaspectslikeencryption,hashing,ordigitalsignatures,networkingaspectslikeconsensusprotocols,orsmartcontractprotocols,andfocusingonanydistributedledgerfeaturesinsteadoftransactionfeatures.62Luckilyforcompanieslookingtoimplementtheblockchain,therearestrategiestodefendagainstmostthreatsandprotectthemselvesinthisexpandingtechnologicalspace.
StrategiesThereareanumberofcorestrategiesthatcanbeutilizedbyfirmsimplementingordevelopingblockchaintechnologytotheirbenefit.Oneofthesestrategiesisapatentlicensingstrategy,inwhichafirmwithrightsorownershipofsomeofthepatentsnecessarytoimplementblockchainfortheirparticularusewouldgotomarketlookingtolicensetheremainingpatentsneeded.Itisalowriskstrategythatcanbeusedbymostfirms,howeverthereispotentialforthisstrategytobecomeexpensiveinthelongrun,asfirmspileonroyaltyandupfrontlicensingpayments.Anotherstrategywouldbetobuildadefensiveportfolioofpatents.Eitherthroughthedevelopmentoforiginalpatentsinternally,ortheacquisitionofthirdpartyportfolios,firmscanconstructaqualityportfolioofpatentsthatwouldallowthemnotonlytobenefitfromtheimplementationofsuchtechnologyintotheirownbusiness,butfromthelicensingandenforcementthroughlitigationofthepatentrightstootherfirmslookingtodothesame.Thisstrategy,whilecostlyinthenearterm,canhaveasignificantimpactonfirmprofitabilitygoingforward.Evennon-practicingentities,sometimescalledpatenttrolls,areabletobenefitfromthisstrategybysimplypurchasingandlitigatingcertainpatentsagainstotherplayersinthemarket.
Tothatend,andinordertosimplifytheprocessofacquiringpatentrights,OceanTomohascreatedabid-askmarket.TheOceanTomoBid-AskMarketisaplatformtopurchaseorsellpatentsandpatentapplicationsglobally.63Throughthisplatformanditsbrokerageservices,OceanTomohassuccessfullyclosedhundredsoftransactionswithcumulativevaluewellover$750million.64Recently,OceanTomolisteditsfirstblockchainpatentsontheplatform.Informationonthesepatentsisprovidedbelowasanexampleofcurrentblockchainpatentofferingsonthemarkettoday.
Thefivepatentsincludedinthesalecompriseonefamilyandcoversystemsandmethodsforthesecuringandencryptionofdigitalcontent.Morespecifically,thesepatentscoversecurelylockingencrypteddigitalmediatoaparticularuser,computerorothercomputingdevice.Thefollowingpatentsareincludedintheportfolio:
• 7,421,741-Securingdigitalcontentsystemandmethod(Filed:4/19/2006)• 7,979,697-Securingdigitalcontentsystemandmethod(Filed:7/29/2008)• 8,402,558-Securingdigitalcontentsystemandmethod(Filed:6/10/2011)• 8,930,697-Securingdigitalcontentsystemandmethod(Filed:2/7/2013)• 9,191,376-Securingdigitalcontentsystemandmethod(Filed:11/25/2014)
The7,421,741andthe7,979,697patentsbothscoreinthe90-100thpercentileofpatentsbasedonpatentstrength,whichisafunctionofclaims,term,andcitationsascomparedtosimilarpatents.The‘741Patenthas34forwardcitations,andthe‘697Patenthas8,whichis6.8and1.6timestheaverageof5forcomparablepatents,respectively.ThesepatentshavebeencitedbynotablecompaniesintheblockchainandtechnologyspacesuchasSamsung,Microsoft,Twitter,andToshiba.65 For moreinformationregardingthisparticularportfolio,[email protected].
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4.0 CURRENT IP BLOCKCHAIN EFFORTS
IntellectualPropertybasedfirmshavebeenincreasingtheirinvolvementwithblockchainbasedcompaniesandtechnologiessignificantlyoverthepastfewyears.Weseetheincorporationofthistechnologyintonumerousindustriesasawatershedmoment,whichcouldleadtosignificantincreasesinopportunitiesforvaluation,litigation,andlicensingofnewpatentsandintellectualproperty.BelowwediscussorganizationsandeffortssupportingthedevelopmentofblockchainwithintheworldofIntellectualProperty,aswellastheroleblockchainIPalreadyplaysintheIPmarketplace.
4.1 LociLociisapatentsearchdatabaseaimedatmakingtheinventionprocess,fromideatopatenttodiscoverability,moreefficient.66 LOCIsearchisablockchainpoweredcontext-basedsearchtoolthatconnectinventors,patentattorneys,corporateanalystandotherswithinventorsandtheirideas.InventorsprovideverifiableinformationontheLociblockchain,offeringimmutableproofofIPrightsglobally,whileuserscansearchthisdatabasetoefficientlyfindrelevant patent data.67
Loci’sInnVennisadocumentsearchtoolthatprovidesnoveltyanalysis,aprocessusuallydonebytheinventororpatentattorneys,withincreasedefficiencyandtransparency.InnVennalsohelpsinvestorsstaketheirclaimsbyactingasablockchain-integratedpublicdisclosureplatform,establishinganimmutabledatapointwithatimestampoftheinvention’spublicdisclosure.Thisdisclosurebeginsa12-monthgraceperiodforfilingofapatent,andeffectivelystreamlinestheprocessofobtaining protection on an idea.
The Big Problem
8 Loci
Whitepaper
This haphazard and often illogical system of patent application and protection has hindered what should be a smooth and steady path of innovation. To ratchet up the level of risk up another notch, a successful patent application is not a guarantee of success in the wider world. Businesses all over the world waste substantial resources with failed technologies, internal inefficiencies, untimely product launches, and litigation.
Tools for invention search are now available but either difficult to use, expensive, limited to outdated data, or unable to deliver comprehensive results. There have been minor recent innovations in document search capability. Google Patents, the USPTO patent search engine, FreePatentOnline, and Innography are among resources most turned to for researching patents. These resources deliver long, cumbersome lists of somewhat relevant patents that require far more manual processing time. They are effective but inefficient.
FIGURE 1168
InnVennPriorArtSearchvs.PatentAgent
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TheInnVennSystemrunswithLoci’snativeCryptocurrency,LOCIcoin,creatingameansforexchangeofideasbetweeninventorsandinvestors;inventorsuseLOCIcoinstostaketheirclaimsandputthemonthemarketplace,whileinvestorssearchforandinvestinideasfoundontheplatform,transactinginLOCIcoins.69
4.2 IPweIPweisablockchainenabledpatentregistryandratingsdatabasecurrentlycontainingbasicinformationon80%oftheworld’spatents.70IntegratedwiththeregistryisZuse,apatentanalyticsplatformthatleveragesAI,predictiveanalytics,anddatamanagement.Thesystemexiststoenhancethepatentecosystem,givingpatentownersexposuretopotentialbuyersandlicensees,andcompaniesseekingnewtechnologyaneasierwaytofindthetechnologytheyneedtogrow.
ZuseisexclusivelylicensedbyIPweforusewiththeirplatform.72Thesystemidentifiesrelevantpriorartbyanalyzingthelimitationsoftheclaimunderconsideration,thetext,linkstructureofthecitationwork,andpatentclassification.Zusefurtherrendersasingle“QScore”forpatents,designedtomeasuretheoverallrelativequalityofapatentinacollection.ByaccuratelyidentifyingpatentownersontheIPwedatabase,andprovidingarelativeanalysisofthequalityofpatents,IPweenvisionsamoreefficientpatentecosystemforallpartiesinvolved.
4.3 KodakCoinOnJanuary9,2018,KodakannouncedthelaunchofKodakOneandKodakCoin,animagerightsmanagementplatformandcryptocurrencythatuseblockchaintocreatealedgerofrightsownershipforphotographers.73KodaklicensedtheirnametoWENNDigital,whowillownandoperatetheKodakOneplatform.WENNDigital’sproprietarybigdata/AIenabledimagerecognitionplatformcontinuouslymonitorsandprotectsIPoftheimagesonline,whiletheKodakCoinnativecryptocurrencyenablesartistsanduserstoexchangeimagerightsandownership,creatingafullcircleplatformfortheenforcement,management,andsaleofimagerights.74
FIGURE 1271
TheIPweSystem
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OceanTomomoderatedapanelincludingtheChiefExecutiveofKodakOneattheLicensingExecutivesSocietyInternational(LESI)2018AnnualConferencediscussing“EmergingDevelopmentsattheIntersectionofIP,BlockchainandCryptocurrency”.ThispresentationincludedtheCTOofIPCGroup(seebelow)andwassponsoredbythenewlyformedBlockchainSubcommitteeoftheLESIHighTechCommittee.Theworkshopdiscussedopportunitiesandrisksurroundingblockchain,aswellaspatentandcopyrightcryptocurrencyoffersandtheuseofblockchaintorecordlicensingtransactions.
4.4 IPC GroupIntellectualPropertyCoinGroup,Inc.(“IPCG”,“IPCGroup”)isanEthereumbasedblockchainplatformandrelatedcryptocurrencydesignedtofacilitateIPbasedtransactions,primarilythesaleandlicenseofpatents.TheMissionoftheCompanyisto“promotelowcostandefficientuseoftechnologyforpublicgood”.Thecompanypresentstwooffers:
• IPCoins(“IPC”)ortokensareaproprietarycryptocurrencyloanedtopatentowners,providingliquiditytopurchaseandlicensefurtherpatentrightsfromthirdparties.
• UnitLicenseRightSmartContracts(“ULR”)representablockchainledgerallowingpatentownerstomoreefficientlylicensetheirIPrightscreatinggreatertransparency,asecondarymarketopportunity,aclearaudittrailand accounting value recognition.
TheCompanywillissue/lendIPCstopatentownerssecuredbytheborrowersunderlyingpatents.Thesepatent-backedloanswillbefundedatthethen-currentIPCmarketprice,inanamountnottoexceed25%oftheappraiseddollarvalueofthepatentcollateralandatatermnotmorethan5years.IPCloansareexpectedtobearanaverageinterestrateofLIBORplus7%andmaybepaidbackinIPCsoranapprovedcryptocurrencybasedonmarketpricingatthetimeofrepayment.CombinedprincipleandinterestpaymentinIPC’sprovidesforareducedinterestrate(expectedtoaverageLIBORplus3.5%).One-thirdofinterestpaidnetofanycurrencyexchangecostswillbedistributedquarterlyonaproratebasistoallholdersofIPCs.ThebalanceofinterestproceedswillbeusedtofundtheCompany’soperations.IPCsusedinprinciplerepaymentwillbereturnedtoinventoryasTreasuryTokensandmaybeloanedagain;principlepaymentsinnon-IPC’swillbeusedtopurchaseIPC’sfromthemarketreturnedtoinventoryasTreasuryTokens.
Example:BigCoowns10,000patentsacrosstheU.S.,AsiaandEurope.Managementannouncedanewproductandrequirespatentprotectionagainstcompetitorsbuthaslimitedbudgettoacquirethedesiredrights.TheChiefIPOfficerhasidentified500patentstouseascollateralwhichareappraisedbyanindependentaccountanttobeworth$40million.IPCGroupwillloantoBigCo$10millioninIPC’sforfiveyears.BigCocanthenusetheIPC’stopurchaseorlicense-intherequiredpatents.
Asamarket,IPCoinlendingbenefitsfromanetworkeffect.ThemorepatentownerswhichborrowandholdIPCs,themoreefficientthepurchaseorsaleofpatentsusingIPC’sbecomes.PatentownerscanuseULRSmartContractstomoreefficientlymakeavailable(asLicensor)rightstouseselectgroupingsofpatents,patentapplicationsandrelatedknow-how.Estimatingthelikelyfuturedemandforagiventechnology,LicensorswillofferadefinednumberofULRcontractstothemarketatapredeterminedprice.Blockchaintechnologyandstandardcontractsallowthepatentownertoquicklypresentthisopportunity.Interestedbuyers(asLicensee)canthenpurchasethenumberofcontractstheyrequire.Asdefinedunitsofvalue,thebuyercanbooktheirpurchaseontheirbalancesheetasanasset,expensingthemastheyareconsumed.Importantly,theblockchainledgertransformstraditionalmarketpracticebyallowingtheULRbuyertoresellanyexcesscontractsintothemarket(ataprofitordiscount)creatingatruesecondingmarketforpatentlicenses.TheCompanywillearnacommissionforeachnewissuedULRSmartContract,withareducedcommissionforULR’spurchasedusingIPCs.One-thirdofcommissionspaidwillbedistributedquarterlyonaproratebasistoallholdersofIPCs.
Example:BigConowdeterminesthataportfolioofpatentsrepresentsnon-strategictechnologywhichisneededbyothersinarelatedindustry.BigCo.estimatesthedemandforthistechnologytoby3millionunitsofproductionoverthenext2yearsandcreatesaULRSmartContractofferingeachunitfor$0.50.LittleCo.anticipatesmaking10,000productsusingthistechnologyandpurchasesthesamenumberofunits,recordingonitsbooksa$5,000asset.Overthenexttwoyears,LittleComakesonly8,000productsresellingtheunusedULRSmartContractstoathirdpartyat$0.75aunit,makingaprofitduetothelimitedremainingsupply.
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FutureeffortsoftheCompanymayincludefacilitationorcreationofamarkettotradeULRs.IPCGroup,Inc.anticipatespresentingforsalealimitednumberofIPCoinsortokensthroughanSECRegulationA+InitialCoinOffering(“RegA+ICO”or“ICO”).TheCompanyplansonproceedingunderTier2ofthisRegulation.
4.5 BlockchainPurchasesandLicensesSalesand/orlicensingagreementsofblockchaincompanies,patentsorlicensesarefewandfarbetweenatthispointintime.Mostcompaniesarestillfiguringhowtoadoptblockchain,andiftheyalreadyknowhowtodothat,theyareprobablylookingintodevelopingtheirownapplicationsorfilingtheirownpatentstodoso.WearestillintheearlystagesofdevelopmentofblockchainapplicationIP.Thatbeingsaid,therehavebeenafewinstancesofthelicensingorpurchaseofblockchainrelatedIP,andnumeroussalesofblockchainrelatedtangibleassetssuchasminingequipment.Belowareafewlicensingagreementsexplained.
Longfin–MeridianAgreementOnDecember11,2017Longfin(LFIN)paid2.5millionsharestoacquireZiddu.com,ZidduWarehouseCoins(WC)poweredbyblockchaintechnology(withERC20TokenStandard),andalltheassociatedIPfromMeridianEnterprises.75Theshareswereworth$12,500,000afterthecompany’sIPO,whichoccurredtwodayslater.76 The deal included not only blockchain IP and know-how,buttangibleassetsaswell,andallofZiddu’srespectivecontent.Assuch,it’shardtodividethe$12.5millioninwhatwasspecificallyavaluationoftheblockchainintellectualproperty,butnaturallyonecanassumethereisvaluebehindthetechnologyitselfastheentiredealcenteredaroundablockchaindrivenapplication,whichinitselfispartlyaresultoftheIP.
DragonCoinNetwork–WecastServicesAgreementATechnicalLicenseAgreementwasenteredintobetweenGuangxiDragonCoinNetworkTechnology,alimitedcompanyincorporatedinChina,andWecastServicesGroup,acompanyregisteredinHongKong,onOctober17,2017.Pursuanttotheagreement,WecastgrantedDragonCoinNetworkthenon-exclusive,permanentrighttousetradingplatformtechnologiesandtooperatetheofferingofreal-asset-baseddigitalassets,aswellasthesecuritizationofsuchassets.77 In considerationforsuch,DragonCoinNetworkpaidWecast17.9%ofitsexistingtotalequityofCourageInvestmentGroupLimited,itsparentcompanylistedinHongKong,whichwasroughlyHKD151,482,585asoftheagreement,oraround$20million.Again,weseeaninstanceofequitybeingpaidinexchangeforalicense,andataseeminglysteeppricetoo.Thiswillbecomelesscommonasmajorplayersgetinvolved,andthelicensedtechnologywillbecomeclearerasthepatentingprocessiscompleted.
MicroelectonicsTechnology–ClassicCapitalInc.AgreementEffectiveMay5,2014,MicroelectonicsTechnologyandClassicCapitalInc.enteredanAsset/IntellectualPropertyPurchaseAgreement.TheagreementstatedthatClassicCapitalwouldselltoMicroelectronicsallIPassetslistedintheagreement,whichrelatedmostlytobitcoinmining,aswellasadvancedcachingandnetworksecurity.Inaddition,MicroelectronicswouldreceiveaperpetualandexclusivecommerciallicensetoClassicCapital’sminingpoolsoftwaresourcecode.Inreturn,Microelectronicswouldpay$250,000ontheeffectivedate.Clearlythisagreementwasvaluedmuchlowerthantheothertwo,andwecanpresumethisisattributabletothefactthatitissimplyminingtechnology.Additionally,theagreementdatesbackto2014,fouryearspriortothewritingofthisreportandseeminglyagesagointheworldofblockchain.Althoughanextensiveamountofbitcoinminingequipmentandknow-howforsuchapricebackin2014wouldundoubtedlyhavebeenextremelyprofitableforMicroelectronics,onemaystrugglecomparingthisagreementtothoseinthemarkettodayduetoitstimeframe,andtherevelationsthathavecomesince.
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21 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
5.0 CONCLUSION
Withthecurrentinfluxofinvestmentinblockchaintechnology,growingpopularityacrossawidevarietyofindustries,andrecentupsurgeofblockchainanddecentralizedledgerintellectualproperty,thespaceispoisedforsignificantgrowthintheyearstocome.Manyhavelikenedtheblockchainrevolutiontotheearlydaysoftheinternet,poisedtobetheverynextiterationofdisruptivetechnology.Therearemanyfirmslookingtobeontheforefrontofadoptingblockchain,fromStartupstoFortune500giants,andwiththerightinvestmentsinintellectualproperty,aswellassmartpartnerships,theseorganizationscanpositionthemselvesforsuccessinthepromisingnewworldofblockchain.
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22 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
6.0 ABOUT THE AUTHORS
TrevorD.KrajewskiTrevorD.KrajewskiisanAnalystworkingintheExpertTestimonygroupforOceanTomoatthefirm’sChicagoheadquarters.OceanTomo’sExpertTestimonyPracticeareaquantifieseconomicdamagesarisingfromIntellectualPropertydisputesandprovidesgenerallitigationsupporttoitsclients.Trevorhasbeeninvolvedinthevaluationofdamagesregardingvirtuallyalldamageelements,includinglostprofits,reasonableroyalties,unjustenrichment,priceerosionandsuppression,acceleratedmarketentry,correctiveadvertising,andfuturelostprofits.
Trevorbecameinterestedinblockchainin2016throughhisownindependentresearch,attendanceofindustryconferences,andfriendsinvolvedinthespace.PriortojoiningOceanTomo,TrevorinternedatCharlesRiverAssociates,aglobalconsultingfirmthatofferseconomic,financial,andstrategicexpertisetomajorlawfirms,corporations,accountingfirms,andgovernments,wherehewasresponsibleforlargelysimilarwork conducted at Ocean Tomo.
TrevorholdsaBAinFinancefromIndianaUniversity’sKelleySchoolofBusiness.
Evan T. MairEvanT.MairisanAnalystsupportingtheValuationandInvestmentBankinggroupsforOceanTomoandOceanTomoInvestmentGroup,respectively.OceanTomo’sValuationPracticeappraisesintellectualpropertyandvariousintangibleassets,orcompanieswithsignificateenterprisevalueinintangibles,fortransactional,legal,andbusinessplanningpurposes.OceanTomoInvestmentGroup(CRD#172912)providestechnology-richcompanieswithholisticAdvisory,InvestmentBanking,andCapitalRaisingservices,fillingavoidintraditionalinvestmentbankingbyblendingthosefunctionswithouruniqueunderstandingofintellectualproperty(IP)-anunderutilizedassetclassthatrequiresspecificexpertisetoevaluate and extract value.
Evanbecameinterestedinblockchainin2016whileinterningwithSapientGlobalMarkets,atechnologyconsultingfirm.There,hewasresponsibleformanagingadevelopmentprojectindigitaltransformationforalargemulti-nationalbank.PriortoSapient,EvaninternedatShoreViewIndustries,amid-marketprivateequityfirm,wherehewasresponsibleforreviewingpotentialinvestmentsandmonitoringportfoliocompanies.
EvanholdsaBBAinFinanceandBusinessEconomicsfromtheUniversityofSouthernCalifornia.
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23 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
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31 Huillet,Marie,“SECNamesNewSeniorAdvisortoOverseeCryptoRegulation,”Cointelegraph,June4,2018.
32 Rooney,Kate,“SECchiefsaysagencywon’tchangesecuritieslawstocatertocryptocurrencies,”CNBC,June6,2018.
33 Rooney,Kate,“SECchiefsaysagencywon’tchangesecuritieslawstocatertocryptocurrencies,”CNBC,June6,2018.
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35 PatentStatisticspulledfromactivepatentsonInnographyusingthesearchterms,“blockchain,”“blockchain,”“bitcoin,”“cryptocurrency,”“cryptocurrency,”“distributedledger,”“smartcontract,”and“ethereum,”aswellaspullingonlyprimaryInternationalPatentClassifications,“G0000/00:Physics,”“H0000/00:Electricity,”and“Z0000/00:NotClassifiedByThePatentOffice.”
36 Wood,Aaron,“ChinaFiledTheMostBlockchainPatentsIn2017,”CoinTelegraph,March25,2018.
37 Wood,Aaron,“ChinaFiledTheMostBlockchainPatentsIn2017,”CoinTelegraph,March25,2018.
38 PatentStatisticspulledfromactivepatentsonInnographyusingthesearchterms,“blockchain,”“blockchain,”“bitcoin,”“cryptocurrency,”“cryptocurrency,”“distributedledger,”“smartcontract,”and“ethereum,”aswellaspullingonlyprimaryInternationalPatentClassifications,“G0000/00:Physics,”“H0000/00:Electricity,”and“Z0000/00:NotClassifiedByThePatentOffice.”
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43 IntangibleAssetMarketValueStudy,2017.Seealso:http://www.oceantomo.com/intangible-as-set-market-value-study/.
44 https://www.marketwatch.com/investing/index/otpat/charts;http://www.oceantomo.com/ocean-tomo-300/.
45 PatentStatisticspulledfromactivepatentsonInnographyusingthesearchterms,“blockchain,”“blockchain,”“bitcoin,”“cryptocurrency,”“cryptocurrency,”“distributedledger,”“smartcontract,”and“ethereum,”aswellaspullingonlyprimaryInternationalPatentClassifications,“G0000/00:Physics,”“H0000/00:Electricity,”and“Z0000/00:NotClassifiedByThePatentOffice.”
46 https://www.jpmorgan.com/global/blockchain;https://www.coindesk.com/bank-of-ameri-ca-outlines-cryptocurrency-exchange-system-in-patent-award/;https://www.coindesk.com/wells-fargo-anz-blockchain-prototype-banking/;https://www.investopedia.com/news/google-goldman-sachs-and-citigroup-are-preparing-blockchain-future/.
47 PatentStatisticspulledfromactivepatentsonInnographyusingthesearchterms,“blockchain,”“blockchain,”“bitcoin,”“cryptocurrency,”“cryptocurrency,”“distributedledger,”“smartcontract,”and“ethereum,”aswellaspullingonlyprimaryInternationalPatentClassifications,“G0000/00:Physics,”“H0000/00:Electricity,”and“Z0000/00:NotClassifiedByThePatentOffice.”
48 PatentStatisticspulledfromactivepatentsonInnographyusingthesearchterms,“blockchain,”“blockchain,”“bitcoin,”“cryptocurrency,”“cryptocurrency,”“distributedledger,”“smartcontract,”and“ethereum,”aswellaspullingonlyprimaryInternationalPatentClassifications,“G09C1/00:Apparatusormethodswherebyagivensequenceofsigns,e.g.anintelligibletext,istransformedintoanunintelligiblesequenceofsignsbytransposingthesignsorgroupsofsignsorbyreplacingthembyothersaccordingtoapredeterminedsystem,”“H04L9/00:Arrangementsforsecretorsecurecommunication,”and“H04K1/00:Secretcommunication.”
49 PatentStatisticspulledfromactivepatentsonInnographyusingthesearchterms,“blockchain,”“blockchain,”“bitcoin,”“cryptocurrency,”“cryptocurrency,”“distributedledger,”“smartcontract,”and“ethereum,”aswellaspullingonlyprimaryInternationalPatentClassifications,“G0000/00:Physics,”“H0000/00:Electricity,”and“Z0000/00:NotClassifiedByThePatentOffice.”
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2018.62 Haughey,Paul,Olion,Brian,andFranklin,Thomas,“10ConsiderationsForBlockchainPatent
Applications,”IPLaw360,February23,2018.63 http://www.oceantomo.com/bid-ask-market/64 http://oceantomobidask.com/img/ocean-tomo-bid-ask-market-brochure.pdf65 StatisticspulledfromInnography.66 https://loci.io/67 LociWhitepaper,p.468 LociWhitepaper,p.869 LociWhitepaper,p.570 https://ipwe.com/71 https://ipwe.com/#about72 https://ipwe.com/zuse-analytics73 https://www.businesswire.com/news/home/20180109006183/en/KODAK-WENN-Digital-Part-
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+1312.327.4400oceantomo.com
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24 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT
CHICAGO
GREENWICH
HOUSTON
SAN FRANCISCO
SHANGHAI
OCEANTOMO.COM