...To blockchain purists, editable blockchain is like a chocolate-less hot fudge sundae—the key ingredient, immutability, is missing. 

Immutability. In a world where hacking seems to have become a near continuous occurrence, there is something very appealing about a technology that seemingly puts data beyond the reach of any hacker. What are termed “permissionless” blockchain systems, which lack a central governing authority, largely deliver on the promise of immutability. Data stored in a blockchain is maintained in a linked chain of data replicated over multiple servers with multiple owners. Alteration, while theoretically possible, is impossible with current technology.

This may explain the significant reaction to an announcement by consulting firm Accenture that it had filed a patent for technology that would allow a central authority to edit a pre-existing data entry on a blockchain. The technology utilizes a “chameleon hash” to allow authorized administrators to edit a single “block” while not compromising the integrity of the entire chain. To blockchain purists, editable blockchain is like a chocolate-less hot fudge sundae—the key ingredient, immutability, is missing. 

The reality is that there are multiple flavors of blockchain. Permissionless blockchain has gained the most prominence because it underlies Bitcoin, an early, widespread commercialization of the technology. For the ledgers that keep tabs on your Bitcoin holdings, the ability to edit the chain would undercut the trust upon which the system relies and force reliance upon the integrity and security of the administrators who have editing privileges. Bitcoin makes currency transfers frictionless and cost-free precisely by eliminating the need for such intermediaries.

Permissionless blockchain, however, is not the best database technology for every application. Other “private” blockchains rely on similar technology, but the entities creating the blockchain agree on rules that govern how entries are recorded and under what circumstances they can be modified. The strengths of permissionless blockchain in the context of cryptocurrencies may be weaknesses in other contexts. The rules of private blockchains address these weaknesses. 

...the Accenture patent addresses a concern of the banking community about giving up the ability to correct mistakes in ledger entries.

For example, the Accenture patent addresses a concern of the banking community about giving up the ability to correct mistakes in ledger entries. Similarly, all entries on a permissionless blockchain are publicly available. One could see private blockchains including technology that limits access to certain information on the chain. From that perspective, the Accenture patent is simply a private blockchain tool – one of many I suspect we will be seeing. 

The Accenture patent does highlight another potential issue in the development of blockchain technology. Investment is pouring into this field, both by startup investors and established companies, particularly in the financial sector. The innovation resulting from this funding is starting to drive significant patenting activity. Techcrunch reported that by late June of this year, there were 492 published patent families directed to the theme of blockchain and 192 relating to bitcoin. Given the timetable for publication of a patent application, there are likely many more patent applications in the pipeline.

In the case of blockchain technology, Bitcoin’s core software is open source and cannot be patented. Further, the Supreme Court’s recent decision in Alice Corp. v. CLS Bank International, which significantly limited the patentability of business method patents, is likely to limit many patents in the blockchain space. Given that blockchain technology has been around for several years, it is unlikely that any fundamental patents that read on the “core” of blockchain have not already surfaced. As a result, it is unlikely that any one entity will “own” blockchain from an IP perspective. Yet despite the Alice decision, given the amount of investment and the potential financial returns of blockchain technologies, patent filings with respect to private blockchain structures and blockchain applications are only likely to increase.

...it is unlikely that any one entity will “own” blockchain from an IP perspective.

The Patent and Trademark Office has often struggled when addressing new technologies. So-called pioneer patents are often overbroad and grant the early players in a field significant IP pickets. One only needs to think back to a string of questionable patents issued early in the Internet revolution. Such patents serve as a significant impediment to subsequent innovation. 

The America Invents Act of 2011 created a post grant review process that allows the patentability of a newly issued patent to be challenged based on any grounds that can be raised under 35 U.S.C. § 282(b)(2) or (3) (for example, failure to meet the conditions of patentability). The prospect of post grant review creates some incentive to self-censor during the claims drafting process to ensure the ultimate survival of a patent. This, combined with successful post grant challenges and the ongoing impact of Alice, may help prevent a scenario where blockchain innovation is stymied by a cluttered IP landscape. At the same time, blockchain innovators need to understand that they are working in an early-stage, evolving IP landscape where the potential risks are still very difficult to evaluate.

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[Dror Futter is a partner at law firm McCarter & English with more than 20 years of high tech and intellectual property legal and business experience. Previously he was General Counsel at Vidyo, Inc. and before that GC at renowned VC fund New Venture Partners LLC.]