Clifford Chance

In a fast-growing market, securing IPR over newly-developed Blockchain-technologies is crucial for stakeholders in order to maintain their competitive edge with respect to future commercialization. The article discusses how such protection could be achieved under German law.

It is of utmost importance to secure intellectual property rights over new developments in the field of blockchain/smart contracts at an early stage in order to stay competitive in the market. Under German law, blockchain-applications, including smart contracts consisting of computer software/algorithms, can enjoy protection under the German Patent Act ("GPA") as well as the German Copyright Act ("GCA"). The legal issues that arise in this context are not entirely new, but certain aspects will present new questions when seeking protection for new technologies.

Patent protection

It can be assumed that the "basic" blockchain-protocol is not patentable as it likely became prior art following its publication in 2008. However, any subsequent developments encompassing the blockchain-protocol - or aspects thereof - could potentially enjoy patent protection if the legal prerequisites of Section 3 GPA (novelty and inventive step) are met. In particular, the software patent needs to provide for a technical solution of a technical problem, causing an effect in the outside world. This could be, as an example, software controlling anti-lock braking systems which reduce the risk of blocks in wheels.[1] The fact that a software runs virtual commands, triggering electric signals on a computer system which lead to certain computation results is generally not sufficient to consider a software patentable.

The significant number of blockchain-related patent applications at the German and the European patent offices in recent years (relating to, e.g., the management of digital wallets, smart contracts or identity management) show that stakeholders are confident that they can obtain the absolute (exclusive) right to commercialize the subject matter.[2] By far the most applications are filed by the Chinese Alibaba Group Holding Ltd. followed by IBM. In general, a dominance of Chinese and U.S. applicants is apparent.[3]

However, these patent applications are clearly only part of a much larger trend with over 48,000 European patent applications related to Industry 4.0, as determined by the first European Patent Office landscaping study on "Patents and the Fourth Industrial Revolution (4IR)" in co-operation with the German Handelsblatt Research Institute in 2017.[4] Finally, as the market for blockchain- and smart contract-solutions grows larger, stakeholders should consider commissioning Freedom-to-Operate searches before filing any patent and/or launching a product to ensure that they do not infringe any third-party IPR.

Copyright / database protection

Blockchain-applications and smart contract software may be protectable under Section 2(1) and Section 69a (1) GCA with regard to source and object code, draft material, the application programming interface (API) as well the graphic user interface (GUI) without any registration needed.

In addition, the blockchain itself could be protectable as a sui generis data base (Section 87a GCA), protecting in particular the financial investment made by the producer of the database. A blockchain can generally be considered a "data base" in terms of Section 87a GCA as it represent "a collection of works, data or other independent elements arranged in a systematic or methodical way and individually accessible by electronic or other means".[5] The producer of a database within the meaning of GCA is the person who has made the "substantial qualitative or quantitative investment".

Further, the producer of the database "has the exclusive right to reproduce and distribute the database as a whole or a qualitatively or quantitatively substantial part of the database and to make this available to the public" (Section 87b GCA). Therefore, the regime of sui generis protection might not be useful with regard to the concept of a public (permission-less) blockchain (like Bitcoin or Ethereum) requiring the blockchain to be duplicated, stored and constantly updated among an unlimited number of anonymous users. Thus, the producer of the data base, i.e. the public blockchain - assuming that the producer can be determined[6] - could not prevent third parties from copying the entire database as envisaged by Sections 87a et seq. GCA and therefore not exercise his rights of protection.

This might be different in case of private (permissioned) blockchains where the owner/investor or a designated administrator can restrict access to the network to a specific circle of users. In these cases, the blockchain does not necessarily have to be anonymous and the need for complex security mechanisms might be lower as the users' identities are disclosed to the participants. The scope of the authorized use of the blockchain infrastructure by the participating users will then likely be covered by a respective agreement governing the terms of conditions. Private blockchains could be used, for example, for the purpose of monitoring/recording the execution of smart contracts under which IP is created, allocated and licensed via blockchain.[7]

Conclusion

In a competitive, rapidly growing market, blockchain stakeholders such as software developers should seek IP protection for any new developments early on. German and European patent law as well as German copyright law provide for the necessary legal means to protect the right holders' interest in the future commercialization of blockchain. However, as the underlying technology is subject to ongoing intensive research, with many real-world use cases still to be developed in the coming years, legal practitioners will need to keep an eye on the most important trends and will have adapt to the legal challenges, also taking into account the risks of upcoming litigation cases as blockchain-based business models mature.

Ultimately, it may also become an exercise for legislators to make the required adjustments for an efficient and fair legal framework in case the current law cannot keep up with the technological progress.[8]

Key takeaway points

• Developers of blockchain-technology should be eager to seek IP protection at an early stage of the development process.
• Patent and Copyright law provide for the necessary legal means to protect blockchain-technology.
• In addition, although certain aspects might still be unclear, blockchain may also enjoy protection as data base sui generis (Section 87a GCA), protecting the substantial investment made by the producer of the blockchain.

This article was first published on Talking Tech on 18 July 2018 and was updated in October 2021.

REFERENCES

[1] German Federal Court, decision from 13 May 1980, X ZB 19/78.

[2] E.g., a cursory search for the keyword "Blockchain" (conducted on 26 August 2021) at the European patent register yielded 104 search results.

[3] See Hess, GRUR-Prax 2020, 251, 253.

[4] https://www.epo.org/news-issues/news/2017/20171211.html.

[5] See Willecke, DSRITB 2017, 833, 837 et seq.

[6] The question, who the "producer" of the data base is, needs to be assessed on a case-to-case-basis. The collection but not the generation" of the data is protected under Section 87 et seq. GCA.

[7] For further examples in regard to smart contracts and IP, please refer to the article "Blockchain and its application in the field of IP: Smart Contracts and IPR management" here on Talking Tech.

[8] Such as the German "Act on the introduction of electronic securities", which came into force on 10 June 2021, allowing for a new type of "crypto security", i.e. a security based on crypto technology which is registered in a "crypto security register". Crypto securities are not to be confounded with "traditional" crypto tokens such as Bitcoin, Ether or Litecoin.