BLOCKCHAIN & CRYPTO- CURRENCY - IPCG · BLOCKCHAIN TECHNOLOGY Although a cryptographically secured chain of blocks was described in work dated as early as 19911, the invention of

1 BLOCKCHAIN & CRYPTOCURRENCY INDUSTRY REPORT

INDUSTRY REPORTJUNE 2018

BLOCKCHAIN & CRYPTO-CURRENCY


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


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.


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.


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


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.


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


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.


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


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


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)


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


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


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


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


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].


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


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


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.


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.


5.0 CONCLUSION

Withthecurrentinfluxofinvestmentinblockchaintechnology,growingpopularityacrossawidevarietyofindustries,andrecentupsurgeofblockchainanddecentralizedledgerintellectualproperty,thespaceispoisedforsignificantgrowthintheyearstocome.Manyhavelikenedtheblockchainrevolutiontotheearlydaysoftheinternet,poisedtobetheverynextiterationofdisruptivetechnology.Therearemanyfirmslookingtobeontheforefrontofadoptingblockchain,fromStartupstoFortune500giants,andwiththerightinvestmentsinintellectualproperty,aswellassmartpartnerships,theseorganizationscanpositionthemselvesforsuccessinthepromisingnewworldofblockchain.


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.


200WestMadison,37thFloorChicago IL 60606

1 Haber,S.&Stornetta,W.S.J.Cryptology(1991)3:99.2 Sager,Ira,“BeforeiPhoneandAndroidcameSimon,theFirstSmartphone,”Bloomberg,June

29,2012.3 “Thegreatchainofbeingsureaboutthings,”TheEconomist,October31,2015.4 Wright,Aaron&DeFilippi,Primavera,“DecentralizedBlockchainTechnologyandtheRiseofLex

Cryptographia,”March12,2015,p.2.5 NolanBauerle,“WhatistheDifferenceBetweenaBlockchainandaDatabase?”Coindesk.com.6 Kleinman,Jacob,“WhatIsBlockchain?”Lifehacker,January16,2018.7 “Thegreatchainofbeingsureaboutthings,”TheEconomist,October31,2015.8 Rosic,Ameer,“ProofofWorkvsProofofStake:BasicMiningGuide,”Blockgeeks.9 Rosic,Ameer,“ProofofWorkvsProofofStake:BasicMiningGuide,”Blockgeeks10 “ProofofStake(PoS)–Definition,”Investopedia.11 Kogan,Michael,“Proof-of-StakevsProof-of-Work,”Hackernoon,November30,2017.a12 Ripple Solution Overview13 https://www.investopedia.com/news/why-some-claim-ripple-isnt-real-cryptocurrency-0/14 RippleSolutionOverview,p.18-1915 https://ripple.com/solutions/process-payments/16 RippleSolutionOverview,p.1417 RippleSolutionOverview,p.1518 https://ripple.com/solutions/source-liquidity/19 https://ripple.com/solutions/send-payments/20 “Sia:SimpleDecentralizedStorage,”SiaWhitepaper,November29,2014,p.1.21 “Sia:SimpleDecentralizedStorage,”SiaWhitepaper,November29,2014,p.1.22 “Home.”Sia.tech.23 https://www.vechain.org/24 https://www.vechain.org/#usecase25 https://www.vechain.org/#economic26 “StateofBlockchain2018,”Coindesk,p.105.27 “StateofBlockchain2018,”Coindesk,p.101.28 Higgins,Stan,“TheSECJustAppointedItsFirst-EverCryptoCzar,”Coindesk,June4,2018;

Huillet,Marie,“SECNamesNewSeniorAdvisortoOverseeCryptoRegulation,”Cointelegraph,June4,2018.

29 Huillet,Marie,“SECNamesNewSeniorAdvisortoOverseeCryptoRegulation,”Cointelegraph,June4,2018.

30 Bryanov,Kirill,“WhatDoWeKnowAboutValerieSzczepanik,theFirstCryptoCzar,”Cointele-graph,June12,2018.

31 Huillet,Marie,“SECNamesNewSeniorAdvisortoOverseeCryptoRegulation,”Cointelegraph,June4,2018.

32 Rooney,Kate,“SECchiefsaysagencywon’tchangesecuritieslawstocatertocryptocurrencies,”CNBC,June6,2018.



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.


39 Rosario,Nelson,“AnUpdateOnTheBlockchainPatentLandscape,”Law360,March16,2018.40 Wood,Aaron,“ChinaFiledTheMostBlockchainPatentsIn2017,”CoinTelegraph,March25,

2018.41 PatentStatisticspulledfromactivepatentsonInnographyusingthesearchterms,“blockchain,”

“blockchain,”“bitcoin,”“cryptocurrency,”“cryptocurrency,”“distributedledger,”“smartcontract,”and“ethereum,”aswellaspullingonlyprimaryInternationalPatentClassifications,“G0000/00:Physics,”“H0000/00:Electricity,”and“Z0000/00:NotClassifiedByThePatentOffice.”

42 Haughey,Paul,Olion,Brian,andFranklin,Thomas,“10ConsiderationsForBlockchainPatentApplications,”IPLaw360,February23,2018.

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/.


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/.


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.”


50 Quinn,Gene,“HighValuePatents–WhereStrengthMeetsQuality,”IPWatchdog,December11,2014.

51 “ThePowerofPatentCitations,”MinesoftGlobalPatentSolutions.52 “FindingtheBestPatents–ForwardCitationAnalysisStillWins,”IPWatchdog,March24,2016.53 PatentStatisticspulledfromactivepatentsonInnographyusingthesearchterms,“blockchain,”

“blockchain,”“bitcoin,”“cryptocurrency,”“cryptocurrency,”“distributedledger,”“smartcontract,”and“ethereum,”aswellaspullingonlyprimaryInternationalPatentClassifications,“G0000/00:Physics,”“H0000/00:Electricity,”and“Z0000/00:NotClassifiedByThePatentOffice.”

54 Bultman,Matthew,“WhatIPAttysNeedToKnowAboutBlockchain,”IPLaw360,February28,2018.

55 Rosenbaum,Eric,“Thepriceofthebitcoinbubble:Patenttrollsarediggingintotheblockchain,”CNBC,December19,2017.

56 Bultman,Matthew,“WhatIPAttysNeedToKnowAboutBlockchain,”IPLaw360,February28,2018.

57 Teague,Daryn,“HowtoOvercomeAlice-basedSection101PatentRejections,”LexisNexis,July26,2017.

58 AliceCorp.Pty.Ltd.v.CLSBankInt’l,573U.S.____(2014),p.1.59 Haughey,Paul,Olion,Brian,andFranklin,Thomas,“10ConsiderationsForBlockchainPatent

Applications,”IPLaw360,February23,2018.60 Haughey,Paul,Olion,Brian,andFranklin,Thomas,“10ConsiderationsForBlockchainPatent

Applications,”IPLaw360,February23,2018.61 Bultman,Matthew,“WhatIPAttysNeedToKnowAboutBlockchain,”IPLaw360,February28,

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-

ner-Launch-Major-Blockchain74 https://www.ccn.com/new-filing-sheds-light-on-kodaks-ico-licensing-agreement/75 AssetPurchaseAgreementbetweenLongfinCorpandMeridianEnterprisesPte.Ltddated

December11,2017,p.1;ktMINE.com(//www.ktmine.com).76 https://seekingalpha.com/article/4132679-longfin-5-100-plus-week-crypto-mania-spreads.77 TechnicalLicenseAgreementbetweenGuangxiDragonCoinNetworkTechnologyCo.Ltd.and

WecastServicesGroupLimiteddatedOctober17,2017,p.1.

+1312.327.4400oceantomo.com


CHICAGO

GREENWICH

HOUSTON

SAN FRANCISCO

SHANGHAI

OCEANTOMO.COM

Documents

BLOCKCHAIN & CRYPTO- CURRENCY - IPCG · BLOCKCHAIN TECHNOLOGY Although a cryptographically secured chain of blocks was described in work dated as early as 19911, the invention of