Summary and Takeaways from the USPTO Roundtable on Patents and NFTs | ArentFox Schiff

On January 26, 2023, the US Patent and Trademark Office (USPTO) held a public roundtable, where various attorneys and industry experts discussed their thoughts on the intersection of patent law and non-fungible tokens (NFTs).

From this discussion, we have compiled a summary of our takeaways from various NFT-related issues regarding patents that we consider to be primarily relevant for patent owners and industry representatives.

Summary of round table discussions

NFTs are unique, cryptographic tokens on a blockchain that can each represent a recorded transaction on the blockchain with a smart contract in relation to a digital asset. Many companies are currently incorporating aspects of NFTs and other emerging technologies, such as distributed ledger technology (e.g., blockchain) and smart contracts, into applications for patent protection, and NFTs are currently being used to track ownership of patents. While NFTs can provide opportunities for patent rights holders, they can also present various challenges in protection, ownership and enforcement.

For example, NFT-related patents can fall into two categories. The first category includes patents aimed at improving the NFT technology itself, for example the technological ability of NFTs to be used as a means of authenticating individual identities and their underlying digital assets. These types of patent applications tend to include inventions that refine the process of creating or minting NFTs, storing NFTs on the blockchain, or securing stored NFTs. The second category includes patents aimed at the application of NFT technology. These types of patent applications may include inventions that use NFTs to identify elements of a financial workflow, to authenticate a user at a bank, or for other purposes that fundamentally constitute a way to use NFTs, blockchain or related technology .

Unlike the first category, which type of inventions tend to have a lower hurdle to obtain patent protection, the second category tends to be more difficult to successfully obtain patent protection, since the USPTO tends to look at only use of NFTs that are not significantly more than an unpatentable abstract idea. As NFT use has gained a lot of visibility in recent years, there is a good chance that a large amount of non-patent literature can be found on inventions related to NFTs in the second category, further increasing the barrier to meeting patent applicants. the requirements to have a new and non-obvious invention for patent protection.

Currently, there is interest in the use of NFTs to authenticate the transfer and ownership of patent rights on blockchain networks that track the purchase and sale of these rights. For example, some industry experts have insisted that the USPTO implement a public blockchain system that allows inventors or patent owners to register NFTs that validate grants of patent rights. Some companies are even converting many patent assets into NFTs stored on a blockchain so that data about each asset such as licenses and chain of title can be more visible to the public, as well as to potentially facilitate satisfaction of corporate governance requirements in countries that may require IP investments to be reported.

However, one of the primary features of NFTs and blockchain technology that is of interest to many patent owners is the ability for these technologies to be decentralized, and thus resistant to censorship. This interest has led to the question of whether a centralized, governmental body, such as the USPTO, can recognize or validate title changes through NFT-authenticated and blockchain-registered patent assignments, and thus whether a patent applicant claiming ownership through such an assignment can succeed when seeking patent protection or entering in other proceedings before the USPTO. A similar question arises as to whether patent owners who acquired patent rights via NFTs have valid standing to initiate a patent infringement dispute. Experts tend to believe that the answers to both questions are yes if the rights are documented on a public blockchain network, but perhaps not on a private blockchain network due to lack of visibility or notice.

Also, blockchain is expensive to implement, and while the NFTs themselves can be stored on the chain given their low data content, the patent assets themselves, such as the patents, assignments, licenses or other related data, are usually stored elsewhere. the blockchain. As a result, these patent assets may be vulnerable to cyber-attacks that could compromise the veracity of the patent assets, thereby jeopardizing the patent license or ownership rights of the NFT owner. Moreover, any smart contracts associated with these patent-asset NFTs, such as self-executing data code stored on the blockchain that can be triggered in response to the sale or transfer of patent assets, may be exploited or subject to errors resulting in non-payment for the transfer of patent rights, an ineffective transfer or other problems. In addition, many NFTs are designed so that the transfer of the NFT does not result in the transfer of ownership of the underlying patent asset, but only results in a limited license to use or perform other actions in connection with the patent asset.

In addition, patent owners may have other issues to consider in connection with patent-related NFTs, for example with respect to joint ownership and patent exhaustion. For example, with respect to joint ownership, 35 USC §262 allows each of the joint owners of a patent to make, use, offer to sell, or sell a patented invention in the United States, or to import the patented invention into the United States, without the consent of and without accounting to the other owners. As a result, if an NFT owner sells the same token to multiple buyers with ownership rights to the underlying patent asset, those buyers can potentially be co-owners of the patent and can therefore perform their own patent asset transfers via NFTs without accounting to other joint owners. The resulting tokenization of the underlying patent asset may consequently devalue the patent. Furthermore, the doctrine of patent exhaustion provides that when an authorized sale of a patented article is made by a patent owner or a licensee of the patent owner, the patent owner’s right to control the use and sale of that article is said to be exhausted, and thus the buyer is free to use and resell the article without liability to the patent owner. Thus, it is possible for an owner of an NFT, whose underlying patent asset is the invention itself (as opposed to a patent on the invention), to empty the patent via the sale of the NFT if ownership rights to the invention are transferred with the NFT. This exhaustion of patent rights may prevent the patent owner from seeking damages or other remedies if an NFT buyer later resells the NFT.

Takeaways

Patent owners should consider, before applying for a patent for an NFT-related invention, under which category of invention their patent may fall, namely an improvement of NFT technology or an alternative use of NFT technology, and in the latter case, whether their invention can be structured so that it results in an improvement of the underlying technology. For example, patent owners should consider whether the use of blockchain to store NFTs is merely an alternative to the decades-old technology of storing data in a database and is merely an application of blockchain technology, or whether an actual improvement of the technology can be found from the invention. Moreover, before seeking patent protection for an NFT-related invention, patent owners should conduct a search of not only patents and published patent applications, but also non-patent literature, to determine whether their invention has already been disclosed by another and whether patent protection can therefore not available.

Patent owners, inventors and investors should also consider, before intending to assign or obtain the transfer of patent rights using NFTs, whether they are using a public or private blockchain and how that could potentially affect their rights. Furthermore, patent owners, inventors and investors should consider in advance the risk of cyber-attacks or software bugs in smart contracts affecting the transfer, in addition to the type of transfer that actually takes place (e.g. a patent license or a patent assignment). Patent owners should also consider whether an NFT transfer could potentially result in an undesirable co-ownership situation or exhaustion of the underlying patent.

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