Blockchain Patents and Litigation — Updated May 2023 | Kramer Levin Naftalis & Frankel LLP

Blockchain had a challenging year, but continues to grow as a technology with broad applicability. Here we update our previous article on the state of blockchain patents and patent litigation with an overview of the landscape of patents and patent litigation in the space.

Filing and approval of blockchain patents slows down

The number of new patent applications filed and published stabilized in 2022 and looks set to plateau by the end of 2023. This leveling off was not unexpected after the all-crypto glut that continued into late 2021 cooled. Furthermore, this leveling off is likely to continue as we get further from the beginning of the crypto bear market. The steep decline in the graph below is due to only having partial data for 2023.

Patent applications published and patents issued for blockchain technology on an annual basis

Despite slowing patent applications, many new patents are still being granted, and there are now nearly 10,000 issued blockchain patents.

Cumulative patents issued for blockchain technology

The number of Blockchain patent lawsuits is increasing

As we predicted in our 2021 article, several patent lawsuits related to blockchain have started as companies may want to extract value from their patents. Since then, several new cases that will affect the future of blockchain patent litigation have been filed.

The issue of patent eligibility (ie, 35 USC §101) remains an important obstacle to blockchain patents in litigation. As we discussed earlier, the district court case of Rady v. Boston Consulting Group, LLC served as an initial test case, where the court found the claim patent ineligible. While patent disqualification has continued to be a universally asserted defense in blockchain patent cases, most accused infringers have not immediately moved to dismiss the complaint based on patent eligibility. This follows a general trend where courts are more likely to look at this issue later in the case after the factual record has been developed, particularly when a patentee has alleged facts supporting patent eligibility in its complaint.

TD Professional Services v. Truyo Incorporated et al.^[1]

TD Professional accuses Truyo of infringing two of its patents because the platform uses blockchain to help comply with the EU’s General Data Protection Regulation (GDPR). The case is currently the most advanced patent case directly involving blockchain technology, as the court has issued claim construction. The order interpreted a number of blockchain-related terms such as “blockchain miners” and “private blockchain.”

While the plaintiff did not move to dismiss the case based on patent eligibility, the court relied on several citations to the patentee’s responses to Section 101 rejections in the claim construction order. It will be interesting to see if the defendant moves for patent ineligibility on summary judgment, given that the US Patent and Trademark Office (USPTO) considered the issue of patent eligibility and certified the claims.

Veritaseum Capital, LLC v. Coinbase Global et al. / Veritaseum Capital, LLC v. Circle Internet Financial Limited et al.^[2]

Veritaseum is asserting its patent in two cases against Coinbase and Circle, where both were accused of infringement for their operation of validators in proof-of-stake (PoS) blockchains such as Ethereum.

In its suit, Coinbase filed a motion to dismiss, alleging that Veritaseum’s infringement claims were implausible on their face, and that the alleged claims were not patent-eligible. Specifically, Coinbase argued that the alleged subject matter is directed at the abstract concept of processing financial transactions using a decentralized digital currency network without the need for a trusted intermediary. Coinbase argued that the claims fail to recite an inventive concept because they rely on generic computer components and data, recite conventional blockchain functions, such as a distributed ledger, and use generic public key encryption techniques. This proposal has not yet been decided upon. An interesting twist from this case is that a ruling in another case indicated that Veritaseum might not be willing to sue because the inventor had wrongly assigned the patent to himself, an issue that is currently subject to discovery. The case is currently adjourned to give the plaintiff time to hire a new lawyer after his lawyer has passed away.

In the subsequently filed case against Circle, Circle filed a motion to dismiss based on (1) lack of personal jurisdiction because Veritaseum did not name Circle’s US entity and (2) lack of standing because the same issue related to the patent being wrongfully assigned. This proposal was not fully briefed because the case was also adjourned to give the plaintiff time to hire a new lawyer.

Pardalis Technology Licensing, LLC v. International Business Machines Corporation^[3]

This case involves seven patents on tracking and controlling a supply chain distribution system using an “immutable ledger” that are asserted against many IBM blockchain products, including those involving the well-known Hyperledger technology. IBM responded to the complaint, arguing that the patents were not infringed and were invalid for several reasons. The court has given a timetable in the case, and the trial is scheduled for August 2024.

Forte Labs, Inc. v. Pocketful of Quarters, Inc.^[4]

Here, Forte sought a declaratory judgment that Pocketful of Quarters (PoQ) patent related to blockchain games is invalid and therefore not infringed by Forte. Forte alleged that the claims were directed to patent-ineligible subject matter and that it is invalid prior art. Forte further argued that there was reasonable concern about being sued because the COO of PoQ stated at a conference that Forte was infringing the patent and had copied PoQ’s technology. PoQ has moved to dismiss the declaratory judgment motion because it argued it was an “off the cuff” statement at a conference and it was not reasonable for Forte to believe it was about to be sued. The proposal is now awaiting consideration in court.

True Return Systems, LLC v. MakerDAO / True Return Systems, LLC v. Compound Protocol^[5]

These cases involve True Return’s patent assertion against two distributed organizations. These cases have a complicated history that we have previously explored here. Since this article was published, Compound Labs Inc. has filed to intervene in the case against “Compound Protocol”, claiming that the protocol is “just software” and that Compound Labs is the real party in interest.

^[1] TD Pro. servant. v. Truyo Inc.No. 2:22-cv-00018-MTL (D. Ariz.).

[2] Veritaseum Cap., LLC v. Circle Internet Fin. Ltd.No. 2:22-cv-00498-JRG-RSP (ED Tex.), and Veritaseum Cap., LLC v. Coinbase Glob., Inc., No. 1:22-cv-01253 (D. Div.).

^[3] Pardalis Tech. Licensing, LLC v. Int’l Bus. Machs. corp.No. 2:22-cv-00452-JRG-RSP (ED Tex.).

^[4] Forte Labs, Inc. v. Pocketful of Quarters, Inc., No. 4:22-cv-04982-YGR (ND Cal.).

^[5] True Return Sys., LLC v. MakerDAONo. 1:22-cv-08478-VSB (SDNY), and True Return Sys., LLC v. Compound ProtocolNo. 1:22-cv-08483-JPC (SDNY).

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