Research Summary - A Decentralized Framework for Patents and Intellectual Property as NFT in Blockchain Networks

[Fizzymidas]

TLDR

• The authors propose using NFTs as a decentralized framework for patents and intellectual property.
• Intellectual property (IP) protection technology needs to possess the properties of uniqueness, ease of transferability, traceability, and speed, which can be harnessed from NFTs and a decentralized network.
• The proposed framework has challenges ranging from technical issues with consensus to interoperability and uncertainty with regulations

Core Research Question

Can NFTs be used to represent intellectual property rights ownership like patents?

Citation

Seyed Mojtaba Hosseini Bamakan, Nasim Nezhadsistani, Omid Bodaghi et al. A Decentralized Framework for Patents and Intellectual Property as NFT in Blockchain Networks, 05 October 2021, PREPRINT (Version 1) available at Research Square [A Decentralized Framework for Patents and Intellectual Property as NFT in Blockchain Networks | Research Square]

Background

• Intellectual property: Human imagination expressed in tangible forms such as literature, designs, art, and music.
• Fungible and Non-Fungible: As an analogy, the US dollar is fungible, meaning one can interchange a one-dollar note for another one-dollar note. While a flight ticket is semi-fungible, meaning one passenger can interchange their economy flight ticket for another passenger’s economy flight ticket (fungible), but cannot substitute an economy flight ticket for a first-class flight ticket (non-fungible).
• Non-Fungible Tokens (NFTs): Non-interchangeable digital assets created on a blockchain. Unlike other digital assets on the blockchain like bitcoin and ether, where one bitcoin can be interchanged for another bitcoin, NFTs cannot be interchanged. NFTs are digital assets that can represent real-world assets, tangible and intangible assets.
• NFT Characteristics: What distinguishes NFTs is their unique identifier. This means it is possible to convert fungible tokens to NFTs.
  • Ownership: This refers to verification and proof of ownership of the digital asset.
  • Transferability: Ease to transfer ownership on marketplaces with just a few clicks.
  • Transparency: As transactions on blockchains are public, it is easy to trace history as it moves from one owner to another.
  • Fraud Prevention: Because NFTs are unique, they can be used to verify authenticity, helping prevent counterfeiting.
  • Immutability: Transaction details recorded on a blockchain are immutable, helping to preserve the integrity of data.
• Decentralized Identifier (DID): A unique identifier that is cryptographically verifiable.
• Ethereum Improvement Proposal (EIP): Standards used to propose changes to the Ethereum Network and application software.
• Ethereum Request for Comments (ERC): Standards used to make application-level changes on the Ethereum Blockchain, usually accepted EIPs.
• On-Chain Metadata: Metadata is directly incorporated into a smart contract.
• Off-chain Metadata: Metadata stored separately from a smart contract.
• Self-Sovereign Identity (SSI): A concept of digital identity that allows individuals control over their identity.
• Token standards: Smart contract standards that detail how to create, issue, deploy and manage tokens on a particular blockchain.

Summary

• The first NFT token standard was suggested by Entriken, W., Shirley, D., Evans, J. & Sachs, N. in Ethereum Improvement Proposals (EIP 721) in 2018. It became known as the ERC-721 token standard.
• Also in 2018, Radomski, W. et al. submitted their EIP 1155 suggestion known as the ERC-1155 multi-token standard.
• Following the sale of Beeple’s “Everydays — The First 5000 Days” for $69 million, NFTs deservedly caught the world’s attention.
• According to the authors, tokenization in blockchain technology comes in three types: tangible, fungible, and non-fungible.
• The existing application process for a patent is time-consuming, lengthy, and costly. For context, trademarks and copyright typically take months, while patents could take years.
• The authors argue that NFTs could be used to solve many of these problems, giving applicants protection while waiting for formal approval from the government.
• Using NFTs for patents can unlock new opportunities, business models, and additional revenue for companies, universities, and inventors.

Method

• The authors examine six blockchains that support NFT creation to explore the possibility of adopting NFT-based patents.
• Based on a literature review, the authors propose an NFT-based patent system that has five layers.

Results

• Every blockchain that supports smart contracts has its own token standards for different types of tokens.
  • Ethereum has several token standards, two of which support NFTs. ERC-721 came first, followed by ERC-1155, an improved version.
  • EOSIO, an open-source blockchain platform, supports a hierarchical naming structure for smart contracts deployed on dGood, a free standard built on the EOS blockchain. One notable feature of dGood, is its support for batch transferring, allowing the transfer of multiple NFTs in one transaction.
  • Using the Algorand Standard Assets (ASA) concept, anyone can create both fungible and non-fungible tokens without writing a smart contract code. One notable feature is Algorand’s support for fractional NFTs, with some dependency limits.
  • Tezos’s FA2 (TZIP-12) token standard supports fungible tokens, non-fungible tokens, and fractionalized NFTs. It also supports batch transferring helping to reduce costs.
  • Smart contracts on the Flow blockchain are written in Cadence, in which NFTs are described as a resource with a unique ID.
• The authors’ proposed framework for NFT-based patents comprises five main layers: Storage Layer, Authentication Layer, Verification Layer, Blockchain Layer, and Application Layer.
  
  
• Storage Layer
  • This is a layer that provides infrastructure for a decentralized storage network.
  • Metadata for NFTs can be either directly incorporated into the smart contract (“on-chaing”) or separately hosted (“off-chain”).
  • The high cost of data storage and attendant immutability means most metadata are off-chain.
  • tokenURI, under the ERC721 Standard, is used to point to the off-chain metadata’s location.
  • For off-chain storage, InterPlanetary File System (IPFS), Pinata, and Filecoin are the available options.
  • Free, decentralized storage for NFTs (“NFT.Storage”), allows developers and creators to ensure the durability and persistence of NFT metadata.

• Authentication Layer
  • In this layer, the identity of both the NFT and the creator need to be verified.
  • Decentralized Identity (DID) can only be used to identify NFTs metadata, but not the creator’s legitimacy for instance. Self-Sovereign Identity (SSI) was introduced to solve this problem.
  • SSI can support Know Your Customer (KYC) and has a feature that allows data shared to be limited and only on an as-needed basis.
  • The user’s public key is broadcasted to the blockchain and serves as the Registration. To log in, the user simply needs to initiate a transaction with their corresponding private key.

• Verification Layer
  • In a blockchain network, some nodes serve as validators. Patent granting offices can join blockchain networks as nodes. Here is how it would work in this layer:
    • Digitalization: To issue an NFT-based patent, the patent itself needs to be in a digital format. This can mean filing applications online.
    • Recording: This is important not only to prove existence but to also avoid miners stealing patent information and still refusing to grant the patent. Where a patent is developed in stages, a method like Decision Thinking can achieve the same goal.
    • Validating: Inventors create an NFT to represent their patents which are approved by miners. As patent granting offices are few making decentralization difficult, they can certify patent experts to improve decentralization.
    • Digital Certificate: These are digital credentials used to verify digital identities.
    • Certificate Authority: They issue encrypted digital certificates that anyone can decrypt with CA’s public key.
• Blockchain Layer
  • It serves as a bridge between the verification layer and the application layer; and is used to provide IP management.
  • Both permissionless (public) blockchains, like Ethereum, and permissioned (private) blockchains like EOS, can support NFT-based patent systems.
  • Creators, patent consumers, and patent management entities are the stakeholders involved.
  • The patent creator can sign up on the blockchain platform and uploads the patent.
  • Consumers can request and obtain access to the patent after paying the fees and signing a non-disclosure agreement (NDA).
  • Patent management entities leverage the blockchain for resolving disputes relating to infringement, authorship, transfer, etc.
• Application Layer
  • This layer enables anyone anywhere to leverage the blockchain to tokenize patents as NFTs and develop a decentralized marketplace.
  • Smart contracts can be used to set fixed prices.

Discussion and Key Takeaways

• Correcting the problems with the current patent system would require an administrative overhaul to implement.
• An NFT-based patent system could help implement it in a scalable, transparent way.
• An NFT-based system could also help break down the silo walls and improve information sharing, and remove bottlenecks by accelerating speed, efficiency, and convenience.

Implications and Follow-ups

• Patents are territorial, which is protected only in the country it is registered, which means global protection is expensive, complicated, and often out of reach for those who need it most.
• Creating an NFT-based system would reduce jurisdictions to nodes, effectively eliminating barriers to knowledge advancement.
• Removing geographical barriers would mean access to more patents through licenses. The authors claim this will speed up innovation.
• The authors identify the following challenges with adopting an NFT-based patent system.
• The two technical challenges identified are consensus algorithm and compensating miners. The authors suggest “PBFT Consensus, Federated Consensus, Round Robin Consensus” for the consensus algorithm. The authors also suggest a protocol that compensates miners for their time and efforts.
• As there are different blockchains with different NFT standards, interoperability is also a challenge.
• This paper is theoretical, there was no practical application, nor was a simulation conducted. The authors reference general IP-related NFT applications. This opens up an opportunity for it to be trialed on a small scale by registries around the world.

Applicability

• In 2018, World Cup tickets were sold by AlphaWallet through a smart contract. NFT.NYC’s 2018 and 2019 tickets were sold as NFTs by OpenSea. The tickets were “re-sellable, transferable, bundle-able, and bid-able”, and easily verifiable.
• Ease of transfer makes commercialization easier for Small and Medium-sized Enterprises (SMEs) and their investors. Also, the same terms can be embedded in a smart contract. The smart contract can be reused for every IP transaction, helping to minimize legal fees.

[jmcgirk]

Thank you for sharing a fascinating summary with us @Fizzymidas! It’s really interesting to read this in light of what VitaDAO and others are experimenting with IRL.

@Fizzymidas

• The first NFT token standard was suggested by Entriken, W., Shirley, D., Evans, J. & Sachs, N. in Ethereum Improvement Proposals (EIP 721) in 2018. It became known as the ERC-721 token standard.

This is more of a comment than a question, but partly because my good friend @Benton is on our forum and was among the artists who first approached Consensys with the idea of an NFT several years before 2018, I should point out that various incarnations of NFT existed long before ERC-721, such as Monograph’s blockchain-based jpegs in 2014, c.f. https://twitter.com/bentoncbainbrid/status/507156841558994944

[Woodrow_Jackson]

Hi @Fizzymidas ,

I think having a decentralized framework for patents and intellectual property is great. Because there so many ways a individual can lose their right to a patent or an idea they created. This can be used in away that to protect thier patents and ideas. It could be used to sell ones patents and ideas too. H

The only problem I see for this type of framework is the law. Some countries allow cryptocurrencies and some don’t. What im getting at is. How can this framework be used in a legal process of protecting someones patent?

[Henry]

Thank you @Fizzymidas. for your time in this research summary.
In responding to your research question,
Yes, I agree that using NFTs for patents can unlock new opportunities, business models, and additional revenue for companies, universities, and inventors. Also a decentralized framework for patents and intellectual property is an intelligent idea but as an attorney, I think there are potential concern with representing patent assets as NFTs. For example, chain of title is very important for patent assets.
For instance now,
If patent assets are being freely traded or encumbered via blockchain technology, how will these transactions be represented before various IP offices?
In the United States, if a U.S. patent assignment, grant, or conveyance is not recorded in the U.S. Patent and Trademark Office within three months from the conveyance date or prior to the date of a subsequent conveyance, then the prior, unrecorded conveyance is void against any subsequent purchaser or mortgagee.

35 U.S.C. S. 261. Obviously express that conveyances of patent assets on a blockchain may be void if not also recorded with the relevant IP office.

Do you think that this may be an issue or what is your take on that?

[sabahlaw]

HI, let me get to the point that there is no protection for patent applications period. So your design should be for patents (not applications). If patent applicants do not want others to read then they can ask for the application to be sealed (rare) and in most cases, the application is not published until 18 months later from filing. Unless one asks for special treatment (this is US I am referring to). Secondly, patents are creatures of statute hence protection is derived from statute meaning they (whether an application or allowed patent) cannot exist outside of this. what you can look at doing is Patent Licensing, ie using NFT to embed a particular license for a particular patent or a portfolio of patents so that the holder of the NFT is allowed to practice the invention or inventions. This is the only way it can overcome the security issue as it is lawfully a token license. There is a huge problem with negotiating licenses so you can read up or find out the issues. To ensure the NFT has value, one needs to fix the number of NFTs, and if the invention proves to be wildly profitable, the holder can either sell or keep it for himself to profit for the invention (Ie cannot profit from someone else’s work). The patentee will also be able to recover part of his or her patenting effort by selling these fixed numbered NFT, say there are 100 selling 20 and keeping 80 so when the NFT is in demand, this will push up the price. Again being the inventor patentee, SEC cannot say she or he is benefiting from another work. I have worked on this see NFTpatent.net. There is also a good example of why greed infected and ultimately drove the first IP exchange (IPXI) to doom on my website. In short, I hope you will partner with someone with a law background, and do a bit of research on IP markets to come up with a better paper. Good luck.

[drllau]

In short, I hope you will partner with someone with a law background, and do a bit of research on IP markets to come up with a better paper. Good luck.

Being an IP specialist, I echo SabahLaw points. The real problems wrt patents (which are basically lines in (quick)sand) are

1. no clear boundaries in software patents, its like you patent a car engine and someone else comes along describing a nitro-injector + catalytic exhaust, as well as your engine. Unlike chemistry or mechEng, bug-free execution matters more than the functional description and we are far far from having a NLParser to replace overworked/underpaid patent examiners
2. the statutory period of protection is often (in ICT) much longer than economic life leading to a bog of low-quality patents where patent trolls lurk;
3. <5% of patents are commercially viable, problem is you don’t know which 5%. IP markets attempted to solve the lemon problem but failed (NineSigma, Innocentive, etc). Fractionalising a patent royalty stream is a solvable problem but triaging useful patents is indeterminable (and often based on market timing).

If you can solve all 3 of the above problems (property boundary, economic curation, defensible commercialisation pathway), inventors will beat a path to your door (and piggy-bank).