Distinguish “Smart Contract” From Abstract Idea To Pass Blockchain Patentability Scrutiny

The Situation

Smart contracts are sometimes talked about in blockchain-themed patent purposes and recited in claims. However, Examiners with out a thorough understanding of this idea or unfamiliar with blockchain know-how typically equate good contracts with authorized or business contracts saved on blockchains. As a consequence, the Examiners might discover claims directed to merely making use of the blockchain know-how to execute authorized or business contracts, for instance, as a part of a commerce system, like hedging. See, e.g., Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. at 2356 (citing Bilski v. Kappas, 561, U.S. 593, 611 (2010)).

Without detailed explanations of “smart contract” set forth within the specification, patent prosecutors might discover themselves in anuphill battle towards the summary thought discovering. What makes it worse is that a number of mainstream on-line sources typically clarify “smart contract” in a slender sense or an incorrect manner, from the place Examiners might have appeared up and gathered an impression. For instance, Wikipedia tells its readers that “[a] smart contract is a computer program or a transaction protocol which is intended to automatically execute, control or document legally relevant events and actions according to the terms of a contract or an agreement” (emphasis added). See here. For one other instance, Investopedia offers that “A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code” (emphases added). See Investopedia.

Although good contracts have been discovered to revamp many conventional areas, narrowly decoding good contracts by the particular purposes takes away the technical characteristic of this essential operate of blockchain. Thus, patent drafters ought to spare consideration to crucial phrases like “smart contract” when making ready the specification. Before discussing the technique, a fast evaluation of the patentable material guidelines within the U.S. might assist re-cap the essential hurdles to patent eligibility.

The Rules

Under Step 2A Prong 1 of the USPTO’s 2019 Revised Patent Subject Matter Eligibility Guidance (2019 PEG), Examiners might reject ineligible claims by figuring out whether or not the claims recite a judicial exception – together with legal guidelines of nature, pure phenomenon, and summary concepts. For summary concepts, 2019 PEG enumerated three fully-encompassing classes: (1) “mathematical concepts” (mathematical relationships, mathematical formulation or equations, mathematical calculations); (2) “certain methods of organizing human activity” (elementary financial ideas or practices, business or authorized interactions, managing private conduct or relationships or interactions between individuals); and (3) “mental processes” (ideas carried out within the human thoughts: encompassing acts individuals can carry out utilizing their thoughts, or utilizing pen and paper). Therefore, if an Examiner equates a declare limitation “smart contract” as a authorized or business contract, and the declare doesn’t in any other case seem to fall outdoors the judicial exception, the Examiner will possible conclude that the declare is directed to an summary thought and particularly a “certain method of organizing human activities.”

Then, the subject material evaluation proceeds to Step 2A Prong 2, the place Examiners decide if the exception is built-in right into a sensible utility. To this finish, the Examiners ought to (1) determine whether or not there are any further components past the summary thought, and (2) consider these components to find out whether or not they combine the exception right into a sensible utility. Two examples of sensible utility supplied by the 2019 PEG are most related to blockchain patent purposes: (i) an enchancment in pc functionalities, and (ii) limiting the judicial exception in another significant manner past typically linking to a technological setting.

The Strategy

In view of the above, an correct description of “smart contract” from the technical perspective might keep away from the summary thought lure below Step 2A Prong 1 and lead the claims straight to eligibility, or if proceeded to Step 2A Prong 2, assist construct a powerful argument for sensible utility. Such descriptions could also be present in numerous scholarly publications comparable to the next.

“A smart contract is a computer program which verifies and executes its terms upon the occurrence of predetermined events.” See Mark Giancaspro, Is a ‘smart contract’ actually a wise thought? Insights from a authorized perspective, 33 Comput. Law & Sec. Rev. 6, 825 (2017).

As properly defined by the authors, the historical past of the good contract false impression dates again from when the identify was created. “The term smart contract has been used over the years to describe a wide variety of different things. In the 1990s, cryptographer Nick Szabo coined the term and defined it as ‘a set of promises, specified in digital form, including protocols within which the parties perform on the other promises.’ Since then, the concept of smart contracts has evolved, especially after the introduction of decentralized blockchain platforms with the invention of Bitcoin in 2009. In the context of Ethereum, the term is actually a bit of a misnomer, given that Ethereum smart contracts are neither smart nor legal contracts, but the term has stuck. In this book, we use the term ‘smart contracts’ to refer to immutable computer programs that run deterministically in the context of an Ethereum Virtual Machine as part of the Ethereum network protocol—i.e., on the decentralized Ethereum world computer. … Computer programs Smart contracts are simply computer programs. The word “contract” has no authorized which means on this context.” See Andreas M. Antonopoulos & Gavin Wood, Mastering Ethereum: Building Smart Contracts and DApps, § 7 (1st ed. 2018).

Another approach to strengthen the technical characteristic of good contracts could be by describing the Ethereum Virtual Machine (EVM) that’s used to deploy and execute good contracts. The EVM creates a digital setting as an area occasion on each Ethereum node for dealing with good contracts. Since all cases of the EVM function from the identical preliminary state and produce the identical ultimate state by consensus, the system of nodes as a complete operates like a single pc. See Id.

In conclusion, to anticipate potential confusion, patent drafters ought to outline or describe the phrase good contract primarily based on the context of the appliance to keep away from material rejections. If the invention improves any technical characteristic of good contract, extra effort must be dedicated to explaining the present technical setting and enchancment thereon.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.
National Law Review, Volume XI, Number 88


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