Square Joins Cryptocurrency Non-Aggression Pact on Patent Suits

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(Bloomberg) — Square Inc., the mobile payments company, has joined with other tech companies in a cross-licensing platform to reduce patent lawsuits over cryptocurrency and promote the growth of digital currencies.

The company says it is joining the Open Invention Network where members pledge royalty-free access to patents for open source technology. 

Square says it is trying to avoid the sort of runaway litigation that once beset the smartphone industry. A year ago, Square formed the Cryptocurrency Open Patent Alliance, in which members make a similar pledge not to sue each other over patents and provides a shared patent library for access to the underlying technology.

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“We’re in just such a rapid time of growth, so many amazing things are happening without patents,” said Max Sills, counsel at Square and general manager of the cryptocurrency alliance. “We want to avoid long-drawn-out legal battles.”

Square holds Bitcoin in its corporate treasury, and Square Chief Executive Jack Dorsey, who also runs Twitter Inc., has touted Bitcoin at conferences. Square is creating a new business line to help developers build financial services products focused on Bitcoin, according to tweets from Dorsey in July, and is considering building a Bitcoin hardware wallet.  

The goal of joining the Open Invention Network is to create a non-aggression pact for what Sills calls the “plumbing” that underpins the new digital currencies, tools that “you can’t do business without.” 

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The agreement covers technologies such as the Linux kernel and hadoop, which is used to store and process large datasets. 

“When it has to deal with core functionality, you shouldn’t sue each other,” said Keith Bergelt, chief executive of the Open Invention Network. “The idea is you build your differentiation around the core. This won’t impair anyone from building a business, just protect them from being sued on what’s fundamentally open.”

The Open Invention Network, which also has more than 1,000 patents of its own that members get royalty-free, was created to protect the Linux operating system from patent litigation. Founded in 2005 by companies including International Business Machines Corp., Red Hat Inc. and Sony Corp., it has more than 3,500 members around the world, including Microsoft Corp., Alphabet Inc.’s Google and Oracle Corp. 

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In the past decade, the network has grown to include areas such as the automotive, energy and medical device fields. Financial services companies also are members but “we were missing a bona fide crypto company,” Bergelt said. Square isn’t alone in trying to limit the types of patent suits that have bedeviled other industries, particularly in the technology field. Litigation wars over patents, like those involving smartphones and medical devices among other industries, can cost hundreds of millions of dollars in legal fees.

Other groups have been formed to address the challenge, though each focuses on a discrete issue when it comes to patent disputes. The Open Crypto Alliance was set up to identify patent applications to challenge, such as by providing information to patent examiners to use as a basis for rejecting applications. 

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The License on Transfer Network, in which members are automatically licensed to patents that are later sold to a patent-assertion firm, has created an area for patents on blockchain, the digital ledger technology that enables cryptocurrency to work.

Companies such as Bank of America Corp. and Goldman Sachs Group Inc. have been obtaining hundreds of patents in the fields of blockchain, the ledger technology used for verifying and recording transactions that’s at the heart of virtual currencies. Historically, banks have been leery of patents, going so far as to make presentations to the U.S. Patent and Trademark Office about their processes to ensure patents aren’t issued on their everyday operations.

“I don’t think anyone’s concerned about Bank of America becoming a litigator; people recognize Bank of America is using patents in a defensive manner,” Bergelt said. “But it’s a bit of a Wild West with the newly minted companies.”

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Patents are important to create incentives for research but “the ugly side of patents” involves “people lying in wait with their patent portfolios,” hoping to cash in as the industry grows, said Tom Franklin, a patent lawyer with Kilpatrick Townsend who specializes in blockchain and fintech patents.

“There will be people with patents that will be threatening to the industry,” Franklin said. “People want to make it a patent-free world, but patents are good at clearing out the underbrush. All people who spend dollars to make it faster, cheaper, more secure, and less susceptible to hacking — those people all want to get paid.”

Sills and Bergelt said they are hoping Square’s actions in joining the Open Invention Network will lead other big players in the field, including Bank of America Corp. and Citigroup Inc., to also join. “I don’t know that any consumers are really concerned about the open source kernel,” Sills said. “It’s less about saying you can’t monetize your patents and more about saying ‘What’s the core infrastructure that we’re all going to have to use? How do we share the costs so it’s scalable?’”

©2021 Bloomberg L.P.

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