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Do Blockchain Startups Need Patents To Acquire Investors? (VIDEO)

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Do Blockchain Startups Need Patents To Acquire Investors? (VIDEO)

MIT Enterprise Forum of Cambridge – Blockchain: Patents And Open Source

 


 

Featured In Video:

Tom Serres, Founder of Animal Ventures and Rally.org

Christian Wentz, Founder of Gradient Technology

Keegan M. Caldwell, Managing Member at Caldwell Intellectual Property

 


(Video Transcript Below)


 


 

Video Transcript

>>KEEGAN M. CALDWELL:

What has your experience been, do blockchain companies need to patents to secure funding, angel investors, VC funding, or otherwise, and just a kind of a general discussion, having to do that based on your own experience and what you can add to the conversation there, and I guess I’d start with maybe Tom and Christian, see what you guys think about that.

>>TOM SERRES:

It’s a good question. I would say that, I spent a long time in Silicon Valley and built a company there, and patents weren’t really brought up as standard conversational points. I would say most companies there pretty much focused on winning through sheer network-effect domination. If you look at Facebook as an example, pretty hard to take down, right? As a company that’s entirely driven by network-effect, which is what a vast majority of the companies out there are driven by, so if that is the case, if that’s the kind of company that you’re building, I would argue that the patentable technology probably doesn’t matter as much because you’re just, through sheer domination, and owning the market through some sort of hyper-growth strategy hold huge competitors at bay.

But then again, you sort of look at the next phase of that, once they become a dominant player, now, they’re starting to drive R&D around various patents. Even Facebook is starting to get into the game, in a pretty big way. I think they’ve risen in the ranks. I think IBM’s like number one, or something like, of all patents filed, ever, right? I think Facebook is now in the top ten, at least. They weren’t quite there before, but I think once you have the balance sheet you can do stuff like that in a pretty significant way. I would bet that from a hardware perspective, or pharmaceuticals, probably just depends on the industry that you’re in certain types of patents, probably become more important. I don’t think you have to worry about that from a fundraising perspective. At least, depending on the category of business that you’re building.

>>KEEGAN M. CALDWELL:

For those of you that don’t know, Tom was the founder of a website called rally.org which became, it was very big. There’s a great backstory, it’s a great success story. And so, I think that I’d love to hear what sort of IP did you guys have at Rally, was there anything innovative that you worked on? Did you guys ever pursue any patents, or, I’m sure it certainly had some trademarks?

>>TOM SERRES:

We definitely had trademarks. Mainly because people definitely tried to copy our brand and then tried to represent themselves as us in other parts of the world so we had to do a whole global trademark process on that to protect our ability to function as a fundraising platform in multiple jurisdictions. I think, in terms of patentable tech, we came up with a lot of really cool stuff. Most of the stuff that we came up with was more, I would probably say, fraud prevention, just different ways to, under the hood of, Rally was basically a payments company, right. So, we processed and moved money all over the world, moved billions of dollars for politicians and nonprofits, and I think in terms of what we did, I mean that’s honestly where PayPal had most of their innovations, actually was in fraud prevention opportunities because it’s extraordinarily hard to get people to stop ripping you off. So we came up with some really cool things there. Nothing we ever really patented, most of what we did is we took a really broken payment system and we put lipstick on a pig and we made it work a little bit better by just sheer user experience and focusing on a particular industry vertical and a lot of really good, just payment tech and user experience. I would say most of the innovation probably happened more at the fraud prevention level.

>>KEEGAN M. CALDWELL:

Christian, you want to weigh in?

>>CHRISTIAN WENTZ:

Okay… reluctantly, yeah. I mean, the caveat being, I wouldn’t say we are a “blockchain” company, per se, but we have applications in the blockchain space. Therefore, a lot of what we do would be classified as hardware development some of it is also distributed systems and more generally classified as blockchain outside of that context. My background is in health care and MedTech type things, primarily. And in that space, establishing a core patent is essential for raising money, generally. So, coming from that background into a space that interfaces with blockchain has been very interesting and nuanced, which is why I say, reluctantly, talking about patents.

So, when we raised our first funding round… we have fairly sophisticated investors, who understand the value of patents long-term. I would say in the blockchain space, specifically patents aren’t… they can actually be discouraging, and I think that that’s mostly a cultural education issue, which hopefully we can get into today. So, in terms of, is it important for raising your first round of funding, I would say no.

I think, you know, for us, we were at an interesting point where.. we build silicon… so, it’s a very capital-intensive industry the incumbents, and I think this is another interesting challenge, less so that you need patents for securing funding, more about long-term strategy, there is a general assumption, it’s not an assumption… a “mentality” within the blockchain community that patents are bad and patents inhibit innovation. I think that’s actually potentially the opposite of what is the case, but, coming from something like MedTech, essentially what happens in the MedTech industry, and other capital-intensive industries, is that every major player has their pile of patents, and you sort of have this, like, mutually-assured destruction process, where, if it’s not formally documented there is a general assumption that “I won’t sue you, you won’t sue me.”

If I were to come to the table as an incumbent, and not have any patent protection, and say, “Well, I just didn’t believe in patenting,” you’re not gonna get very far. So, our strategy with regard to patents is, and I think we’ll get into this later on, but if you think, I can patent, I can open-source license, and I can trade secret, I suppose I could just give everything throw everything out in the public as well… filing IP is, I think, the most general-purpose option in terms of what you want to do in the future and so that’s kind of how we pursue things so it gives us the ability to protect against large companies like an IBM, like an Intel, but of course, is they’re listening We love IBM, We love Intel.

(laugh)

>>TOM SERRES:

I would say, I’ve only recently been exposed to patents as a viable, like, thing that you need to do but not in the sense of monetizing my own business, but protecting my business which is kind of weird.

Spending money to protect my business.

So that somebody else doesn’t walk by and say, “Oh I did this thing ten years ago” because it’s a first-to-file system Now I’m gonna sue you because I happened to write a piece of paper faster. We’ve actually, like, built stuff and then seen a patent come out. We’re like, “Well that sucks, we built it.” It’s funny.

>>CHRISTIAN WENTZ:

Something you brought up earlier which, I think, is not immediately obvious, is that there are geographic distinctions on this cultural preference.

So, in Silicon Valley it’s very… if you’re raising money in Palo Alto or Villa Park I would say, almost with certainty, that no one cares if you get patents early on, in fact, they may say “why are you wasting your time?”

>>TOM SERRES:

That’s exactly what they say.

>>CHRISTIAN WENTZ:

May or may not have heard that one recently. In Boston, I think partly because of our MedTech leaning, and and in the deep tech it’s sort of like yeah that makes a lot of sense you know, don’t put too much money there, but, you should be doing that.

>>TOM SERRES:

I think that’s right, because like, in Silicon Valley they’re basically really good at building viruses that spread around the web.

>>KEEGAN M. CALDWELL:

Christian, I almost stopped you at the beginning of when you were, kind of talking because that was… I think it’s a really important point. I had asked more than four people to be part of this panel, that are members of the blockchain community, and there was a general aversion to want to talk about it. Even if the whole point of having them to come talk was to just talk about how they’re utilizing open-source, that some folks were, generally, just unwilling to have any sort of conversation… to even sit on a panel of people, that were pursuing things in a proprietary way. And so, I think that it’s indicative that people just have very strong feelings. They are impassioned. It’s something that’s happening. It’s exciting, and there are many exciting great things going on, I think that what we wanted to have, you know, is this kind of important conversation today about how… I just don’t think things are just black and white.

With all of these things, it’s a business decision on a case-by-case basis.

>>CHRISTIAN WENTZ:

Just one quick addition, because I imagine our investors would not be thrilled if we didn’t clarify half-a-dozen things, as quickly as possible. What is misunderstood is that filing a patent, even having a patent granted, doesn’t mean that I can’t, later on, open source something. I can grant licenses to whoever I feel like. and I think the reality is, the vast majority of things, if not everything, that’s where it will go. But again, it’s the optionality early on that if I’m building something and my incumbent is a “Fortunate 10” I need some protections.

And the related point of maybe get into this later on, but, when people say “open source versus patent”, I think there is a general association between patent and “black box” and when, within the blockchain community in particular, and things that we work on that are related to security integrity and authenticity of core systems, when people say, “I want this open source,” what I actually hear when I get into the details is, “I want to be able to audit exactly what you’re doing,” and I think those two are not the same thing, well, those two may come together, but patent and auditability are not necessarily at odds.

 


 


 

Creative Director

Caldwell Intellectual Property Law

taylor@caldwellip.com

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