Intellectual Property Assets as Non-Fungible Tokens?

Non- Fungible Tokens (NFTs) are unique digital tokens that can represent ownership or proof of authenticity of a specific asset, such as digital artwork or collectables. NFTs are nothing new, they have been around since 2014 but entered the mainstream in 2021. Since then everyone is talking about NFTs. It uses blockchain technology to establish the uniqueness and ownership of a piece of digital art, purchased via the platform. Each sale is recorded on the blockchain and is inalterable.

Blockchain-based patent service has not found real-world application. The use of NFTs could address some of the problems seen in the current patent system. They have the potential to enhance certain aspects of intellectual property management and provide additional benefits. These include facilitating reliable information sharing between patent offices and patent holders globally, alleviating the workload of examiners, and potentially expediting efforts towards harmonisation of the patent system.

NFTs can also revolutionise the way patents are licensed and monetised. By tokenising patents as NFTs, inventors can create a commercial IP portfolio by combining multiple NFTs. This compounded NFT represents a collection of patents, and each inventor involved in the portfolio automatically receives their fair share of royalties whenever licensing revenue is generated. NFTs have the potential to streamline the IP protection process.

The article “ Patents and Intellectual Property Assets as Non-Fungible Tokens: Key Technologies and Challenges” by Seyed Mojtaba Hosseini Bamakan, Nasim Nezhadsistani, Omid Bodaghi & Qiang Qu, published in Nature on 9 February 2022 discusses the implementation of an NFT-based patent system and how it could offer solutions to some of the problems found in the current patent system. The article presents the idea of using NFTs as a basis for a new patent system, highlighting potential benefits and challenges. And, also explores the requirements of presenting intellectual property assets, as NFTs.

The author starts with an overview of non-fungible tokens (NFTs) and their significance in the blockchain ecosystem. NFTs are unique cryptographic assets represented in a standardised token format on a blockchain. Unlike fungible assets like currencies, NFTs are irreplaceable by identical items and are indivisible. Their distinct and traceable attributes set them apart.

One key feature of blockchain-based NFTs is ownership verification. Owners can easily prove their ownership of an NFT using cryptographic keys, and this ownership can be publicly verified by others on the blockchain network. Transferability is another important aspect as owners can freely transfer their NFTs to others through dedicated markets or platforms.

Transparency is fundamental to NFTs. All NFT transactions are recorded on the blockchain, making them transparent and verifiable by any participant. This transparency ensures the integrity of ownership and transaction history.

NFTs also offer significant advantages in fraud prevention. The transparent nature of blockchain transactions and the unique properties of NFTs make it difficult to counterfeit or replicate these digital assets. This builds confidence in the authenticity and uniqueness of purchased NFTs.

Immutability is another crucial feature of NFTs. Once an NFT is created and its metadata, token ID, and transaction history are recorded on the blockchain, this information becomes immutable and tamper-proof. This adds a layer of trust and security to NFT ownership and history.

The authors have proposed a framework for presenting NFT-based patents. The framework is designed to provide a distributed and trustworthy system for minting NFT-based patents, utilising various layers to ensure secure storage, authentication, verification, and application of the patents. This framework consists of 5 main layers:

1. Storage Layer: The authors highlight the continuous rise of data in blockchain technology and how it has led to the adoption of decentralised storage networks. Decentralised storage systems offer several benefits, including cost savings by optimising current storage resources and faster downloads by keeping multiple copies of data on various nodes, avoiding bottlenecks on central servers.

When it comes to NFTs, non-fungible token metadata provides information describing a particular token ID. This metadata can be represented either on-chain or off-chain. On-chain storage means incorporating the metadata directly into the NFT's smart contract, while off-chain storage involves hosting the metadata separately. Due to storage limitations and high maintenance costs on blockchains like Ethereum, many projects choose to maintain their metadata off-chain.

To achieve off-chain storage, developers utilise the ERC721 Standard, which includes a method called token URI. This method indicates the location of the metadata for a specific item. The author mentions three solutions for off-chain storage: InterPlanetary File System (IPFS), Pinata, and Filecoin.

IPFS is a peer-to-peer hypermedia protocol designed for decentralised storage of media content. It offers an affordable and efficient solution for storing media files related to NFTs, considering the high cost of storing such files directly on the blockchain. IPFS combines technologies inspired by Git and BitTorrent, such as the Block Exchange System, Distributed Hash Tables (DHT), and Version Control System. DHT is used to coordinate and maintain metadata on a peer-to-peer network. IPFS generates hash values that act as references to specific objects stored on the system, and it uses a hash tree to interconnect blocks belonging to the same object. Asymmetric encryption can be employed to enhance the security of stored content on IPFS.

Pinata is a platform that manages and uploads files on IPFS. It provides secure and verifiable files for NFTs. The author highlights a problem with off-chain storage where some information in the URL pointing to the data can change, potentially altering the NFT's description. Pinata addresses this issue by using IPFS to create content-addressable hashes (CIDs) of the data. CIDs serve as unique identifiers for the data and ensure its integrity. When retrieving data, users can request it based on a CID, and if any node on the IPFS network contains that data, it will be returned to the requester. The requester's computer automatically rehashes the data to ensure its consistency with the original CID, providing a mechanism to detect incorrect or fake data from malicious nodes.

Filecoin is another decentralised storage network built on top of IPFS. It is designed to store essential data, such as media files. NFT. Storage is a service backed by Protocol Labs and Pinata, specifically created for storing NFT data. NFT. Storage allows developers to easily and securely store their NFT content and metadata using IPFS and Filecoin. The system utilises content addressing, where data is uploaded to NFT. Storage is assigned a CID, which serves as a unique fingerprint generated from the content itself. This ensures that the data can be referenced regardless of how or where it is stored. Filecoin is used for long-term decentralised data storage, and it employs cryptographic proofs to guarantee the durability and persistence of the NFT data over time. The stored data can be fetched directly in the browser using any public IPFS.

2. Authentication Layer: The authentication layer within the proposed framework plays a crucial role in ensuring the authenticity and integrity of identities and transactions. Its primary objective is to establish trust and security through decentralised authentication, leveraging the power of blockchain technology.

The registration process is the initial step in this authentication protocol. During registration, each user is assigned a public key that serves as their unique identity key or UserName. This key is then uploaded onto the blockchain, making it accessible for verification by other users. By storing the identity key on the blockchain, the system enables transparency and accountability, as transactions can be traced and verified by anyone.

Once registered, users can proceed with the login process. To log in, a user commits their identity information and imports their secret key into the service application. This information is then used to send a login request to the network's service provider. The service provider, upon receiving the login request, analyses it by extracting the hash and querying the blockchain. Through this process, the service provider obtains the user's identity information from the identity list, which comprises identity transactions stored on the blockchain.

Upon completing the analysis, the service provider responds with an authentication request. This authentication request includes a timestamp to prevent replay attacks, the user's UserName, and a signature. The user, in turn, creates a signature using specific parameters such as the timestamp, user name, and public key (PK) of both the user and the service provider. This signature serves as the user's authentication credential.

The proposed framework aims to address the inefficiencies, high costs, and uncertainties associated with patent-related processes. It introduces a conceptual NFT-based patent framework that facilitates the issuance, validation, and sharing of patent certificates. By utilising decentralised authentication and blockchain technology, the framework provides enhanced security, counterfeit protection, and efficient access and management of patent certificates. Additionally, the involvement of certification authorities (CAs) in the system further strengthens the authentication process by authenticating the patent offices and the connected nodes and clients within the blockchain network. This multi-layered approach ensures the integrity and reliability of patent-related activities, benefiting learners, companies, educational institutions, and certification authorities involved in the patent ecosystem.

3) Verification Layer: The authors have described a conceptual design for a permission blockchain system that can be used by patent granting offices. The system aims to provide a secure and reliable platform for recording and validating patents using blockchain technology. The system is divided into four levels, which are explained as follows:

Digitalisation: This level involves converting a patent into a digital format. Users can enter patent information online through an application designed for this purpose.

Recording: To prevent unauthorised access and potential theft of patents, the inventor privately records their innovation using a technique called "proof of existence." The inventor generates a hash (a unique digital fingerprint) of the patent document and records it in the blockchain. This establishes a timestamp and publicly available hash, which can be used to prove the existence of the patent document later on. The inventor can also record different phases of the patent development separately using a series of related hashes, providing a history of the patent's evolution.

Certificate Authority: The patent office acts as the Certificate Authority (CA) in this system. The patent office issues digital certificates for the validators, encrypting the certificates with their private key. Validators can use these certificates to demonstrate their eligibility to others.

Different blockchain platforms can be used within this architecture, including Ethereum, EOS, Flow, and Tezos. These platforms can be categorised into two major types: permissionless (public) and permissioned (private) blockchains, based on their consensus mechanisms. In a public blockchain, any node can participate in the peer-to-peer network, and the blockchain operates in a fully decentralised manner. Bitcoin is an example of a public and permissionless blockchain that uses the Proof of Work (PoW) consensus mechanism, while blockchain platforms like Cardano and EOS adopt the Proof of Stake (PoS) consensus.

On the other hand, private blockchains require specific access or permission for network authentication. Hyperledger is a well-known example of a private blockchain that allows only permissioned members to join the network after authentication. Private blockchains provide security for a group of entities that may not completely trust each other but have a common objective, such as exchanging information. Byzantine-fault-tolerant (BFT) consensus is often used in permissioned blockchain networks. Examples of permissioned blockchains include Hyperledger, Quorum, Corda, and EOS.

Consensus algorithms play a crucial role in reaching agreements and validating transactions in a distributed environment. They ensure that all network members (nodes) agree on accepting or rejecting a block. Different consensus algorithms have been designed, and they can be classified into proof-based, voting-based, and Directed Acyclic Graph (DAG) based algorithms. Proof-based algorithms require nodes to demonstrate their qualification to perform appending tasks, while voting-based algorithms involve validators sharing their results before making a final decision. DAG-based algorithms allow simultaneous publication and recording of different blocks on the network.

The proposed patent as an NFTs platform leverages blockchain technology to empower the entire patent ecosystem. It addresses fundamental issues within the traditional patent system and provides efficient handling of patents and trademarks. The entities involved in intellectual property management include creators (patent owners), patent consumers (users who consume the content), and copyright management entities (entities responsible for protecting intellectual property). The platform operates through several steps.

First, creators sign up on the blockchain platform, providing their identity information. Then, they upload their intellectual property (IP) onto the blockchain network, ensuring traceability to prevent data duplication and manipulation. Patent consumers who want access to the content register on the blockchain network and generate requests to use the patented content. A smart contract is created to grant access, and consumers may be required to pay fees in fiat money or unique tokens. Once the creator approves the request, a non-disclosure agreement (NDA) is produced and signed by both parties, with the blockchain managing the agreement and ensuring compliance.

The patent management entities utilise the blockchain to protect copyrights and resolve disputes related to intellectual property. Blockchain assists in tasks such as sharing confidential information, establishing proof of authorship, transferring IP rights, and making defensive publications. If someone uses an invention from a patent without the inventor's consent, the inventor can report it to the patent office and claim ownership of the invention.

By tokenising patents as NFTs and using smart contracts, the platform enables patent holders to set a price for licensing or purchasing their patents. Interested buyers can pay the set price and immediately gain the rights to the patent without the need for direct interaction between the parties involved. This eliminates geographical barriers and simplifies the process of accessing patents globally through a search query.

Additionally, the platform can facilitate the transfer of ownership of patents by using NFTs. The blockchain acts as a transparent ledger for tracking patent ownership, and the self-executing contracts embedded within the tokens automatically transfer the legal rights associated with the patents when the tokens are transferred. The partnership between IBM and IPwe is cited as an example of companies working together to develop the infrastructure for an NFT-based patent marketplace.

The authors admit that the framework for NFT-based patents faces challenges that need to be addressed. Technical challenges include determining the consensus method for the verification layer and designing a protocol to incentivise miners or validators who validate the patents. Cross-platform compatibility of NFT standards and challenges related to centralised marketplaces for NFT trading are also discussed.

The authors acknowledge that blockchain-based patent services have not been tested extensively, and there may be ambiguity and resistance from those who prefer centralised patent systems. The role of miners and the process of certification from accepted organisations are highlighted as important considerations. Additionally, potential conflicts may arise between inventors registering patents publicly through NFTs and government regulations on prohibited inventions. Misunderstandings about NFT ownership rights, such as property rights and moral rights, are also mentioned.

The authors emphasise that blockchain technology, with its transparency and auditable transactions, can benefit the intellectual property (IP) industry, particularly patent owners. The proposed NFT-based patent framework aims to create a decentralised, anti-tamper, and reliable network for global trade and exchange. However, the author acknowledges several open challenges that need to be addressed when implementing NFT-based inventions.