Intellectual Property and Decentralization 101

Disclaimer: I am not providing Legal Advice or Financial Advice. I’m just a Dad who is interested in International Law, who has spent far too much time doing my best to understand the complexity of International Law and the Decentralized landscape, who is doing nothing more here than thinking out loud so to speak and examining related concepts and ideas.

There are some interesting developments occurring in the Decentralized world including a Defi Patent awarded to a man named Reggie Middleton. Reggie is kind of a star in the Market Space as he predicted the 2007 and 2008 economic calamity. In many ways I really admire Reggie, what he has been able to accomplish and how he is regularly at the forefront of Economic Markets.

Within the Decentralized Landscape there are essentially two opposing views of Reggie. 1) The opposition, who have been turned off by Reggie’s regular discussion for many years of his pending and now approved (in Japan and the U.S.) patents for Defi and 2) The adherents, who have a lot of respect for Reggie’s accomplishments and maybe those who see Reggie as the lesser of two evils, “At least Reggie has the Patents and not the Big Banks or Wall Street” types. Some even see Reggie as the guy “Standing up to the Man.”

To those who feel that Central Banks or Goldman Sachs or JP Morgan or Wall Street or the United Nations etc. are nothing but big evil Corporations and therefore it’s “good” that Reggie has the Patents, I could not disagree more. I suspect that there is much overlap between the Central Banks, Major Banks, Wall Street, NYSE, CME, United Nations, etc. Yet, even with all of that power, even with all that money and control of worldwide Domain Name Servers and the Internet, they have made NO attempt to shutdown Bitcoin or Ethereum. It’s actually quite the opposite, it appears that the Central Banks, Major Banks, Wall Street, New York Stock Exchange, Chicago Mercantile Exchange, United Nations, IMF, IBS, etc. have all fully embraced Bitcoin, Ethereum and many other of the larger decentralized eco-systems, with the exception of China. With 13 years of Bitcoin history, the Blockchain and Decentralization has effectively become Customary International Law and no one is opposing it’s decentralized nature, no one except Reggie and a few others who do not appear to fully grasp the nature of Intellectual Property in the Decentralized Landscape. The SEC could have gone after Ethereum Developers, but they chose not to. The SEC studied the landscape, examined the situation and made the determination that Ethereum was “sufficiently decentralized”.

Below, I’ve enumerated aspects of Intellectual Property and Decentralization for examination and understanding.

1. Bitcoin and other Blockchains operate in a very particular manner of consensus, since at least Jan 2009, long before the Reggie Middleton Patent. This Consensus Mechanism, by it’s design, how it was engineered, has afforded an exclusion-less and permission-less nature. Depending on your perspective you can thank or curse Satoshi for this.
2. The Blockchain has NO MASTER KEYS, instead each person has their own private keys for their ownership of specific locations within the blockchain. Satoshi coded this aspect into it’s Kernel, into it’s Codex, so to speak. The bitcoin blockchain and most other blockchains, be it proof of work or proof of stake have an inherent immutability built-in. These permission-less, exclusion-less and immutability aspects are the antithesis of wholesale intellectual ownership. By it’s very nature, Bitcoin was built specifically for these aspects and with only a minimal examination these aspects become self-evident. You can carve out your own area within the blockchain but you cannot own the entirety of the blockchain.
3. To reiterate with different language, Bitcoin and the blockchain, including POW and POS, are immutable, exclusion-less and permission-less, but within the general space of the blockchain any individual can have their own localized space. This is the fundamental nature of the blockchain.
4. There are certain conditions that can occur that allow for some short term ability to reverse transactions, but they are the exception, not the rule and over time the cost to reverse transactions can be in the billions (USD equivalent) or trillions, if not totally impossible. For instance, there was a smart contract hack for something called the DAO where millions of USD worth of Ethereum were extracted from the DAO Fund. The Ethereum Developers decided to roll back the blockchain but since the Ethereum chain wasn’t directly controlled by the Ethereum developers this couldn’t happen without the support of the community and indeed, the Ethereum developers didn’t achieve complete support, so the Ethereum chain split into two chains. There were basically two schools of thought, one was that an injustice happened, it was caught early enough, the damage was costly enough and therefore a rollback was feasible. There was another group who held the belief in absolute immutability, that you never rollback transactions under any circumstance. This is proof of Decentralization as no single entity or authority made the decision on behalf of the entire community, instead multiple schools of thought advanced forward and Ethereum split into two competing chains, both still existing today, one where the hacker ended up with the funds and another where most of the funds were returned to the DAO.
5. As further proof of Decentralization, the value of Ethereum plummeted as there was no central authority that was capable of coercing people into their usage of Ethereum during the time of instability. Fortunately, the price didn’t stay low for long and both Ethereum chains enjoy significant usage and value today.
6. Because of items 1 thru 5 above, it should be evident that intellectual ownership is fundamentally incompatible with blockchains at the wholesale level. Through the use of more advanced blockchains, intellectual property areas could be carved out. For instance, you could have a patent chain that had say 100 different patent models, each with it’s own set of rules built directly into the chains protocol or into smart contracts, each model / ruleset having awarded millions of patents and even some patents that were awarded by some or all of the patent models. But, what is fundamentally in opposition to the blockchain and to decentralization is any Intellectual ownership that would apply wholesale to Bitcoin or to all the other blockchains.
7. Non-Fungible Tokens add a degree of light to the subject. An artist can create music, books or drawings and then assign the artwork to a specific token on the blockchain. This token can be sold or gifted to others, meaning the token moves from being under control of one persons ownership (private keys) to a different persons ownership, yet royalties can remain with the original artist. Every time someone trades or gifts the artwork token to a different owner a value can be extracted and sent directly to the original artist. This is essentially one way that intellectual property can function on the blockchain. This royalty fee is transparent and the function coded directly into the protocols and smart contracts and the token itself represents the intellectual property while the blockchain protocols enforce the rules. This very same artist could copyright the same pieces of art under a specific nations copyright laws. The artist would use the Nations Legal system to enforce the Copyright Laws within the Nations Jurisdiction while the blockchain protocols or smart contracts would be used to enforce the rules of the blockchain.
8. Within the Bitcoin blockchain or at least on more advanced blockchains, you could have the US Patent Jurisdiction, the Japanese Patent Jurisdiction, the Russian Patent Jurisdiction, the China Patent Jurisdiction and another 100 or more Patent Jurisdictions. Then, if you elected to choose to, you could participate in any or all of these patent models. It would actually be a fascinating feature as much of the work could be handled by smart contracts and be automatic. Meaning, Reggie could have his Patent in the Japanese and US Jurisdiction and anyone choosing to use these Jurisdictions could have their respective Patent usage rules applied automatically via the blockchain protocols or smart contracts. No coercive enforcement necessary. Reggie wouldn’t have to use the courts to exercise his intellectual property rights, instead it would simply work.
9. I think Reggie’s patent application was in 2014, more than 5 years after Satoshi invented the Bitcoin blockchain. Satoshi designed and engineered the blockchain in a way that is fundamentally in opposition to coercion and this is self-evidenced by the fact that Bitcoin is exclusion-less, permission-less, without gate-keepers and has a high level of immutability. If no one can exclude you from carving out your own area of the Blockchain than by definition no one “owns” the blockchain. While you can apply for and be awarded a Patent from a Nation, it does not wholesale apply to all things blockchain. You cannot accurately claim that “any and all transactions made on Bitcoin or Ethereum are the property of a single individual” especially when a Governing agency of that Nation has called out a specific blockchain as being “sufficiently decentralized”. If this was the case, the Intellectual Property would be automatic and no coercive force would even be necessary.
10. Reggie could create a new chain and within that chain any derivative trade / swap could incur a fee, but Reggie has no way to force Bitcoin or Ethereum or a great many other chains to incorporate that fee structure into the protocol itself. Why? Because those other chains are “Sufficiently Decentralized”. If, Reggie was to somehow coerce the development team of say Ethereum to incorporate patent fees into the protocol itself then people would simply realize that Ethereum is NOT decentralized and begin using other chains that were.
11. When one person can impinge in a coercive manner, the system is not decentralized.
12. You could have smaller blockchain project where all of the team, founders, developers, etc. were all Citizens of the same Nation and a particular intellectual property jurisdiction could be implied. But, this wouldn’t apply to any of the major blockchain projects as they have sufficient decentralization as there may be be more than 100 Nations represented by any one blockchain team. I think I heard the SEC use the term “sufficient decentralization” so this is the term I use.
13. This is even acknowledged by Reggie in the below video when Tone Vays asks Reggie HOW is he going to enforce his patent? Reggie mentions the Courts, turning off servers, excluding use by way of the localized internet, enforcement via the DNS system and to going after specific Human developers. At NO TIME did Reggie mention using the blockchain itself to enforce his Patent. In other words, Reggie has tacitly agreed he has NO intellectual property right over the blockchain itself. He knows he has to use coercive power because any intellectual property he purports to have doesn’t exist within the decentralized protocols. This aspect was enforced by Satoshi long before Reggie even knew what a Blockchain was.
14. To summarize, it is fundamentally impossible to generally patent decentralization. You can have intellectual ownership of a specific area of a blockchain that you have carved out for yourself but you cannot patent the entirety of any or all blockchains. This is self-evident. If you are willing to drop your preconceived ideas and honestly examine this concept, you’ll see this is self-evident.
15. Because of items 1 thru 14 above, it’s clear that Reggie’s Patent Jurisdiction does not encompass a significant number of decentralized blockchains, probably every major blockchain. If he wanted his intellectual property jurisdiction to be within a blockchain he would have carved out a centralized area of a decentralized blockchain and closed source his code and technology, which he very possibly did, or he could have even created a new blockchain where he held the master keys so he could exercise complete ownership of his technology. I suspect this would have been futile as the vast majority of blockchain users are decentralized fundamentalists. Unfortunately for Reggie, he has regularly voiced his patent for years and has likely chassed away many people to other platforms. Had Reggie stayed away from patent discussion he might still have early mover advantage and have one of the largest Defi Platforms today.
16. There are some specific interesting circumstances that could end up causing some decentralized orgs to fall under Reggie’s intellectual property. If the Founders / Developers of Technology have applied for and been awarded Patents themselves, or even formed an LLC, especially if in the US or Japan, then they have elected NOT to be Decentralized. Still, this does not mean that the technology they develop automatically becomes subject to Reggie’s patents. A developer could have earned fees from specific trades and that developer maybe be subject to paying a fee to Reggie, but that does not mean that everyone who has ever made a financial transaction on a blockchain is also subject to those fees. As a kind of analogy, American software programmers can write software for Russian companies and while the software engineer earnings are likely subject to American tax laws, any revenue generated by the Russian Company as owner of the software and outside of America would likely NOT be subject to American taxes.
17. Similarly a Russian can have a Russian patent and an American can have an American patent and an American writer, engineer or programmer, can be paid to write about the Russian patent or to implement the Russian patented technology and this is not necessarily an infringement of the American patent. In other words, the space of the intellectual property is important and as a founder or developer of technology you will likely have to be conscious about the space you are using. Unfortunately, “sufficient decentralization” is an ambiguous term. You have to decide which landscape to participate in. If you want to participate in the decentralized landscape then do as Satoshi did, but if you want to participate in the Centralized landscape then do as Reggie did and if you are not careful, playing in both space simultaneously, then you are leaving yourself open to the ambiguous.
18. Reggie has at least three more possible patent enforcing issues that I can think of just off the top of my head, but I won’t be discussing those here today. It would take several hours of writing just to convey the issues and secondly, I’m not so sure it’s best to reveal them at this time. If you are interested you may contact me directly.
19. Once you start to understand the delineations between the companies / organizations, the underlying technology that a company or organization is developing and if the organization is decentralized or centralized then you can start to realize just who and what is likely to be subject to intellectual property.
20. Founders / Developers / Organizations with dozens or hundreds of team members from many Nations who have not registered as an LLC or similar are likely sufficiently decentralized so as not to be automatically subject to any specific Nations intellectual property. Even if they are NOT sufficiently decentralized, the technology they are developing may still be in the clear of intellectual property enforcement. If they were to dissolve the company they formed including dissolving the company that was awarded any patent and made sure to expand the team to multiple nations, they would likely clean up many or all potential intellectual property infringement hooks.
21. In the above video at the 19:10 mark, Reggie discusses an analogy about property rights that is in my personal opinion is off the mark. I ask you to first listen to it and then read item 22 below.
22. In my humble opinion, a much more accurate analogy would be that Reggie wandered into the only part of the world where a Nation hadn’t yet staked a claim to the land and discovered a home already sitting on that land. As he walked through the door, there sitting on the couch was Satoshi. Satoshi welcomed Reggie in, “me casa su casa, make yourself at home, all are welcome”. Reggie then announced he was the owner and started trying to rent out rooms to the highest bidder. When no one paid Reggie, he tried using a Jurisdiction outside of the Land to enforce his property rights. What Reggie should have done was to build his own home on the decentralized land down the road from Satoshi using his own private keys and then rent only his home and rooms out. He could have even turned his home into a Casino but he cannot force all others who build their own Casinos on the decentralized land to pay him Royalties.

In my humble opinion. Reggie would do himself and everyone else a favor by a) announcing that the only people he would even think of taking action against are those projects that they themselves have applied for patents and b) apologize for the zealous pursuit of centralized intellectual property in a decentralized landscape then c) complete his own Defi platform and respectively ask that in return for adopting a more Satoshi like attitude of decentralization, that people use his platform. This would foster a renewed and amicable attitude toward Reggie. I know I’d use his platform if he was to do this.

The following article is an interesting read. One interpretation is that the SEC Declared that Ethereum is a Security (because of it’s ICO) but it is no longer a Security in regards to the SEC because of Ethereum’s “Sufficient Decentralization” withdraws it from the SECs Jurisdiction. In other words, Ethereum may be of the nature of a security, aka the howey test, but it’s the equivalent of being a Russian security or a Chinese security as far as the SEC is concerned.

SEC Declares Bitcoin and Ether as Non-Securities | Cassels.com

Actions:

1. Make sure the blockchain has a truly decentralized governance model, a non-registered DAO so to speak and that this model is used for all funding distributions and decisions made. There can be hundreds of individuals or LLCs that receive funding from this model but they cannot exercise direct “control” over the funds or decisions. The more the funds are distributed the more decentralized the blockchain becomes.
2. The AMM, Defi, and Dex technology needs to be directly baked into the blockchain protocol itself. Smartcontracts have private keys and private keys mean that someone owns the contract in a sense. Make the GUI interfaces similar to Wallets where they are part of a distributed app and not tied to a specific webpage with a single domain name registered to a human. In other words, make the Defi, Dex and Amm indistinguishable from the blockchain itself. The more decentralized the better.
3. Any further tech built can follow similar guidelines as 1 & 2 above, be it non-fungible tokens for digital art or games or all things metaverse or some crazy new Protocol Owned Liquidity. Each of these can be baked directly into the blockchain, controlled by an un-registered blockchain DAO Governance model via voting directly on the blockchain, funded by anyone of their own volition all interfaced by GUIs built on Dapps.
4. Do as little co-mingling between the Centralized landscape and the Decentralized landscape as possible. Every decision you make, to register an LLC or Patent Intellectual Property or to launch Website, etc. etc. be thinking, “Am I doing this in a Centralized or Decentralized manner?”.
5. Don’t just be out of the reach of the Centralized systems but be out of their Jurisdiction. They are not evil Courts and evil Corporations and evil Governments, they understand Jurisdiction, they honor Jurisdiction, they honor their agreements and they avoid interloping where they do not have agreements, more than anyone else on this planet. ‘Pacta Sunt Servanda’ is an essential element of their codex. The common man armed with an Intellectual Property Patent and an Army of Attorneys might go after anyone and everyone they can but it is the Courts that will protect you if you are “sufficiently decentralized”. I was told by a very prominent Attorney once, his father a Superior Court Judge, “We Attorneys throw shit at the walls and the Judges decide what sticks”.
6. POL or Protocol Owned Liquidity, be it OlympusDAO or TerraLuna/UST is a very interesting topic that needs far more love than we have space here but should be a central theme to any Blockchain, Defi, DAO, etc. that wishes to “Sufficiently Decentralize” itself.
7. Please watch the below video and imagine your Defi, Dex or Amm Dapp running on the Jackal System which utilizes the Secret Network and Filecoin. The app becomes unstoppable, un-censorable, anonymous and decentralized in every sense of the word.

I have a friend who is a Forex trader and we both love Bitcoin. He loves Bitcoin because it gives him more options to trade in to and out of USD, where as I love Bitcoin because of the the entire new landscape, because of the potential and possibilities the blockchain provides. Similarly, those who love Intellectual Property love Bitcoin because it’s new tech that they dream up new ideas to Patent, where-as for many Bitcoin is so much more than that. Some people love Bitcoin because it’s the new age of Decentralization, an entire landscape without Coercion and other people are still stuck in the middle ages, who still want the King or the Church to enforce the old rules in the digital age. Both places exist, both available for you to live in, you just have to decide which landscape is for you and be consistent.

That concludes Intellectual Property Rights and Decentralization 101.

As a sort of teaser to the 201 course be thinking about what “Customary International Law” means and how it could apply to this situation. You might realize the 2nd big issue Reggie could have enforcing his Patent.

If you would like to discuss the 301 or even the Nxt level 401 course, please contact me directly. If I’m convinced your intentions to be benevolent I just might be willing to divulge what I believe to be a total slam dunk strategy at stopping any intellectual property enforcement action taken against you. When you understand this one topic, it will become very apparent why no intellectual property right over defi can be enforced, in my humble opinion.

Please consider this an ongoing discussion, comments below are welcome as long are they maintain a certain level of benevolence and decorum.

With genuine appreciation,

Damon