Category: IP and Technology Blog

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  • Introduction

    Bitcoin, powered by the blockchain, is unique as it is the only form of currency that has nearly complete transparency in every transaction. Through the blockchain, anyone is able to view every Bitcoin transaction that has ever been executed, from the most recent exchange to the original genesis block. The blockchain is constantly growing as “completed” blocks are added to it with a new set of recordings. Each block is added to the blockchain in a linear, chronological order. Each computer connected to the Bitcoin network, used by a client to perform the task of validating and relaying transaction (known as “nodes”), receives a copy of the blockchain. The blockchain is automatically downloaded upon joining the larger Bitcoin network.

    The “blocks” of the blockchain

    A block is the “current” part of a blockchain which records some or all of the recent transactions, and once completed it becomes a permanent piece of the blockchain. Each block is placed within the blockchain in the proper, linear, chronological order with every block containing a hash of the block that came before it. While the blockchain provides an unprecedented amount of transparency to transactions, there is still an inherent security within each block that prevents viewing of the contents of a transaction. A useful comparison would be to a home address, or email address. Those addresses can be published publicly, but it does not give you any information about what your home looks like on the inside, or the contents of your email. You still need a private key to enter your home, or a password to access your email. The data placed within each block contains your unique signature but only you can unlock what is contained within that data.

    Uses of the blockchain beyond Bitcoin

    The underlying technological components of the blockchain have potential for uses far beyond simply Bitcoin. So far, there has been a variety of avenues that blockchain technology have already been applied towards, including withdrawing money from an ATM, trading shares in closely held companies, and offering loyalty points through airline miles.

    There are number advantages of working with blockchain technology, and Deloitte recently released a report highlighting the three key characteristics that make the technology desirable across industries: (1) it is almost impossible to tinker with the blockchain without it being noticed, thus drastically reducing fraud, (2) the irrevocable nature of blockchain transactions increases the accuracy of records and simplifies back-office processes, and (3) the digital nature of the blockchain allows any document or asset to be expressed in code and then expressed in a ledger entry.

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  • Many people are shocked at the length of time it takes to register a trademark with the United States Patent and Trademark Office (“USPTO”). What some people do not realize though is (i) the sheer number of application filed ever year; and (ii) that every application is reviewed by a USPTO examining attorney.

    In 2015, over 500,000 trademark applications were filed. On an average day, the USPTO receives 1,370 new applications. The blunt reality is that the UPSTO does not have 1,370 examining attorneys on its staff to review every application as it comes in.

    Despite the sheer voluminosity of trademark applications, the average application pendency time in 2015 was only 9.8 months. However, the total time from application to registration can depend on a number of factors best explained by breaking the application process down into six steps.

    Step 1: the initial application submission; approximately three months

    There are multiple pathways that an application can take and each has a slightly different process. Which pathway an application takes depends on the legal basis for filing. The filing bases under federal trademark law are:

    -Section 1(a) Application Based on Use in Commerce
    -Section 1(b) Application Based on Intent-to-Use
    -Section 44(d) Application Based on a Foreign Application
    -Section 44(e) Application Based on a Foreign Registration
    -Section 66(a) Application Based on the Madrid Protocol

    Generally, the time line for an application based upon a foreign application or foreign registration is a much longer process than those applications based upon use in commerce or an intent to use. The application filing process takes approximately three months. During this period, the filed application is analyzed to see if the minimum filing requirements have been met. If the application requirements are met, then it is assigned a serial number which allows the applicant to check on its status during the entire application process. If the application is based on a foreign registration it must meet the following additional criteria:

    -It is issued by a country that is a party to a treaty or agreement with the United States;
    -It must be from the applicant’s country of origin;
    -The foreign registration must be owned by the applicant that filed the U.S. application;
    -The mark must be the same as the mark in the U.S. application; and
    -The goods or services in the foreign application must encompass the goods or services in the U.S. application.

    Step 2: USPTO reviews the application; approximately one month

    Following the assignment of a serial number, the application is assigned to an examining attorney who reviews it to determine whether federal law will permit the application. If the application is based on a foreign registration of a trademark, this process can take even longer.

    Step 3: USPTO publishes mark (issues suspension letter if based on a foreign application), OR issues office action letter; approximately three months OR up to twelve months (for foreign applications)

    If no refusals or additional requirements are identified by the examining attorney, the mark is approved for publication in the Official Gazette (“OG”). The OG is a weekly online publication which serves to give notice to the public that the USPTO plans to issue a registration. Approximately one month after approval, the mark will be published in the OG for a 30-day opposition period. During this time, any party who believes it would be harmed by the registration may file an objection or opposition to the mark with the Trademark Trial and Appeal Board (“TTAB”). No further action is taken until the opposition is resolved. The USPTO estimates this step taking approximately three months in total

    This step becomes significantly more complicated if the trademark is based upon a foreign application. If no refusals or additional requirements are identified then the examining attorney issues a letter suspending the action pending the submission of the foreign registration certificate and an English translation. The suspension process takes approximately six months according to the USPTO, and depending upon whether or not the foreign registration certificate is filed or not, could take up to another six months to issue the suspension inquiry. Assuming the applicant timely responds and submits the foreign registration certificate (another one to two months of processing) then the USPTO either publishes the mark in the OG, or issues an cffice action letter.If refusals or requirements are identified by the examining attorney, then an office action letter is issued requiring the applicant to address the issues. Within six months of the issue date, the applicant must submit a response that addresses each refusal and requirement..

    Step 4: USPTO publishes mark OR issues final letter; approximately one to four months

    If the applicant has timely submitted a response addressing each refusal and requirement, thus avoiding abandonment of the application, the examining attorney will review the submitted response to determine if all refusals and/or requirements have been satisfied (one to two month process). If the applicant’s response overcomes the refusals then the mark will be published in the OG for the 30-day opposition period. If the applicant fails to do so, then the examining attorney will issue a final refusal letter. The applicant may respond to a final office letter by overcoming the refusals and complying with the requirements or appealing to the TTAB (one to two month process).

    Step 5: Mark registers OR the Notice of Allowance is issued; approximately three months

    Within approximately three months after the mark is published in the OG, if no opposition was filed, the USPTO issues a registration. If an opposition was filed, but it was unsuccessful, the registration issues when the TTAB dismisses the opposition. For applications based on foreign registration, within two months after the mark is published in the OG, a Notice of Allowance (“NOA”) is issued. The NOA is not a registration but indicates that the mark will be allowed to register after an acceptable Statement of Use (“SOU”) is filed. The deadline for filing a SOU or request for extension of time is calculated from the date the NOA is issued. If the applicant does not file a SOU or extension request within six months of the date the NOA is issued, the application will be deemed abandoned.

    Step 6: USPTO reviews SOU & mark registers (foreign applications); approximately one month

    The USPTO reviews the SOU and if the minimum filing requirements are met, the SOU is forwarded to the examining attorney who conducts a review of the SOU to ascertain whether federal law permits registration. If the examining attorney identifies no more additional requirements, the SOU is approved and within approximately two months after approval the USPTO issues a registration for the mark. However, if there are additional requirements that must be met, the same office action letter from earlier in the process will be issued again. Once those deficiencies are remedied, a registration will be issued within approximately two months.

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  • A decentralized autonomous organization known as The DAO is a new platform which operates as an autonomous venture capital fund. The DAO raised over $150 million in less than 3 weeks, making it the largest crowdfunding event ever. Investors receive DAO tokens in return for investing Ether in The DAO. It operates much like a modern day venture fund in that it can raise and invest funds and hire employees or lobbyists.

    The DAO is built on the Etherneum blockchain and through its extensive use of smart contracts, The DAO almost automates the entire investment process. The DAO raises and invests funds using the cryptocurrency Ether. Once The DAO is funded, there is a two-step proposal before a project gets funded. The first step requires the project’s owners to submit a business plan to The DAO token holders. Proposals can be submitted by anyone including businesses, coders, developers, and other entrepreneurs. The business plan must then be coded into a smart contract which operates in conjunction with The DAO. The DAO’s curators then review the smart contract’s code to ensure the proposal’s execution aligns with its business plan. Once a proposal is approved by the curators, DAO token holders vote to fund the project on a majority rule basis. Votes are proportional to the number of tokens held by the voter. Once the project is funded, The DAO operates completely autonomously. Through the use of smart contracts, DAO token holders are automatically paid as payout events are triggered.

    The DAO represents an innovative step forward for a venture capital funding organization in many ways. Through The DAO, individuals from around the world now have the ability to invest in a venture capital fund. Through the exchange of cryptocurrency, it has become extremely easy for anyone with an internet connection to invest in and participate in The DAO. With its voting structure, The DAO also creates a flexible investing environment in which the projects receiving funding are approved by a majority vote. The most innovative feature of The DAO, however, is the completely autonomous nature of the organization. DAO token holders hold the exclusive voting power over every single important decision. This purely democratic organization replaces the gap that exists in traditional venture capital funds between the fund managers and investors.

    While The DAO presents exciting new opportunities, potential pitfalls raise serious concerns about the platform’s future. Proposals could face uncertainty over outcomes of votes as voting is conducted by majority rule as opposed to being made by a board of directors or manager. This lack of certainty could cause project owners to turn to traditional venture capital funds instead of The DAO. A bug in the code could have a disastrous impact and possibly require a complete rebuild of the platform. The resulting shutdown could have a devastating impact on the funded projects as well as DAO token holders. The DAO, like other blockchain technologies, could run into legal and regulatory challenges. Additionally, The DAO’s coding is potentially vulnerable to a variety of attacks and pitfalls including incentive to vote no, stalking attacks, ambush attacks, token-value attacks, extraBalance attacks, split majority takeover attacks, concurrent tie-down attacks, and independence assumption. Ultimately, The DAO faces a multiplicity of challenges, any of which could have a crippling effect on the new platform.

    Despite the possible pitfalls of The DAO, the first project expected to receive $75 million in funding is the near future. The high tech startup, Slock.it, has proposed a project that will develop the Universal Sharing Network which would create a technology backbone for Ethereum. Slock.it is aiming for this project to represent the first step towards smart contracts becoming a useful and secure aspect of IoT products.

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  • Bitcoin first appeared in January of 2009 as a creation of a person or group known only as Satoshi Nakamoto. In only the past couple of years, the use of Bitcoin has grown substantially, which has presented a host of novel legal issues.

    To clear up one initial misconception, Bitcoin capitalized refers to the technology itself while bitcoin lowercase refers to the actual currency. 

    What is Bitcoin?

    Virtual currencies and online payment systems have been around for years. However, Bitcoin is unique in several ways. Bitcoin is the world’s first convertible (can be bought or sold for real currency or accepted as a substitute), open source (its controlling code is open to public view), and peer to peer (transactions do not require a third-party intermediary such as Paypal or Visa) decentralized digital currency.

    Bitcoin has made peer to peer online transactions possible without the need for an intermediary. Exchange rates for the virtual currency are determined essentially by supply and demand and are sent through an online “wallet.” Major retailers such as Overstock.com accept bitcoins directly as payment for their products and even more like Dell, Expedia, and Microsoft have partnered with Bitcoin processors to allow for the direct conversion of bitcoins into cash to be used for purchasing their products.

    bitcoins can be acquired in one of two ways. The first is simply purchasing them online using a bank account, wire transfer, credit card, or simply using cash to purchase them from someone with a Bitcoin wallet. The second method of obtaining bitcoins is by “mining” them. This process involves using special software and an enormous amount of computing power to solve complex mathematical problems from which the miner will receive a certain number of bitcoins in exchange. Anyone who has the software and computing power can mine for bitcoins. To give an idea as to how difficult it is to mine bitcoins, the typical high-end computer would take longer than 435 years to mine a single bitcoin.

    There is a fixed cap of 21 million bitcoins that will ever exist and sources differ has to how many have been mined at the time of publishing this article. According to the Bitcoin exchange network, as of March 2016 nearly 15.5 million bitcoins have been mined which is nearly 75% of the total available bitcoins. Yet, this number is deceiving as there are likely far fewer bitcoins actually in circulation due to lost or forgotten wallets, irrecoverable passwords, hardware failure, or death of the owner.

    Advantages & disadvantages of Bitcoin

    Due to its unique nature as a virtual currency, bitcoins have several distinct advantages over traditional currencies. Wallets and transactions involving bitcoins are nearly anonymous as a result of their highly encrypted nature. Wallets are assigned an “address,” similar to an e-mail address, that is identified by an alphanumeric string. Each transaction is also assigned a series of letters and numbers, stamped with the date and time of the transaction, and posted on a public ledger, which is shared with every device on the Bitcoin network. The highly encrypted nature of Bitcoin not only provides security from data and identity theft, but also provides transparency for every transaction.

    There are also a number of factors that may discourage use of Bitcoin. First, there is a lack of backing from a financial authority, bank, or government. As a result, there is no insurance for instances of fraud, hacking, or other breaches in security. The digital nature of Bitcoin makes wallets and exchanges especially vulnerable to cyber attacks. Furthermore, the conversion rate to U.S. currency tends to be volatile which is typical more of a commodity as opposed to a form of currency. This volatility suggests that the market for bitcoin is being driven by speculative investors, which creates an incentive to hoard bitcoins rather than spend them. There is also concern that Bitcoin has the potential to facilitate money laundering or be used as payment of services for other illegal activities, due to its private nature.

    Can bitcoins be used as a form of compensation for employment?

    The short answer is yes, but in only limited circumstances. All employers must comply with the overtime and minimum wage requirements of the Fair Labor Standards Act (“FLSA”), which generally stipulate that minimum wage and overtime must be paid with cash or a negotiable instrument (a check). Beyond these requirements though, the form of compensation is entirely up to the employer and employee. Thus, employers could pay additional compensation amounts with bitcoins.

    Bitcoin and securities

    The Commodity Futures Trading Commission (“CFTC”) has also provided some clarity on bitcoins and securities. In an order issued on September 21, 2015, the CFTC settled charges against an online platform for conducting activity related to bitcoin transactions without complying with the Commodity Exchange Act (“CEA”) and CFTC regulations. The platform was offering bitcoin options without registering as a swap exchange under the CEA and CFTC regulations. This is the first time that the CFTC has affirmatively placed bitcoins within the definition of a “commodity” under the CEA. Consequentially, this order has definitively placed virtual currencies within the regulation power of the CFTC. In combination with this order, the CFTC also issued its first ever temporary approval order to a bitcoin derivative startup for its application to register as a swap execution facility.

    How are bitcoins taxed?

    On March 26, 2014, the Internal Revenue Service (“IRS”) released a notice providing guidance virtual currency. The IRS has stated that virtual currency will be treated as property under the tax code. A taxpayer must include virtual currency in his or her computation of gross income at the fair market value (“FMV”) of the currency measured in U.S. dollars at the date the currency was received. Yet, virtual currency is not treated as “currency” in terms of the ability to generate foreign currency gain or loss. The IRS also established the basis as the FMV at date of receipt, which is determined using the exchange rate in a reasonable manner that is consistently applied. In instances where there is an exchange of virtual currency, the taxable gain depends on its characterization as either a capital asset (taxed as a capital gain), or inventory held for sale to customers in a trade or business (taxed as an ordinary gain).