Is there Intellectual Property in Money?

Usually, the question is asked the other way around: “is there money in Intellectual Property?”

But as technology is creating new kinds of currencies and new ways to pay, the question of Intellectual Property Rights in money becomes relevant.

1. New money

Amazon has recently started issuing its own currency, called Amazon Coins. Amazon creates and spends its Amazon Coins to pay developers, and will accept payment in Amazon Coins for Kindle purchases.

Amazon is not the first technology business to create its own currency. Microsoft created Microsoft Points, as did Nintendo.

Facebook also created its own currency, Facebook Credits in 2008, but closed down the system again in 201.

Moreover, there is of course Paypal, the now almost ubiquitous online payment system. This is sometimes even seen as an existential threat to some core aspects of banking, such as organizing payment transactions.

And there is BitCoin, the virtual currency created on the basis of an algorithm and computing time, which has recently collaborated with a bank to carry out certain real-world banking operations, such as payments. BitCoin uses an open source peer-to-peer internet protocol, that allows the creation of bitcoin nodes or bitcoin miners based on investments in computing time and solving hashes (e.g. subroutines for database mapping).

So what’s going on?

2. Technology and money

Money has many functions – it allows people to buy and sell (a medium of exchange), it is a unit of account, a store of value, and a measure of debt.

However, a key aspect in all of those functions is that money carries information with it. And Information Technology works on exactly that – information.

So it should not come as a surprise that private operators start to issue their own currency – after all, the monopoly of central banks to issue money is a relatively recent development (19th and 20th century), which never really managed to exclude all private issue of money. A tradeable coupon is, in essence, privately issued money. By that token, an essential part of Groupon’s business model (something which seems in flux) is also the creation of privately issued money.

3. Intellectual Property and Money

As technology companies start to create new currencies, a number of questions arise.

What is the value of such currency? How can it be converted into traditional money such as Euros or dollars? Who controls the currency? And what about Intellectual Property?

In this blog I will only focus on the Intellectual Property aspect of these new, virtual currencies, trying to address the question “can you “own” [the IP rights in] a virtual currency?”.

a) Patents.

Is it possible to patent the process of issuing a currency?

Certainly in the US, the answer seems to be “yes” – for the moment. Facebook has obtained a patent on a method to issue and manage a virtual currency, published in August 2012. You can access it here.

This is a typical “business method” patent, and I’m not really sure it would withstand the “Bilski” Machine or Transformation test that is currently in force.

This then leads to the question whether a process that is in essence fairly simple, straightforward and well-known, such as issuing and managing credit and converting it, becomes patentable when you describe it as done on a computer or through Information Technology, or add the word “virtual” to it.

Also, I’m not sure the Federal Reserve Bank (the US central bank) would be very convinced by the argument that the concepts of issuing and managing money and credit online or virtually were not known as “prior art” in 2010, the date on which the patent application was submitted.

But there is of course a wider issue here. Issuing money is subject to monopolistic rules in many countries – hence the expression “legal tender”. The issuing of generally convertible money (enforced through the legal obligation to economic actors to accept state money as payment) is typically a state monopoly – regardless of the technological way in which such money is issued.

However, it seems like Facebook may now have obtained its own monopoly on issuing a certain kind of money, as long as the particular steps as described in the patent are followed.

Which monopoly will win? The Fed’s monopoly on issuing money or Facebook’s patent monopoly on a virtual way of doing the same? My (virtual) money is on the Fed, but it will be interesting to see if Facebook ever tries to enforce its patent, and, when it does, whether it will stand up to the scrutiny in court.  Since Facebook recently abandoned its Facebook Credit system, this may be unlikely to happen, though. (This whole story also underscores the woefully inadequate operations of the USPTO. Issuing a patent on the method of issuing virtual money is, quite frankly, a sad joke, and clearly shows that the USPTO is not doing its job properly.)

Facebook Credits could only be used within the Facebook environment though, they were not set up as a universal internet-credit.

That’s different from “real” virtual currencies like BitCoin, which are intended to operate outside their own platform, and want to obtain the status of a really convertible virtual currency.

From the Facebook patent, it appears that BitCoin could probably also potentially patent some or more of its functionality; again, the patent system could then be used to monopolize basic economic functions when operated online.

While this obviously makes no sense from a general economic point of view, it could point into the direction of future discussions on who can “own” money, and whether the fact that money-related transactions become more and more technical, makes them more and more vulnerable to patent monopolies.

The conclusion seems to be that technical development on the one hand has a liberating potential effect, through the creation of new kinds of currency by technical means, and on the other hand may suffer from the typical stifling, anti-innovative effect from patent monopolies. However, the latter comment is subject to two important caveats: the Facebook patent (and similar patents that only describe a theoretical process, exactly as in the Bilski case) may not stand up to serious scrutiny in court, and the government monopoly on issuing money may intervene at some point.

b) Copyright.

It seems unlikely that copyright could apply to the functionality of a virtual currency. Copyright typically only applies to expressions, not to functionality.

Of course, the visual and design aspects of a currency, to the extent they can be separated from its functional aspects, can be protected by copyright.

These are unlikely to have an important impact on the value or functioning of such virtual money though, other than as a factor to identify the virtual currency.

c) Trademarks.

Which brings us to the next IP right: is it possible to trademark money? Here, the answer should be much simpler: to the extent the trademark is really distinctive, there’s no reason the service provided by a virtual currency could not be covered by trademark.

Of course, the meaning of the word “counterfeit” becomes quite different when we talk about virtual money.

In this respect, virtual money is probably subject to the same risks  and limitations as online banking – phishing is not exactly a new phenomenon; although it is unlikely to be covered by Intellectual Property any time soon.

d) Fraud and counterfeit.

One key aspect of any currency is that, for such currency to work, it needs to be trusted.

Here, BitCoin has struggled to a certain extent: it has not been free of hackers and problems with security.

However, counterfeiting virtual money is a very different thing from counterfeiting physical bills or coins. It is probably much more difficult, but if it works, it will be much more difficult to trace.

e) Trade secrets & algorithms.

A key aspect of e.g. the BitCoin system is the underlying algorithm. Even though the source code of system is available, some of the algorithm that creates the bitcoins is secret.

This should not be a surprise: a lot of the core intellectual property related to financial transactions is in complex algorithms developed by sophisticated mathematicians working for financial institutions and traders – often called “quants”.

Most of this IP is not protectable through patents or copyrights, and tends to be kept secret by its users.

As a result, it may be that trade secrets are a more efficient protection for the innovative aspects of virtual currencies.

 

3. Who can own money?

Based on the existence of the Facebook patent, it could be assumed that certain parts of the technological aspect of issuing new currencies could be subject to Intellectual Property.

That would mean that certain private operators could lay claim to monopolistic positions in creating such currencies.

It is, however, not surprising for the issuer of a currency to have a monopoly on their specific currency, so in this respect, it is not certain if IPRs actually add a lot of value.

The analysis becomes different when IP rights start to apply to generic aspects of a virtual currency – as shown by the Facebook patent.

But it is my feeling that it may not be safe to assume the Facebook patent is either valid or enforceable, and if it were, there is some likelihood that regulatory or political powers would actually intervene.

After all, the value of a currency depends on it being accepted by as many economic actors as possible; and building IP shutters may not be the most efficient way to go about it.

In other words: it is quite possible that an open-source approach such as the BitCoin one is, from an IP perspective, the more clever approach.

What seems certain is that this space will continue to evolve, and we are likely to see other new developments.

After all, to the extent banking is dependent upon information inefficiencies, further development of Information Technology could well chip away at the very reason of existence of banking; which could be described as the middle man, hoarding information on efficient use of money.



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