Introduction
In 2018, experts from the China National Intellectual Property Administration (CNIPA) evaluated an invention titled "Clearing Method for Multi-Layer Blockchain." The application described a virtual currency transfer system across parent-child blockchain layers, requiring validation by the parent chain. The CNIPA concluded that such a system—if tied to financial institutions—would violate China’s Notice on Preventing Bitcoin Risks (jointly issued by the People’s Bank of China and four other ministries). Key concerns included:
- Threats to financial stability and illegal financing
- Risks of wealth outflow and money laundering
- Disruption to foreign exchange management and fiat currency systems
This case set a precedent: inventions facilitating virtual currency circulation or clearing are ineligible for patents under Article 5 of China’s Patent Law (which bars patents against public interest).
However, the Digital Currency Research Institute of the People’s Bank of China later filed multiple patent applications deemed eligible. Authorities clarified that these inventions didn’t inherently violate laws—only their misuse for virtual token transactions would. This distinction sparked debate over the patentability of digital currency technologies.
Key Concepts and Legal Framework
Definitions
- Fiat Currency: State-issued money (e.g., RMB) backed by national credit.
- Digital RMB: A blockchain-based legal tender issued by China’s central bank.
- Digital Currency: Unregulated digital assets (e.g., in-game tokens) without state backing.
- Virtual Currency: Non-legal tender (e.g., Bitcoin) prohibited from market circulation.
Patent Law Considerations
- Article 5: Excludes inventions violating laws, social ethics, or public interests.
- Patent Examination Guidelines: Clarifies that "public interest" covers threats to social order or financial stability.
Critical Distinction: While digital/virtual currencies lack legal tender status, their underlying technologies (e.g., blockchain) may still be patentable if they don’t inherently facilitate illegal activities.
Case Study: Blockchain Storage Optimization Patent
Invention Summary
A method to reduce node storage pressure in blockchain networks (e.g., Bitcoin) by:
- Identifying unspent transaction outputs (UTXOs) in old blocks.
- Automatically transferring UTXOs to new blocks via matching transactions.
- Deleting emptied blocks to free storage.
Rejection and Appeal
- Initial Rejection: Cited Bitcoin’s non-compliance with Chinese financial regulations, deeming the invention harmful to public interest.
- Reversal by CNIPA: Ruled that the technology itself wasn’t unlawful—only its application to virtual currency services would breach Article 5.
Outcome
The patent was granted, emphasizing:
- Separation of Technology and Use Case: Blockchain storage solutions aren’t equivalent to virtual currency transactions.
- Policy Alignment: Supports China’s pro-innovation stance on blockchain tech.
FAQs
1. Why was the multi-layer blockchain patent rejected?
It enabled virtual currency clearing, directly contravening China’s anti-Bitcoin regulations and threatening financial stability.
2. How does digital RMB differ from Bitcoin in patentability?
Digital RMB is state-backed and legally compliant, whereas Bitcoin-related systems often conflict with financial laws.
3. Can blockchain patents exclude virtual currency applications?
Yes. Inventors must clearly define non-currency use cases (e.g., supply chain tracking) to avoid Article 5 exclusions.
4. What’s China’s stance on blockchain patents?
👉 China encourages blockchain innovation but strictly regulates crypto-related implementations.
Conclusion
Eligibility hinges on two factors:
- Legal Compliance: Does the invention inherently violate laws?
- Public Interest: Could it disrupt financial/social order?
Recommendations for Applicants:
- Distinguish between currency systems and enabling technologies.
- Specify legitimate use cases in patent claims.
- Monitor evolving regulations on digital assets.
This analysis underscores the delicate balance between fostering fintech innovation and safeguarding macroeconomic stability.
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