Patent hoarder claims to own Bitcoin’s Elliptical Curve Cryptography

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Digital asset miners are being sued by a company that claims to hold patents to the elliptical curve cryptography (ECC) that is fundamental to the operation of Bitcoin, in a move that could implicate the entire ecosystem.

The lawsuits were filed earlier this year against two miners—Mara (NASDAQ: MARA) and Core Scientific (NASDAQ: CORZ)— by an entity called Malikie. Both are accused of violating multiple patents owned by Malikie, which apply to Bitcoin’s ECC. Malikie seeks damages and royalties.

The patents

A subsidiary of the much-more-directly-named Key Patent Innovations Limited, Malikie is what is charitably referred to as a ‘patent monetization firm.’ In other words, it either acquires patents from its original authors or makes an agreement whereby it will enforce them on the authors’ behalf. Someone less inclined to charity might refer to them as ‘patent trolls.’

In 2023, Malikie acquired a suite of 32,000 ‘non-core’ patents from BlackBerry (NASDAQ: BB) in a deal supposedly worth up to $900 million (BlackBerry was to receive an upfront payment of $170 million). The trove apparently included a number of patents relating to the fundamental technology underpinning Bitcoin, most prominently those to do with ECC.

ECC is the algorithm used in Bitcoin to generate key pairs and create and verify digital signatures. Though not built for that purpose, it is strongly associated with the technology and its inventor, Satoshi Nakamoto. Nonetheless, Malikie says that ECC was developed and patented by BlackBerry and a company called Certicom—patents Malikie now owns (listed as the original co-inventors on the patents are Certicom researchers Dan Brown, Robert Gallant, Robert Lambert, and Scott Vanstone.)

According to Malikie, by using ECC to process signatures (as occurs in the normal course of Bitcoin’s operation), miners like Mara and Core Scientific (and potentially countless others) are infringing on their patents.

“[The defendants], in turn, uses this patented technology to operate one of the largest bitcoin mining operations in the world, manage its proceeds, and engage in bitcoin transactions.”

However, the truth about the Malikie litigation is that virtually anybody running BTC software could be targeted in the same way. For example, one of the patents Malikie is asserting is described as relating ‘to computational techniques used in cryptographic algorithms, including elliptic curve algorithms for generating and verifying digital signatures’ which enable Bitcoin’s accelerated digital signature verification.

How best to sue Bitcoin?

Malikie’s choice of defendants is also notable. It’s alleged that BTC software and its use violate the ECC patents, but BTC considers itself a decentralized enterprise. This leaves would-be plaintiffs with axes to grind in a difficult position: should they pursue individual developers? Should they pursue those distributing BTC software? Or, as ended up happening, should they sue the miners who are, in practice, facilitating the operation of the entire ecosystem?

It’s certainly understandable why Malikie considered miners to be the best target: in addition to having comparatively deep pockets, they and the roles they play in BTC’s operation are easily identifiable and thus easy to draft a lawsuit around.

Another route would have been to challenge the assumption that BTC development is decentralized at all. Though not an IP case, this was the thrust of the much-publicized Tulip Trading case, which alleged that BTC’s centralized development should mean that its developers owe users legal duties to act in their best interests. That argument received approval from the United Kingdom’s Court of Appeal, which decided it was worthy of a trial (the case was eventually dropped).

A more radical approach was recently attempted by Dr. Craig Wright in his crusade against BTC for ‘passing off’ their version of Bitcoin as the original. He conceptualized the entire ecosystem surrounding BTC, not just the developers but the miners and even the exchanges selling it, as a legal partnership. Though that case was also dropped before reaching trial, the merits of this argument make sense when considering a plaintiff in Malikie’s shoes.

In any case, lawsuits asserting any kind of ownership over Bitcoin generally are becoming more commonplace as the digital asset ecosystem becomes more lucrative and integrated into the financial mainstream.

It’s understandable: the influence of Bitcoin spans far indeed, with its derivatives accounting for an ever-increasing slice of the investor pie. The absence of a central figure taking credit for the technology is likely also going some way to making it an inviting target.

Whether Malikie’s claims stick is another question, but if they do, it would potentially mean that the entire Bitcoin ecosystem is guilty of a similar kind of IP infringement as Mara and Core Scientific.

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