The patent described a “network device...configured to generate a digital currency address using the public keys of the two or more second public-private key pairs and a public key of the first public-private key pair”.
In this filing, BitGo never referenced that the idea came from an open source library that BitGo used to build their software. Filing a patent like this based on open source projects is not favorable in the Bitcoin or open source community.
Multi-sig refers to a Bitcoin wallet setup where a certain number of private keys are generated and some number of those private keys are required to spend any funds in the wallet. A typical setup is 2-of-3, where 3 different private keys are generated and 2 private keys are required to send bitcoin from the wallet.
This is a more secure architecture in securing Bitcoin, and BitGo has implemented it as part of their security service.
BitGo responded by citing their support for the Innovator’s Patent Agreement and stated that the patent was filed for defensive reasons. BitGo co-founder and former Google engineer Michael Belshe referenced a blog post he wrote in 2008 regarding defensive patents and the positive use of them.
Before the discovery of their patent filing, Bitcoin API provider Blocktrail discovered a bug in BitGo’s security platform that caused Bitstamp’s transaction data to be identifiable on the Blockchain. The bug revealed information about the exchange’s transactions that could be exploited by traders.