How the Technology Behind Bitcoin and Other Cryptocurrencies May Revolutionize the World of Intellectual Property

March 6, 2018

Blockchains are highly secure, decentralized distributed ledger computing systems which are resistant to fraud and ideally suited for the recording of events such as financial transactions and other records management activities. Satoshi Nakamoto is the name given to the unknown person or group of persons generally credited with inventing the Bitcoin software in 2008 based on blockchain technology. [1] Simply put, blockchain technology is a way of creating a shared database which is capable of recording and tracking multiple transactions and assets. [2]

Blockchain is not governed by any one single user, so no centralized version of a ledger exists. Instead, it consists of a distributed system that is not stored on a single server or node, but is instead distributed across innumerable nodes on the web, where every node only keeps a portion of the whole database.[3] The chain is also updated with each transaction, so users may see the chronological activity for that particular blockchain.[4] Another central feature of the technology is that the blockchain acts as a consensus protocol where everything follows the same rules.[5] This means that, once something is recorded on the database, it cannot be altered or removed.

Initially used in the cryptocurrency Bitcoin as its public transaction ledger, the usefulness of blockchain technology as a method for recording transactions has opened the door to the disruption of many industries focused on records management including the banking, manufacturing, cyber security, transportation, supply side management, insurance, retail and healthcare industries as well as many others.[6]

Blockchain technology is particularly well suited as a registry for intellectual property rights.[7] When intellectual property is registered to a blockchain, the rights holder has immediate, contemporaneous proof of ownership which is immune to challenge because once a work has been registered to a blockchain that information cannot ever be lost or changed. So, the blockchain can be used to document the complete chain of ownership of a work, including any licenses and assignments.

In the field of copyright, where ownership of a creative work can sometimes be subject to dispute or where it can be difficult for authors to see who is using their work and equally difficult for third parties using a work to know who to seek a license from, blockchain technology offers a solution.  Using blockchain as a registry for copyrighted works would provide clarity to authors, publishers, and end-users. By registering their works to a blockchain, authors would have tamper-proof evidence of ownership. The result of this is that authors could readily prove ownership of a creative work, prevent infringement and make the most of monetizing their creative works.

Registering a work in this way gives the author a digital certificate of authenticity which can help third parties identify the author of a work. Platforms currently in use such as Binded and Ascribe are taking advantage of blockchain technology in this way, allowing authors to make a record of copyright ownership which can then be used to see where and how the work is being used on the internet and to seek licenses and compensation from third parties.

Here’s how it works: authors, photographers or artists import their work to the platform through a browser or using the service’s interface with Instagram, Twitter and other social media platforms. Since the platform allows users to embed images as well as texts on the blockchain, authors or artists may also register copyrights for physical art such as photographs, paintings or sculpture, by simply uploading images of the work with follow-up descriptions. Once the company has the image, it creates a “unique fingerprint” of every file and imbeds a permanent record of those fingerprints on the blockchain.

In this way, blockchains could revolutionize the music industry by eliminating copyright infringement. The Blockchain’s distributed ledgers allow for the creation of peer-to-peer music distribution systems which enable artists to sell songs and licenses directly to their customers. Copyrights to the works registered on such platforms would be available to the public like a torrent file, which can be downloaded and used freely.

However, the author will always have full authority over the work and will always possess the power to deny or grant access to their works. The idea is that if an author ever has a copyright dispute regarding a work, the service will be able to point to the permanent record it created to prove the author’s ownership. Companies like Binded and Ascribe also work to search the Web on the author’s behalf to identify copyright infringements.

Binded is working on ways of making it easier for users to register official copyrights with the U.S. Copyright office and claims that 10 million copyright records have been formed through the service since it launched in March 2016.[8] The service is free and Binded says that in the future it will monetize the system by creating value for customers and then keeping a “fair piece” of that value.[9]

In the field of patent law, a blockchain could provide a more efficient, secure and inexpensive way of recording ownership and verifying transactions in patents the same way it does for copyrights and cryptocurrencies. Once a patent or provisional patent application is filed, and especially once it has been granted, it is an asset that can be sold or licensed.

Today, the owner or purchaser of a patent needs to record their ownership with the relevant patent office but the exact requirements for doing so and deadlines for filing vary significantly from country to country. Registering a transfer of a significant patent portfolio consisting of multiple patents from several countries can therefore be a time consuming and expensive process. Blockchain technology could provide a simpler and more cost efficient method of recording ownership and keeping track of such transactions.

Domestic and international pre-application or patentability, freedom-to-operate, validity/invalidity, mining to find related patent assets owned by an entity and state-of-the-art patent searches to determine existing solutions and potential competitors within a given technological field could all be made easier, significantly reducing the time and cost of conducting such searches. The same could apply to patent pools and researching patent-paper pairs.

One additional useful feature of blockchain is the smart contract, which could assist in the sale and licensing of intellectual property. A smart contract, also known as a cryptocontract, is a computer program that directly controls the transfer of digital currencies or assets between parties under terms that are set by the parties.[10] A smart contract not only defines the rights and obligations of the parties to an agreement in the same way that a traditional contract does, but it can also automatically enforce those obligations.[11] The terms of the contract are pre-programmed, so that the parties can do business directly with licensing contracts that are self-executing upon use of a work. [12]

Smart contracts can also be tied into micropayments for use. This would work by the author assigning a blockchain address to a creative work which then permits the user to make a small payment directly to the author or artist in return for this use. As a result, the author or artist can be compensated without having to pay a middleperson. Such a direct payment method is simpler and more transparent than other existing methods of payment for artists and authors.

While generally enforceable under Section 9 of the Uniform Commercial Code and other statutes governing electronic transactions, state governments are quickly getting into the blockchain technology act. In 2017 Arizona approved a law recognizing blockchain signatures and smart contracts as having full legal effect, validity and enforceability.[13] Florida, Nevada and New Hampshire appear to be on the verge of doing the same while Vermont has a law that provides that a blockchain-based digital record is considered a business record under the Vermont Rules of Evidence.[14] Delaware launched a blockchain initiative in 2016 to support sophisticated commercial transactions and store state archival records and is considering amendments to its general laws permitting corporations to use blockchain for stock ledgers and other business records.  Similarly, Illinois created the Illinois Blockchain Initiative, a group of state and county agencies to explore innovative opportunities for blockchain technology.[15]

Companies such as UjoMusic, Spotify, DotBC, LBRY and BitTunes have used blockchain technology to launch albums by various artists. In one of its projects, UjoMusic worked with singer-songwriter Imogen Heap to release her song ‘Tiny Human’ on blockchain.[16] Users were able to purchase licenses to download, stream, remix and sync the song via smart contracts with each payment automatically split on the blockchain and sent directly to the artist. When dance artist RAC released his new album EGO through the usual channels, he also launched his own webstore selling the album using the cryptocurrency Etherium. This was billed as the first full-length album to be distributed using the Ethereum blockchain platform. [17]

Perhaps most importantly from a commercial standpoint, blockchain distribution platforms enable artists to both eliminate the middleman and facilitate ad-free monetization models. These examples may serve to demonstrate how artists may use blockchain in the future to better control and profit by their creative works, to improve collaboration and maximize the return on their investment. In the future, this could have a profound impact on more than just the music industry.

While the predictions for blockchain technology may be somewhat overblown, perhaps one day, current registries will be replaced with blockchain technology making records more trustworthy and easier to update and share instantaneously. This would revolutionize the current system of registering trademarks, copyrights and patents. Likewise, if artists and authors choose to use platforms like Binded, Ascribe, Ujo, Spotify, BitTunes and others to bypass middlemen and advertisers who both collect payments on their behalf and generate advertising revenues which are often not shared with the artist it will not only have a disruptive impact on those industries but also revolutionize the way we register, license, pay for and protect all forms of intellectual property.

Footnotes:

[1] Satoshi Nakamoto claimed to be a man living in Japan. Speculation about the true identity of Nakamoto has mostly focused on a number of cryptography and computer software experts living in the United States and Europe. See also, Angela Scott-Briggs, Who Invented Blockchain Technology?, TechBullion, January 1, 2018.

[2] See, Crosby, Nachiappan, Pattanayak, Verma, Kalyanaraman, Blockchain Technology Beyond Bitcoin, University of California at Berkley, Sutardja Center for Entrepreneurship & Technology, October 16, 2015.

[3] Id.

[4] Id.

[5] Id.

[6] See, Boucher, Nascimento, Kritikos, How Blockchain Technology Could Change Our Lives, An In-Depth Analysis, European Parlimentary Research Service, Scientific Foresight Unit, PE 581-948, February, 2017.

[7] See, Oustry, Francios, Blockchain Based Solutions for Intellectual Property Management, Medium, May 21, 2017; Preziosi, Camilleri, Blockchain’s Applicability to Intellectual Property Management, Lexology, October 21, 2017.

[8] Binded Secures Blockchain Intellectual Property Rights, Coinmis News, January 6, 2018.

[9] Id.

[10] See David Morris, Bitcoin It’s Not Just Digital Currency. It’s Napster for Finance, FORTUNE (Jan. 21, 2014), http://fortune.com/2014/01/21/bitcoin-is-notjust-digital-currency-its-napster-for-finance/ (defining smart contracts and providing examples such as a car that would automatically disable itself if loan payments were not made) (on file with the Washington and Lee Law Review); see also, Cheryl B. Preston & Eli W. McCann, Unwrapping Shrinkwraps, Clickwraps, and Browsewraps: How the Law Went Wrong from Horse Traders to the Law of the Horse, 26 BYU J. PUB. L. 1, 23 (2011) (explaining how online service providers often do “not allow the consumer the same luxury of changing the contract at will, but instead retains the unilateral modification power exclusively for itself”).

[11] Fairchild, Joshua A.T., Smart Contracts, Bitcoin Bots and Consumer Protection, 71 Wash. & Lee L. Rev. Online 36 (2014), http://scholarlycommons.law.wlu.edu/wlulr-online/vol71/iss2/3, pp. 38-39.

[12] See, Cuccuru, Pierluigi, Beyond Bitcoin: An Early Overview On Smart Contracts, International Journal of Law and Information Technology, Volume 25, Issue 3, September 1, 2017, pp. 179-195.

[13] Higgins, Stan, Arizona Bill Would Make Blockchain Contracts ‘Legal”, Coindesk, February 7, 2017, https://www.coindesk.com/arizona-bill-blockchain-smart-contracts/

[14] Higgins, Stan, Vermont Law Adds Bitcoin As ‘Permissible Investment’ for MSB’s, Coindesk, May 8, 2017, https://www.coindesk.com/vermont-law-bitcoin-msbs-investment/

[15] Andrea Tinianow, Joshua Ashley Klayman, Enabling or Crippling? The Risk of State By State Blockchain Laws, Coindesk, November 22, 2017, https://www.coindesk.com/enabling-crippling-risks-state-state-blockchain-laws/; Luke Parker, US States Working On Blockchain Legislation in 2017, Brave New Coin, April 2, 2017, https://bravenewcoin.com/news/us-states-working-on-blockchain-legislation-in-2017/

[16] Howard, George, Imogen Heap’s Mycelia: An Artists’ Approach for a Fair Trade Music Business, Inspired By Blockchain, Forbes, July 17, 2015.

[17] Stuart Dredge, Dance Artist RAC to Release Album on Ethereum Blockchain, MusicAlly, July, 10, 2017, http://musically.com/2017/07/10/dance-rac-album-ethereum-blockchain/

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