• Jamie Johnson

Helpful or hot air? Understanding the implications of blockchain technology on intellectual property

Updated: Apr 6

Most cited use cases for blockchain involve payments of some kind (Gates 2017). This is understandable, given that cryptocurrencies like bitcoin have captured the popular imagination but it is important to consider other ways in which the technology can have a transformative effect on the economy.


Although intellectual property might seem like a less interesting use case for blockchain at first, this is far from the truth. Most advanced economies can now be characterised as ‘knowledge economies’ (EY 2019), which means that innovation is a key driver of economic growth. To that extent, the protections for those innovations are incredibly important.


This article will illustrate three ways in which blockchain can have a significant impact on intellectual property. First, though, it is important to briefly outline the concepts relied upon by this article.


Understanding blockchain


Blockchain can be defined as ‘a distributed, append only database, which enables - without a central trusted intermediary -, transactions between human or software agents’ (Bodó et al. 2018 pp. 313). Essentially, blocks of information are kept together and these blocks are linked to older blocks. This creates a chain of information, referred to as blockchain.


For a more detailed explanation of blockchain, please read our overview article. Understanding smart contracts


Smart contracts are programmes that the blockchain contains. These execute when particular criteria are met. Normally, information will need to be inputted from elsewhere to allow these smart contracts to execute.


For a more detailed explanation of smart contracts, please read our overview article.


An overview of the three use cases discussed by this article


First, blockchain can be extremely helpful for the proof of ownership (Prasad 2021). As blockchain creates an immutable record, it is very clear who created the particular piece of intellectual property (Clark and Burstall 2018).


Secondly, blockchain can be useful for ensuring that payments are made more directly to the individuals who created the intellectual property (Shkor 2020). At the same time, these payments can be more easily divided amongst those who produced the intellectual property.


Finally, smart contracts can be used to automate the payment to the creator when their intellectual property is used (Bodó et al. 2018). They can also be used to ensure that, once payment is received, it is automatically divided amongst those who own the intellectual property.


What follows is a further elaboration on these potential use cases, including a discussion of their respective viabilities.


Proof of ownership


The current issue for proof of ownership is that it can be extremely costly to register intellectual property (Clifford Chance 2021). This is made even more difficult by the need for an individual to show that they were the first person to come up with a particular idea.


Blockchain can provide a solution to this problem because the history of the creation cannot be changed (Heer and Halkyward 2020). So, the process of providing evidence to create a patent or copyright would be considerably simplified. Furthermore, if there is litigation about who came up with a particular idea first, blockchain can be used to provide a clearer timeline.


However, this relies upon blockchain being used by a critical mass of people. If a few players record their inventions on the blockchain whilst others use more traditional database management then there may still be ambiguities over who is entitled to a piece of intellectual property.


Nonetheless, there have been some promising early moves in the transition to people using blockchain as a proof of ownership. For instance, the Italian Parliament passed Law No. 12-19 on 11 January 2019. Article 8 term 3 of this legislation allows for blockchain to be admissible as evidence (Kern 2021). Meanwhile, the Hangzhou Internal Court accepted blockchain-authenticated evidence in an intellectual property trial on 7 September 2018 (Prasad 2021). As more jurisdictions accept information on a blockchain as evidence, it is likely that more actors will have an incentive to use blockchain as a record of their inventions. Consequently, trials in the future may be significantly easier to resolve.


In addition to the issue of registering intellectual property, there is a need for actors to be able to authenticate who owns a piece of intellectual property. Often, it is difficult to see whether someone has a valid licence for selling on something that makes use of intellectual property. For instance, the WHO believes that 50% of drugs sold online are counterfeit drugs (Clark and Burstall 2018). This represents a significant cost for those who validly own intellectual property.


Blockchain can resolve this issue by making it transparent who owns a piece of intellectual property. Moreover, people can be provided with unique tokens that signal that the seller in question has valid rights to sell a particular good. The US Drug Supply Chain Security Act 2013 set up a pilot scheme for this strategy (Clark and Burstall 2018). Under this scheme, manufacturers and repackagers are given unique product identifiers for the drugs that they sell so that it is clear who handled the drugs on the way. The FDA can then investigate any instances in which intellectual property is not respected.


In addition to the enforcement mechanism provided by blockchain, the transparent nature of blockchain may act as an incentive for more people to validly acquire the rights to use a piece of intellectual property. Currently, it can be costly to discover exactly who owns a piece of intellectual property and to then purchase it (Taylor Wessing 2019). Blockchain would significantly simplify the process because the original owner could be recorded on a blockchain and then an interested party could track who owns the intellectual property at any one time. Indeed, this process of discovery could be done at any time in the day, which adds to the convenience of discovery (Kern 2021).


Importantly, the continuous and transparent access to the record of ownership makes blockchain much more desirable for proof of ownership when it is compared to central government registries. A registry run by a central government registry may, unfortunately, be underfunded and so confusing to navigate. Or, it may take a while to update the registry once ownership has changed from one party to another. Such a delay would hamper the convenience of the service because individuals may want to check ownership of intellectual property at a moment’s notice at any time.


A possible issue for this use case is that actors may fraudulently record events on a blockchain (Bodó et al. 2018). For instance, they may record the creation of a piece of intellectual property on a blockchain before the actual creator is able to do so. If people blindly accept the evidence provided by a blockchain, then this would simply strengthen the ability of fraudsters to disregard intellectual property rights. It is therefore important to be careful when relying upon this evidence in a court setting.


Overall, then, the use of blockchain for proof of ownership is promising but there are some challenges ahead.


Ensuring that payments are paid directly


A current issue with payments for intellectual property is the pressing need for intermediary actors. Most obviously, payment companies such as MasterCard and Visa are able to charge a commission when someone makes a payment and this takes money away from those who own intellectual property. In addition, there are management companies that will often collect payment on someone’s behalf and then make the payment to them.


The use of blockchain technology to fix this problem has been seen in the music industry. Companies such as Peetracks, Uio Music and Mycelia allow for direct payments from fans to artists (Gates 2017). Payments being made directly to particular actors means that prices can be reduced for consumers, as there is no need to factor in the costs of paying off intermediary actors.


At the same time, the use of this technology will not result in complete decentralisation. There will still be a need for some intermediary actors, as it is unlikely that the owners of the intellectual property will be able to make use of blockchain technology unaided (Bodó et al. 2018).


There is also some evidence to suggest that central bank digital currencies (‘CBDCs’) are more likely than completely decentralised currencies such as bitcoin. For instance, Spina Alì (2021) looks at 66 central banks that together cover 75% of the global population. 80% of the banks surveyed are looking into introducing CBDCs. The introduction of CBDCs would mean that payments using blockchain are not as decentralised as some think, as central banks would retain some control over the payments infrastructure.


Nonetheless, despite the two caveats discussed in the previous paragraphs, the use of blockchain to pay owners of intellectual property would drastically stream the payments process. Even if there is still some need for intermediaries, there would be significantly less influence from intermediaries than there are in the status quo.


The use of smart contracts


Some argue that smart contracts could be used to automatically pay owners of intellectual property when the intellectual property is used (Shkor 2020). Essentially, a smart contract would execute whenever intellectual property is used and this would ensure that the use of the intellectual payment immediately results in a payment to the owner of that intellectual property.


While this would constitute a transformative change for the enforcement of intellectual property rights, it is unlikely that existing technologies could accommodate for automatic payments. In the first instance, a significant amount of intellectual property usage occurs in what might be described as borderline cases (Levi and Lipton 2018). For instance, a small segment of a song might be used in an advertisement. It would be heavy handed to treat this use of intellectual property as the same as using the entire song. Moreover, not all parts of a piece of intellectual property are equally valuable. A catchy chorus, say, is likely to be much more valuable for an advertisement than a segment of unrecognisable instrumentals.


The more fundamental problem is that there is currently a significant amount of transactions that occur ‘off-chain’ (Levi and Lipton 2018). Ultimately, much of this information needs to be appended to the blockchain in order to allow the smart contract to execute. Yet, many actors would have a disincentive from appending it themselves when they have benefitted from the use of a piece of intellectual property. Intellectual property owners would therefore rely on what are called ‘oracles’ - institutions that ensure that information is put onto a blockchain (Unsworth 2019). However, this is unattractive because it involves a reintroduction of intermediary parties and the previous section showed why it would be desirable to reduce the involvement of others.


Therefore, two conditions need to be met for smart contracts to be used to automate payments to the owner of intellectual property. First, there needs to be more widespread use of blockchain technology for recording business decisions. That way, oracles will still be needed but there would be much less work for them to do. Secondly, smart contracts need to be able to deal with ambiguous cases more effectively. Nonetheless, both of these conditions are not too far away from being met (Bodó et al. 2018).


What is however promising when it comes to smart contracts is the use of smart contracts to automatically divide a payment once it is made amongst the different people who contributed to a good (EY 2019). For example, suppose that three people have contributed towards a patent. Person A did 40% of the work, person B did 30% and person C also did 30%. Once a payment is made for the licensing of a good, that can be recorded onto a blockchain and a payment is instantly made to the three people, accounting for the respective amount each is due.


Dividing the payments in this way would be significantly helpful for reducing the influence of intermediary players. Thus, even with the current state of smart contract technology, blockchain could greatly streamline the way in which people receive remuneration for their work.


Conclusion


Overall, it seems clear that blockchain can have a significant impact on intellectual property at its current state. Firstly, it can be an important proof of ownership going forwards. Secondly, it can ensure that payments directly go to those who own intellectual property. Finally, smart contracts can be used to divide payments amongst those who own a piece of intellectual property and, eventually, to automate payment to an owner of intellectual property once it has been used.


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