Mathews Verghese & Anisha Mishra
Introduction
The introduction of smart contracts, self – executing and self – enforcing mechanisms, post the Bitcoin boom of 2008, rallied a revolution within the technological industry. It provided methodology, to ensure compliance of contractual terms and maintenance of trust within parties. These contracts relied on pre – programmed sequences, wherein, user cases could be inputted, in order to obtain a reliable output. These contracts work towards removing ambiguity and reliance on third parties for enforcement, hence are cheaper and more efficient to operate. Overall, SCs combined with blockchain may potentially realize a ‘peer-to-peer market’, where agreements are enforced without relying on external authorities.
In this blog post, we’ll explore the intersection of smart contracts, blockchain technology, and intellectual property rights management. We’ll begin by introducing smart contracts and their potential impact on AI art. Then, we’ll delve into how automated agreements on blockchain work, highlighting their key characteristics. Next, we’ll examine the transformative effects of smart contracts on intellectual property registration, covering copyrights, patents, and trademarks. We’ll also discuss how smart contracts can revolutionize royalty payments, addressing current inefficiencies in the system. Finally, we’ll conclude by summarizing the potential benefits of blockchain technology in IP rights management while acknowledging the challenges that need to be overcome for widespread adoption.
Smart Contracts and AI Art
While this did lead to “divergent speculations about the future of politics” by the art world, the technology had limited scope in the area. For the most part, this type of commentary hinted at the assumption that Bitcoin and blockchain technologies may somehow help digital artists with enforcing their creators’ rights in ways that legal and economic policy have been unable to. An assumption underlying this perspective is that artists rely on (and are primarily motivated by) the ability to control the existence and circulation of their creative expressions as scarce, valuable art objects. This has celebrated artists such as Ai Wei Wei or Olafur Eliasson also operate in a corporate mode, supervising and managing the production, marketing, and distribution of their work on a massive scale. Zeilinger M. always has been at the core of arguments in favour of expansive intellectual property regulation; now, arguments in favour of linking digital art to blockchain-based technologies are for the most part returning to the same perspective.
This section details the technologies underlying blockchain-based systems, to set up my subsequent discussion of their emerging connections to established, conservative perspectives on IP. Adding digital artworks to the blockchain means to record their existence along with details regarding their provenance, value, exhibition history, etc., in a public, real-time synchronized database that is extremely difficult to forge. Platforms such as Monegraph hope that in this way, digital artworks that were once considered uncollectible due to the inherent immateriality of the digital substrate within which they are bound may undergo an ontological transformation from infinitely reproducible intangible artifacts to ones that are artificially scarce and therefore, potentially, valuable. When IP policy has previously been called upon to facilitate the financial exploitation of creative expressions, this has generally occurred through the granting of exclusive rights.
When we come to how smart contracts affect the adoption and use of copyrighted material, an ecosystem that offers a streamlined channel for uploading original, unlicensed content while ensuring proper allocation and distribution of royalties would greatly benefit the creative industry and all its participants. This entire process can be executed through an algorithm on the blockchain, eliminating the need for intermediaries such as record labels or management companies. For instance, ConsenSys AG’s Ujo Music Project (“Ujo”) demonstrates the potential of decentralized content distribution. Ujo provides a platform for music distribution through its website, enabling artists to manage their works independently. By storing all copyright data on the blockchain, Ujo offers a transparent and tamper-proof system that allows users to choose different license types, ranging from private listening to commercial use. Additionally, the platform ensures that income is automatically distributed among all stakeholders according to pre-established copyright agreements, creating a fairer and more efficient system for managing intellectual property rights.
Automated Agreements on Blockchain
An agreement is one where two or more entities arrive at a common understanding wherein each party performs some action, receives or provides a benefit, or incurs some loss while fulfilling the agreement. Consensus-ad-idem, or a “meeting of the minds,” is one of the essential aspects of agreements. While the actual legal definition and specific legal requirements of what an enforceable contract entails tend to differ from country to country, such an agreement generally sets the foundation for a binding contract.
A “smart” contract is defined “as agreements wherein execution is automated, usually by computers.” It is an electronic agreement digitally signed and stored mainly as computer code on a blockchain. Blockchain is among the most popularly known and commonly resorted to distributed ledger technology (DLT). Distributed Ledger Technology enables multiple people or computers in a network to share and maintain an expanding, chronologically arranged list of records. Such a list is then cryptographically signed, secured, and locked with a code to prevent it from any change. The list is also shared by all participants in a network, ensuring that everyone possesses a copy of the records and making them transparent and secure. Since all of the data on the blockchain is accessible to the public, any user has the ability to inspect the code that implements the smart contract. This feature highly benefits the potency of smart contracts as participants in the contract can fully comprehend the agreement and how it is to be executed on the blockchain.
Smart contracts generally tend to focus on relatively simple scenarios whereby conditions are predefined, and such contracts are more efficient as they eliminate intermediaries. Certain characteristics specific to smart contracts set them apart from regular contracts. Firstly, smart contracts operate independently, executing automatically as and when predefined conditions are met, avoiding the need for intermediaries or external oversight, which significantly reduces the reliance placed on third parties and the potential for any human errors to creep in while also removing any single-party control. They also have the ability to automatically verify compliance with the previously decided terms and trigger the subsequent actions, thereby ensuring smooth execution. Once adopted, these contracts cannot be modified, ensuring a permanent and tamper-proof record. Although immutable after deployment, smart contracts are amenable to customisation during the development stage, leaving room for catering to any specific needs of the parties.
Smart contracts can be beneficial to protecting intellectual property rights by protecting copyrights via automated and transparent methods for managing ownership, royalty distribution, and licensing. With the advent of patent law, smart contracts can revolutionize intellectual property management by transforming how patents are licensed, transferred, and enforced. Trademark registration processes can be simplified by securely storing trademark data on a blockchain, and smart contracts can also aid royalty management by reducing human error and the extent of administrative work for content providers by automating the computation and distribution of royalties.
Intellectual Property Registration
Smart contracts can significantly enhance various aspects of intellectual property management. Blockchain technology and smart contracts are fundamentally reshaping copyright management in creative industries. By implementing automated, cryptographically secure methods, these innovations are revolutionizing how digital rights are managed and monetized. The technology enables instantaneous, direct royalty payments to creators’ digital wallets upon content utilization or resale, effectively disintermediating traditional middlemen in the royalty chain. Through decentralized platforms, creators now possess unprecedented autonomy over their content distribution and revenue streams. The blockchain’s immutable ledger serves as an unassailable record of ownership, establishing clear provenance that significantly reduces ownership disputes and reinforces protection against infringement. Smart contracts automate licensing processes with cryptographic precision, while blockchain-based escrow services enhance transaction security by ensuring both funds and content remain secured until contractually specified conditions are met.
Furthermore, the integration of smart contracts has catalyzed a transformative shift in patent administration. By harnessing blockchain technology, the system automates crucial aspects of patent management, including licensing protocols, ownership tracking mechanisms, and rights transfer procedures. This technological advancement dramatically streamlines documentation and verification processes, substantially reducing the temporal and resource investments traditionally required for patent transactions. In the rapidly evolving blockchain industry, strategic patent protection of smart contract innovations enables companies to establish and maintain dominant market positions. Industry leaders like IBM and Visa are cultivating meticulously developed patent portfolios, emphasizing novel implementations that meet stringent patentability criteria. While these patents serve as crucial competitive safeguards, organizations must delicately balance protective measures with the inherently collaborative nature of blockchain technology. This equilibrium is exemplified by platforms like Ethereum, which strategically patents core innovations while nurturing an open, collaborative development ecosystem.
Lastly, smart contracts are revolutionizing trademark management through advanced blockchain technology, providing secure, encrypted data storage for registered trademarks. This innovative approach comprehensively streamlines the trademark lifecycle, from initial registration through licensing processes, while significantly minimizing intermediary involvement and associated costs. The system’s inherent transparency and immutability ensure absolute transaction integrity, creating an unalterable record that fundamentally enhances trust between parties. In the realm of trademark licensing, particularly critical for fashion, entertainment, and technology sectors, smart contracts introduce unprecedented operational efficiency. These contracts automate essential processes, such as royalty payments, triggering transactions when predefined sales targets or usage milestones are achieved. This automation effectively eliminates manual calculation errors, minimizes payment-related disputes, and substantially reduces administrative overhead. Further, smart contracts facilitate sophisticated trademark management strategies, including complex cross-border trademarks, while ensuring rigorous adherence to quality standards and licensing terms.
Royalty Payments
The current landscape of IP rights management is fraught with inefficiencies, lack of transparency, and high transaction costs. Copyright owners often face difficulties in tracking the use of their works and collecting appropriate royalties, especially in the digital realm where content can be easily shared and distributed globally. Collecting societies, which traditionally manage royalty collection and distribution, have been criticized for their lack of transparency and high administrative costs. These intermediaries often employ complex algorithms to distribute royalties, leading to delays and inaccuracies in payments to rights holders.
Smart contracts on blockchain platforms can revolutionize royalty payments by automating the process based on actual usage data. This reduction in intermediary involvement not only lowers transaction costs but also speeds up the entire process of royalty distribution and licensing. For example, a smart contract for a music license could automatically track each stream or download of a song and instantly distribute the appropriate royalties to all rights holders according to the predefined terms. On a similar note, the artist could receive royalties directly from the streaming service without needing to go through a record label or a collecting society, thus retaining a larger share of the revenue generated from their work. This system could address the issue of equitable remuneration, a key principle in copyright law. Blockchain-based micropayments could enable a more direct and fair compensation model, potentially replacing the current system of copyright limitations and lump-sum remuneration agreements.
One of the most persistent challenges in IP management is accurately tracking the use of copyrighted materials across multiple platforms and regions. By utilising smart contracts and blockchain, there is created a distributed ledger system that does not expose itself to tampering, and thus, provides for an effective and accurate alternative in the case of traceability.
However, the primary issue with widespread adoption of distributed ledger technology for IP rights management is the complexity of the technology itself. Despite its potential, blockchain technology faces several legal challenges in the context of IP rights management. It can be difficult to determine which jurisdiction’s laws apply to blockchain transactions, given the decentralized nature of the technology. The immutability of blockchain can also conflict with data protection regulations like the EU’s General Data Protection Regulation (GDPR), which includes the “right to be forgotten.” Furthermore, the legal status of blockchain records and smart contracts varies across jurisdictions, potentially complicating their use in IP rights management.
Blockchain technology could significantly improve the documentation and verification of IP ownership and transfers. This is particularly relevant in patent law, where proving ownership can be crucial in infringement proceedings. The blockchain could provide an immutable record of patent transfers, addressing the issues that arise from inadequate documentation of cross-border patent transfers. Moreover, blockchain-based ownership records could be valuable in corporate transactions, due diligence processes, and insolvency scenarios.
Conclusion
Blockchain technology and smart contracts hold immense potential for revolutionizing IP rights management and royalty payments. By offering increased transparency, efficiency, and automation, these technologies could address many of the shortcomings in current systems. However, significant technical and legal challenges remain to be addressed before widespread adoption can occur. As the technology evolves, it will be crucial for legal professionals, policymakers, and technologists to collaborate in developing frameworks that can harness the benefits of blockchain while addressing its limitations. The future of IP rights management may well depend on striking the right balance between technological innovation and legal certainty.
Adv. Mathews Verghese is a Partner at Fox Mandal, New Delhi with over fifteen years of experience in the field of intellectual property rights. He completed his B.A. LL.B. from Symbiosis Law School, Pune, and his LL.M. in Intellectual Property from the Queen Mary University of London.
Anisha Mishra is a final-year law student at Amity University, Lucknow.
NUALS Law Journal 