Blockchain and IP Law: A Match made in Crypto Heaven?

By Birgit Clark, Baker McKenzie, London, United Kingdom

Blockchain and related distributed ledger technologies have been a hot topic recently, with multiple industries exploring their possibilities and new blockchain use cases emerging almost every day. But how might these technologies be used in the context of intellectual property (IP) law and practice?

What is blockchain?

Blockchain technology has become famous as the technology behind cryptocurrencies such as Bitcoin and Ethereum. In its basic form it is an open ledger of information that can be used to record and track transactions, and which is exchanged and verified on a peer-to-peer network. Blockchain and other distributed ledger technologies create a trustworthy and transparent record by allowing multiple parties to a transaction to verify what will be entered onto a ledger in advance without any single party having the ability to change any ledger entries later on. Each transaction or “block” is transmitted to all the participants in the network and must be verified by each participant “node” solving a complex mathematical puzzle. Once the block is verified, it is added to the ledger or chain.

From the perspective of information, the real innovation of distributed ledger technology is that it ensures the integrity of the ledger by crowdsourcing oversight and removes the need for a central authority. In other words, transactions are verified and validated by the multiple computers that host the blockchain. For this reason it is seen as “near unhackable,” because to change any of the information on it, a cyber-attack would have to strike (nearly) all copies of the ledger simultaneously. While the traditional concept of blockchain is an open and anonymous network, there are also “private” blockchains which pre-screen who is allowed to administer the ledger.

Attractive beyond the world of fintech

Since distributed ledger technology creates a secure, time-stamped and immutable chain of information, it is already finding applications in brand protection and enforcement, marketing and consumer engagement. More use cases seem to emerge on an almost daily basis. The technology has fast become attractive beyond the world of fintech. It is already being used to track the progress of goods in a supply chain, which is of interest to many IP-intensive sectors including the pharmaceutical, automotive, luxury and consumer goods industries, where the traceability of goods is important and counterfeit and grey goods are of concern.

Blockchain is attractive to many different industries because of its potential uses. Different types of data can be added to a blockchain, from cryptocurrency, transaction and contractual information to data files, photos, videos and design documents. And the technology is continuing to develop with new types of distributed ledgers such as hashgraph software, which seeks to address issues of scalability.

Possible applications in the world of IP

There are various potential hurdles to large-scale legal application (including questions of governing laws and jurisdictions, data security and privacy concerns). Despite this, in the context of IP-heavy industries, blockchain and related distributed ledger technology offer obvious possibilities for IP protection and registration and as evidence, either at the registry stage or in court. It also promises a cost-effective way to speed up such processes. Potential use cases include: evidence of creatorship and provenance authentication, registering and clearing IP rights; controlling and tracking the distribution of (un)registered IP; providing evidence of genuine and/or first use in trade and/or commerce; digital rights management (e.g., online music sites); establishing and enforcing IP agreements, licenses or exclusive distribution networks through smart contracts; and transmitting payments in real-time to IP owners. Blockchain may be also used for authentication and provenance purposes in the detection and/or retrieval of counterfeit, stolen and parallel-imported goods.

“Smart” IP rights

The potential to use blockchain technology for the management of IP rights is vast. Recording IP rights in a distributed ledger rather than a traditional database could effectively turn them into “smart IP rights”.

Related is the idea of IP offices using distributed ledger technology to create “smart IP registries” in the form of a centralized solution run by the IP office as an accountable authority which would create an immutable record of events in the life of a registered IP right. It could include when a trademark was first applied for, registered, first used in trade; when a design, trademark or patent was licensed, assigned, and so on. It would also resolve the practicalities of collating, storing and providing such evidence.

The ability to track the entire life cycle of a right would have many benefits, including smoother IP right audits. It could also simplify the due diligence exercises that are necessary for IP transactions, for example in mergers and acquisitions. Confidentiality concerns on the side of the IP owners could be addressed by an opt-in scheme.

Evidence of use of IP rights

A ledger showing who owns what offers brand owners a potential reference point for their rights and for the extent those rights are used within the market. This could be particularly helpful in those jurisdictions where proof of first or genuine use is required or where the extent of use is crucial, such as in disputes or other proceedings involving recognition of well-known marks, or in defending a non-use revocation action.

By way of example, collecting information on the use of a trademark in trade or commerce on a blockchain-based official trademark register would allow the relevant IP office to be notified virtually immediately. This would result in reliable and time-stamped evidence of actual use and frequency of use of a trademark in trade, both of which are relevant in proving first use, genuine use, acquired distinctiveness/secondary meaning or goodwill in a trademark. Similarly, distributed ledger technology could be used to publish technologies for defensive publication as prior art to prevent others from obtaining a patent over such technologies.

Evidence of creatorship

Blockchain technology can also play an important role within the context of unregistered IP rights such as copyright (which in many jurisdictions, and under the terms of the Berne Convention for the Protection of Literary and Artistic Works, is not a registrable IP right) and unregistered design rights, since it can provide evidence of their conception, use, qualification requirements (such as originality and the country in which articles made to the design were first marketed) and status. Uploading an original design or work and details of its designer or creator to a blockchain will create a time-stamped record and solid evidence to prove these matters.

Distributed ledger technology-based repositories for unregistered IP rights are already being developed by several blockchain start-ups and could be an interesting and manageable solution for copyright protection as well as digital rights management.

Smart contracts and digital rights management

Often cited in the context of blockchain is the concept of “smart contracts.” As some blockchain solutions can hold, execute and monitor contractual codes, such “smart contract performance” they could be of interest for digital rights management and other IP transactions.

Smart contracts could be used to establish and enforce IP agreements such as licenses and allow the transmission of payments in real time to IP owners; “smart information” about IP rights in protected content,  a song or an image, for example, could be encoded in digital form (in a music or an image file). That these ideas are fast becoming mainstream is evidenced by Kodak’s recent launch of a blockchain-based image rights management platform and its own cryptocurrency.

Anti-counterfeiting and enforcement of IP rights

A ledger showing who owns what, who is an authorized licensee, and so on would enable everyone in the supply chain, including consumers and customs authorities, to validate a genuine product and distinguish it from a fake. Blockchain ledgers holding IP rights information allow for provenance authentication, since they can record objectively verifiable details about when and where products are made, and details about their manufacturing process and sources of raw materials. These types of blockchain solutions are fast becoming mainstream and enable users to verify the authenticity of a product and provide confidence and reassurance for businesses, authorities, consumers and insurers.

Adding scannable blockchain-connected tags, tamperproof seals or imprints (either obvious or covert) to products is one of the most convincing use cases of distributed ledger technology and could play an important role in fighting counterfeits. If a brand owner informs customs authorities about the security features that its genuine products should have, then the absence of such features is an easy way for border officials to check whether a product is counterfeit. The presence of these features interacting with the blockchain also offers greater potential to engage with and educate customers about the risks of counterfeits and the ability to verify whether the products they have purchased are genuine. The technology could also be used in connection with certification marks to certify that products meet certain established criteria or standards, for example the Woolmark, which certifies that the goods on which it is used are made of 100 percent wool.

Supply chain management

The ability to track goods on an immutable blockchain could help brand owners enforce their contractual arrangements regarding distribution and spot leaks in their distribution system as well as helping to identify parallel imports or grey market activity. Tracking distribution of products can also be used to meet regulatory requirements, such as in the pharmaceutical industry, and validate warranties.

Who owns blockchain?

The promise of blockchain technology has triggered the filing of numerous patent applications for blockchain-related inventions in recent years. Many of the initial patent filings were made by banks and financial institutions, but with blockchain technology becoming increasingly mainstream, applications are being filed across a broad spectrum of industries.

Most related patent applications claim methods of enhancing or using the original blockchain, as disclosed by its presumed mysterious inventor, known only under the name Satoshi Nakamoto, in a white paper in 2008 . Some proponents also continue to advocate making blockchain technology accessible by offering the code under open source licences or creating patent pools. And, as is the case with many promising new technologies, blockchain has also attracted patent trolls, as pointed out, among others, by the Chamber of Digital Commerce, a US advocacy group that promotes the emerging industry behind blockchain technology. It recently launched the Blockchain Intellectual Property Council (BIPC), which aims to create an industry-led defensive patent strategy to combat blockchain patent trolling. However, the uncertainty as to who owns blockchain has not affected its rapid increase in popularity.

The outlook – beyond crystal ball gazing

As blockchain technology becomes mainstream, industry participants and blockchain developers will increasingly have to collaborate to develop standards and interoperability protocols. Various governmental agencies and IP registries such as the European Union Intellectual Property Office (EUIPO) are actively looking into the capabilities of blockchain; the EU Commission has plans for a blockchain observatory and the US Congress recently created a Congressional Blockchain Caucus. Global standards for self-executing contracts are being discussed by various organizations.

It therefore appears to be only a question of time before the law addresses the potential hurdles in the large-scale legal application of the technology – such as questions of governing laws and jurisdictions, enforceability of smart rights, data security and privacy concerns, reliable rules and definitions for smart contracts – and it permeates IP law and practice.