THE LEGAL ASPECTS OF BLOCKCHAIN TECHNOLOGY: SMART CONTRACTS, INTELLECTUAL PROPERTY AND DATA PROTECTION: PART III

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This blog series is based on a chapter for the forthcoming book entitled “Essentials of Blockchain Technology”.  The chapter was written together with Martim Taborda Barata, LL.M., Senior Associate at ICT Legal Consulting International, and  lawyer registered at the Portuguese Bar Association. 

In this third part of the Legal Aspects of Blockchain Technology series, I will explore Intellectual Property and Blockchain.   Intellectual property  rights can take on many forms, depending on the nature of the intangible asset which is protected by
those rights. For example, a song as an artistic creation is best protected by copyright, whereas the shape of a guitar could be protected by means of a registered design. As we will not be addressing all forms of intellectual property rights which may exist worldwide, but only some of those concerning the potential benefits of blockchain systems, it’s necessary to briefly describe of each of the rights covered in question.

Copyright (or author’s right) is used to describe rights afforded to creators over their literary andartistic works (e.g., books, music, etc.).

Copyright holders are thus given exclusive rights to exploit those works commercially, including by selling copies of those works, translating those works, adapting those works into other formats (e.g., making a film based on a book) and publicly displaying and performing those works. Trademarks are symbols which are used in commerce to distinguish the goods or services of one entity from those of its competitors, and can vary wildly in terms of their underlying assets, being word marks, figurative marks, shape marks, position
marks, pattern marks, colour marks, sound marks and even motion marks, multimedia marks or hologram can be registered in the EU, for example.

Trademark owners are the only individuals allowed to use their marks in commerce for certain goods or services (e.g., ‘Ferrari’ for cars) within the countries where they have registered them, and can also block others from using confusingly similar signs or, in some cases, signs which might harm the value of their marks.

In general, copyright protection for literary and artistic works comes into being from the moment of their creation, without any need for additional formal requirements, such as registration.  In general, it is currently not easy for someone wishing to make commercial use of a copyrighted work to obtain relevant information about the copyright owner in order to, for instance, procure a license from them. Not only is there no central, transparent database which might be consulted (particularly because registration is generally not mandatory, with information left scattered between public registration databases, publishers, record companies, collecting societies and others who may not have much of an incentive to disclose
information, at least for free),  but consulting publicly available databases has been shown to usually meet with daunting search costs, formalities and costs in terms of time.

One would be hard-pressed, however, to claim ignorance of the copyright owner as a defence in copyright infringement proceedings brought due to the use of a copyrighted work without a suitable license.

One idea that has been proposed to solve this issue is the creation of ‘smart IP registries’, meaning a centralized database run by an IP office (i.e., an authority in charge of registering and monitoring the use of IP rights), including an immutable record of events in the life of copyrighted works, from creation to expiry of protection. By basing such a system on blockchain, it would be possible to create time-stamped, immutable and easily verifiable records of ownership for a copyrighted work, along with subsequent changes  – all the rightsholder would need to do is encrypt their digital asset as a hash on the blockchain,
include relevant details in the records created and report back to the blockchain for evidence of creation and ownership if need be in the future.

The management of copyrighted works and their respective rights is also a field where smart contracts can come into play for the benefit of creators. It is conceivable that a ‘smart license’ could be scripted onto a blockchain, encoding a copyrighted work in digital form (e.g., a song, a film, etc.) and releasing it to those who pay a certain pre-determined amount, as a license fee.

Smart contracts can be used to allow automatic and real-time payments to be carried out, as well as to determine the expiration of the license after a given amount of time.  This could also apply in the case of more complex transactions, where a single user wishes to purchase licenses from multiple authors or encompassing multiple works, or even where works are created in collaboration by different authors. In such cases, the smart contract could automatically remunerate all copyright owners according to the information encoded on the blockchain as
to the ownership percentage belonging to each owner, every time the respective work is acquired and/or used.

The concept of ‘design’ refers to the appearance of a product (or part of a product) resulting from the features of its lines, contours, colours, shape, texture and/or materials of that product, or of any items used to ornament/decorate that product (See Council Regulation (EU) No 6/2002 of 12 December 2001 on Community designs, OJ L 3, 5.1.2002, p. 1-24, as amended,
Art. 3(a)). Examples of items which have been considered as qualifying as
designs include the packaging of products, sets of products, computer icons, typefaces, web designs and maps, among others can generally be protected under intellectual property law.

Trademark holders could also benefit from a centralized, blockchain-based IP rights database being put in place. However, given that full trademark protection is only granted to those marks which have been properly registered at the competent IP office, which will typically establish a public database of trademarks for others to freely consult, the main advantages which might arise for trademark holders would be the ability to provide proof of use and to monitor the distribution of goods containing registered trademarks, assuming that all transactions related to a good containing a trademark would be recorded on the blockchain. Collecting information on the use of a trademark in trade or commerce (e.g., by stamping a certain good with a trademarked logo and putting it up for sale) in such a database could allow nigh-immediate notification of the relevant IP Office concerning such use and provide solid, time-stamped
evidence of this.  As an example, such evidence could be used to combat a legal claim for revocation of a given trade mark due to it allegedly not having been genuinely used for a continuous period of five years,  or to support a claim that an otherwise invalid application for a registered trade mark should not be denied, as the mark has acquired a ‘distinctive character’ in relation to the goods or services for which it is to be registered in the meantime (i.e., that an initially invalid trade mark – for instance, because it is too common or simple to distinguish one company’s goods from another’s – should not be declared invalid later because it gained the ability to do so, due to, e.g., its repeated use in the market).

The final intellectual property right we will discuss in this piece are trade secrets. As stated by the World Intellectual Property Organisation, “[b]roadly speaking, any confidential business information which provides an enterprise a competitive edge may be considered a trade secret. Trade secrets encompass manufacturing or industrial secrets and commercial secrets”.

Under the EU Trade Secrets Directive, any information which

(1) is not generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question,

(2) has commercial value due to its secrecy and

(3) has been subjected to reasonable measures in order to keep it secret, may qualify as a ‘trade secret’.

This means that, in order to benefit from such protection, holders of such information have an interest in demonstrating that, on the one hand, they actually hold information which might qualify as a ‘trade secret’ and, on the other, that they have taken reasonable steps to ensure that that information remains secret. This is important so that those holders will be able to react swiftly against any potential breaches of confidentiality, as if they cannot demonstrate either of those points, then there will be no legal standing to, e.g., demand that someone be prevented from disclosing certain information or seeking damages from that person if it is too
late to prevent disclosure.

It must be possible for a company to prove that it was in possession of a particular concept or
information at a specific time, in secrecy, in the event of a breach, and that the breach happened in spite of reasonable steps having been taken to ensure such secrecy. Were such a company to store its trade secrets (or a hashed pointer to such information) on a blockchain-based system, subject to encryption, it would be able to generate a time-stamped record which could be used in the event of a breach to prove the first point.

All of the above-mentioned intellectual property rights  can be transferred by their
lawful holders to someone else (similarly to how ownership of physical property may be transferred), or can be ‘lent’ to another to make limited use of those rights for a certain period of time, by means of a license (similarly to how physical property may be rented out). These licenses are usually carried out in consideration for fixed or variable fees (sometimes referred to as ‘royalties’). With the stage set, we will look into some of the benefits which blockchain systems may afford to these different intellectual property rights in greater detail.

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