INSIGHT: Could Blockchain Solve the Discrepancy Between Technology, IP Law?

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Music

By definition, collective management organizations make sure that royalties are paid to the entitled artists each time a music piece is played, used, or performed. But this framework dilutes the amount of royalties an artist earns, as CMOs charge commissions, write Jacob Enoch and Frederikke Boogaard of M. Firon. New blockchain-based startups are striving to offer new alternatives to CMOs.

Jacob Enoch Frederikke Boogaard

By Jacob Enoch and Frederikke Boogaard

Jacob Enoch is a senior partner and head of mergers and acquisitions at M. Firon & Co., one of Israel’s leading law firms. He is in charge of the firm’s Blockchain, Smart Contracts and ICOs practice, and serves as the co-chair of the Israel Bar Association’s committee on the same issues.

Frederikke Boogaard served as a jurist in M. Firon & Co.'s Blockchain, Smart Contracts, and ICOs department.

Intellectual property law may be defined as the legal infrastructure designed to protect ownership of “creations which are intangible,” according to authors Hendrik Struik, Peter van Schelven, and Willem Hoorneman. Three important aspects of IP law cover copyrights, patents, and trademarks. Copyrights are designed to protect original, creative works of authors, such as photography, films, music and — because of the rise of technological developments — currently also source code and sometimes even databases. Patents are intended to protect inventions, whereas trademarks safeguard businesses’ branding names, logos, and slogans.

As is the case with almost every practice area of contemporary law, the legal framework of IP law in most jurisdictions was put in place in analog localized, well-defined territories. Globalization, enhanced by borderless technological developments, presented new challenges for content creators when trying to protect their IP, Martin Zeilinger wrote.

The conflict between the global, borderless nature of the use of IP, and its protection which is still primarily territorial and jurisdictional, creates room for potential alternative tools or solutions that would allow content creators an opportunity to better and more efficiently record, enforce, and monetize their IP rights.

Despite the fact that copyrights are automatically granted through the provisions of the Berne Convention, which counts 176 signatory countries since its entry into effect in 1887, the creator is often required to provide significant proof of having created the creation in question, in case of disputes.

Blockchain Technology’s Potential for Registering IP

This is one area in which blockchain could help. Blockchain, or distributed ledger, technology provides for a permanent, time-stamped, decentralized, immutable, and typically public record of transactions. The data is stored in the form of encrypted blocks, which are maintained and approved by different computers (nodes or miners) connecting on a specific network, Don and Alex Tapscott wrote.

Originally known as the technology underlying Bitcoin, the use of blockchain technology has expanded well beyond cryptocurrency financial transactions, and now encompasses many applications related to the recording, retrieving, and authentication of numerous data types, as well as the execution of diverse smart contracts and more, all without using costly traditional intermediaries.

In light of these new applications of blockchain technology, new ways of recording, enforcing, and monetizing IP have also become available.

For one, blockchain makes it possible to cryptographically “hash” assets, such as art and software, to prove ownership of creation. Hashing, in the technological sense, is the method used to guess the cryptographic equitation to add a new block to the blockchain. In simple terms, it means that a cryptographic algorithm transforms the original digital asset into a small, fixed-size output of data (hash value), according to a Digimarc white paper. This output could be compared to creating a digital fingerprint of the data in the file, with each fingerprint being unique. Moreover, only those authorized with access to the hash file can access the content, thereby creating a reliable and secure time stamp of the ownership over a creation. Ibid. This is strengthened by the fact that it is nearly impossible to reverse-engineer the algorithm.

As such, upon registration of a creation on the blockchain, it provides a certification of ownership, existence, and integrity of the creation at a particular point in time, thus presumably ensuring legal certainty regarding one’s ownership over creations with no need for registration in the conventional, cumbersome, and expensive way. Moreover, under the common assumption that blockchain records are nearly immune to manipulation, such a solution provides enhanced security.

Consequently, IP registration on blockchain has the potential to not only significantly reduce the administrative costs and bureaucratic burden, but to increase the level of trust among the creators and/or users (taking into account blockchain’s secure nature, its transparency, and the fact it is readily accessible and basically always current).

But the use of blockchain in this area may go far beyond proof of creation. One of blockchain’s important and exciting uses is for allowing peer-to-peer, cheap, and immediate micropayments which, in most cases, could not have been affected beforehand (as the costs associated with making the micropayment would exceed it in value). This ability may be leveraged by rights owners wishing to grant certain access to their creations, for consideration to be received over blockchain. Blockchain-based smart contracts may easily allow for the concurrent and interdependent exchange of micropayment for access to a certain creation.

Blockchain and the Disruption of the Music Industry

A great example for the potential effectiveness of the use of blockchain technology and smart contracts for IP registration is the music industry. For years, there has been an ongoing dispute between artists (the copyright holders) and collective management organizations regarding the fair distribution of royalties of their music.

CMOs, usually represented within the borders of each country, are tasked with the administration, collection, and distribution of revenues from music rights on behalf of the creators. By definition, they make sure that, inter alia, royalties are paid to the entitled artists each time a music piece is played, used, or performed, Aurobinda Panda and Atul Patel wrote.

This system has been in place for a long time but is being challenged because of the influence of technological developments (such as online streaming services) and the effect of globalization whereby artists potentially have to face multiple CMOs everywhere the composition is being played or used. Not only is this a time-consuming process, as one would have to register with multiple CMOs in different jurisdictions, it also dilutes the amount of royalties an artist earns, as CMOs charge commissions.

Consequently, some criticism has been raised regarding the dominant rate of CMOs, and their commissions, Ewa Fabian wrote.

In that context, new blockchain-based startups are striving to offer new alternatives to CMOs.

SoundChain

SoundChain is a blockchain-based company that provides a decentralized application for the distribution of royalties. As it is blockchain-based, artists can register their music, and license their songs upon payment of a fee directly to users, without the interference of any CMO. Moreover, not only does it allow for ownership tracking (considering it is a public “ledger"), it can also be used for enforcement of the infringing use of music (e.g., by restricting access to a song). As such, blockchain may function as a distributed, autonomous music label, giving control back to the artists.

Ujo Music

A similar solution is offered by Ujo Music, backed by the blockchain company ConsenSys. Ujo Music offers a smart contract protocol that allows its users to distribute their music upon different programmed (license) terms. Depending on a buyer’s preference, the solution allows for selling permanent or temporary licenses, or special type of licenses (e.g., solely licensing synchronization rights).

In turn, as is the case with SoundChain, the smart contract will be responsible for automatically and directly paying the artist without the need for CMO intervention.

BitTunes

BitTunes offers a solution that, on top of licensing of music, allows registered artists to share sales revenues (in Bitcoins) with their fans. Moreover, BitTunes presents a feature where users can easily share music with each other, based on their common musical preference.

Epilogue

It is clear that blockchain presents exciting new possibilities for the registration, protection, licensing, and monetization of IP rights. It seems the opportunities are almost endless and the (near) future will see many new blockchain applications and services in this sector.

By Jacob Enoch and Frederikke Boogaard

Jacob Enoch is a senior partner and head of mergers and acquisitions at M. Firon & Co., one of Israel’s leading law firms. He is in charge of the firm’s Blockchain, Smart Contracts and ICOs practice, and serves as the co-chair of the Israel Bar Association’s committee on the same issues.

Frederikke Boogaard served as a jurist in M. Firon & Co.'s Blockchain, Smart Contracts, and ICOs department.

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