Canaan Bridges Consulting Inc.
Blockchain and distributed ledger technologies (dlts) are one of the most disruptive advances of our time. Smart contracts execute the transactional activities that are performed on the blockchain. They are automated processes that perform specific tasks within the blockchain if certain terms and conditions are met. As alternatives to conventionally completed contracts, they are intended to replace the need for legal representatives where they were usually called on to draft, complete or negotiate a contract or transactions between parties.
There are strong alignments, and some disconnects in smart contracts use in transactions that involve the transfer or recognition of interests in intellectual property. These transactions include copyright and trademark registration blockchain services, the transfer of any intangible proprietary interests including the uploading, purchase and sale of non-fungible tokens, and the transfer of and management of copyright interests using blockchain solutions. One of the main objectives of blockchain is to bypass intermediaries and conventional institutions, by bringing service solutions directly to consumers and to business interests.
Enabling Intellectual Property Transactions- Pros
- Builds on the inventiveness of entrepreneurs (as reflected by blockchain patent filings and registrations) and is a useful indicator of innovations in digital contracts space and their capacity to perform more complex transactions.
- Helpful in infringement claims as a means of verifying those specific transactions took place on the blockchain since the automation finalizes the transaction.
- A less costly and more time-saving way of entering contractual relationships particularly because there is no need for legal advice or representation (at least at the outset and not unless there is an issue with the transaction).
- Alternate dispute resolution (ADR) is the “go to” route for resolving dispute arising from blockchain transactions. Should disputes arise, ADR may be a more efficient way of resolving disputes, compared to going through the courts.
Cautions:
- How beneficial is the term of the smart contract to the user? In the context of commercial and intellectual property rights law, this is likely to have a more consequential impact on less knowledgeable users. As an example, do users have a clear understanding of what they are agreeing to via smart contracts and that they are bound by the agreement (unless otherwise held)? In the context of digital art and non-fungible tokens, is the visual artist willing to waive the moral rights in her art piece notwithstanding the NFT minters’ policy of doing so? To address these issues, it is helpful to have some basic knowledge about intellectual property rights and contract law before commencing technology transactions.
- Should dispute(s) arise, which forum options and choice of laws are available to the parties? For example, should institutional arbitration or mediation services be used, or is this seen as an intermediary in itself?
- Will the execution of the smart contract lead to the conclusion of the whole matter? For example, will transfers in copyright interests on a blockchain be valid in all jurisdictions? What if the copyright interest is jointly held, but the information is not disclosed on the blockchain, and only one-party consents to the transfer? Should such transfers operate on rules outside what is legally permissible in jurisdictions pertaining to transfer interests in copyright? In the context of non-fungible tokens and copyright interests, can country of origin issues (posed by the Berne Convention) be dealt with effectively in smart contracts?
- Specific attention needs to be given to whether the enforcement of arbitral awards is appropriately addressed in smart contracts. When not incorporated into the automated contract process, the plaintiff’s ability to enforce an infringement or breach of contract award may be compromised.
- The necessary infrastructural framework needed to operate blockchain technologies may not be available in all areas across the world. This consideration applies to the accessibility of blockchain platforms to end users, especially those living in remote areas with low internet access or technical difficulties posed by interoperability challenges. When this persists, the platform’s ability to enable and complete transactions via smart contracts is adversely affected.
The use of smart contracts in blockchain transactions is not without its merits. However, as the technology continues to develop, connections between decentralized “privately-enabled contracts” and the mainstream intellectual property system will need to be strategically thought out and resolved.
