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Smart Contracts, a concept that was proposed in 1994, with the intention to execute contractual obligations using computer codes has sprung into life after the introduction of blockchain technology in 2008. What blockchain did for smart contracts was to provide by linkage, a far less opaque, verifiable, impenetrable register to keep a record of all the transactions in the execution of the contract. It is important to understand that smart contracts are comprised of relatively simpler situations where on meeting of a certain predefined condition, the computer code triggers the fulfillment of the obligation. Standardized procedures can be made much faster and much more efficient by cutting out the middlemen. More complex parts of a contract like subjective terms cannot be handled solely by a smart contract.
Their role in IPR
Intellectual Property and their rights management comprise of a lot of transactions of a standard form which can be taken care if by the smart contracts and the underlying blockchain technology based on the nature of the Intellectual Property, and from there based on the respective use case. One way in which blockchain technology is looking to make strides in the IPR universe is through maintaining of IP registers and assignment of rights and licenses to be regulated from the blockchain, as they can be directly entered into by the user and which reduce the time and effort to the absolute minimal.
Blockchain and smart contracts can come into play as repositories of information about Intellectual Properties which do not need a formal registration process for them to be recognized, especially copyright. In Indian Law, the copyright comes into existence as soon as the work is created and not when it is registered. This provides an incredibly difficult and cumbersome task to the authorities to find out when the said work came into existence, and there is always uncertainty about their proof of existence at a certain time. Presence of a blockchain, where some sort of print of the Intellectual Property can be stored in the blockchain, it would act as permanent record for the property and would allow the negotiating parties to have exact knowledge of the creatorship, nature and the time of the creation of the work resolving a lot of disputes at the very embryonic stage. Also, a ledger with all the information about everyone in the supply chain from the creators to all the licensees would allow everyone in the supply chain to be aware of the genuineness of the product and hence protect the IP rights.
Given that smart contracts are competent to deal with standardized terms and conditions, they and the blockchain mechanism have the potential to become the ideal tools to handle processes like granting of licenses or authorization of access or any such agreement with relatively set terms. A simple example can be when some content over the internet, let’s say and article or a tutorial video can be accessed only after a certain payment that whole mechanism can be shifted over to blockchain to authorize the payment making the whole process much faster, and also leaving behind a trail. A feature of smart contracts is that they are self-executory in nature; the obligations are triggered automatically as soon as the requisite condition is fulfilled. This feature can be put to use in a license agreement which can ensure that all the necessary royalties are paid in accordance with the agreement and based on whatever calculations must be present in the contract code. In projects where a new technology is being developed, smart contracts can be used to automatically release funds when a certain point in the project is reached or a certain objective is accomplished.
Challenges and Potential
But all of these applications do come with their limitations as smart contracts have to be limited to standardized processes and can’t extended to the aspects where an interpretation or an assessment of the terms and conditions might be needed. The conditions and the milestones that have been spoken about in the above paragraph need to be very objective in nature for the mechanism to work. Anything that might not be a binary in nature will make it difficult for the smart contracts to be accepted as a medium of transaction.
There are already examples in the global community with Estonia using a platform called “BITNATION” for all its public notary services related to everything from birth certificates to contracts. Countries like Switzerland and Germany are investing heavily on blockchain based commercial registers while Canada has invested heavily in identity management systems based on blockchain. There is no dearth of application that Smart Contracts might find in IPR Management but that area is yet to be explored owing to the precarious legal position of cryptocurrencies and smart contracts in almost all legislations, and the general lack of understanding that lawmakers seem to have about technologies like these.
It would be remiss to say that Smart Contracts will provide solutions to all problems at once. They are still in a very nascent stage and will undergo a lot of development in the years to come. At the same time, with the digitization of all processes, it is safe to say that smart contracts will become an important business tool sooner rather than later and hence it is important that smart contacts be considered with all seriousness as they might become a part of everyday lives in the near future. It’ll also be seen that as the technology becomes more and more established, participants from the industry and the developers will have to work with each other so as to have systematic protocols for the blockchain. But as long as the law doesn’t address the uncertainties around it, blockchain and Smart Contracts will find it impossible to impregnate Intellectual Property and their rights management.
(For more details on smart contract, you can refer to here)
Author: Anirudha Bhatnagar, at Khurana&Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at email@example.com.