Brand Protection Today Article 8: The Future of Brand Protection—Blockchain

Brand Protection Today – A Series from InfoLawGroup

At InfoLawGroup, we recognize that communication technology is changing at a furious pace and the need to protect brands is greater and more complicated than ever. We deal with these issues in our daily practice and are sharing insights in this multi-part series on Brand Protection. Please subscribe HERE to receive InfoLawGroup Insights.

Brand Protection Today

Article 8: The Future of Brand Protection—Blockchain

by Tatyana Ruderman

In this week’s article, we are taking a closer look into the emerging role that blockchain technology can play in brand protection.

Previously in our series we’ve touched on each stage of brand protection from choosing your mark to options if you find a problem. You can access the beginning of our series HERE.

Blockchain Deconstructed

A brief and very simplified roundup on blockchain for the many of us not perfectly familiar with how the technology works: It can best be described as a ledger (or “chain”) that records information related to transactions (or “blocks”) and is open, anonymous, and decentralized. (Though note that some blockchains can operate “privately” where authorization is required to participate.) Information about transactions is exchanged through a decentralized network, and each transaction is verified (or “mined”) by multiple independent participants (or “nodes”). Each block is sent to all nodes in a network, and must be verified by each node. If verified, the block is entered on the chain and thereafter no single node can change the entry.

Due to its open and decentralized nature, blockchain’s core value is something simple yet profound: it builds trust. With blocks approved by decentralized players, a literal and immutable track record of ownership is created, is transparent to all participants, and is not controlled by a central authority. As a result, participants can better trust the integrity of the chain. This type of technology can alleviate many concerns that haunt any type of property ownership, including and certainly not limited to: counterfeit or stolen property that a seller has no rights to convey, multiple parties claiming ownership of the same piece of property, duplication of property, and so on.

While most are familiar with blockchain as the technology enabling cryptocurrency, such as Bitcoin, its potential and multitude of uses are not remotely close to being realized. Most businesses rely on trust for one reason or another, and not surprisingly, the potential of blockchain technology has been explored in a very wide range of industries beyond the financial, including infrastructure, healthcare, retail, agriculture, entertainment, and even the legal industry.

Disrupting Intellectual Property Management

Now, blockchain is also emerging as a handy and reliable tool in a business’ approach to managing its intellectual property. As you can see from the description above, blockchain technology is essentially a method of tracking property ownership: a piece of property’s “deed” is essentially built into the work itself. And, it could be utilized to confront some of the specific challenges raised throughout our brand protection series with regard to both creating and protecting IP rights. Some potential applications include:

1. Creating Time-Stamped Evidence

Whether your brand is trying to protect copyrightable works or its trademarks, blockchain can enable you to create a reliable record of creation or publication and first use. These types of services are currently being offered. For example, an artist can upload an original drawing to a blockchain, which would create a time-stamped record of the exact work. A trademark owner can similarly record its first transaction under mark using blockchain, creating evidence of the date of first use. Creating these firm lines in the sand could save a lot of time and cost when it comes to litigation. Should the other side not have solid evidence of earlier creation or use, cases may be resolved more quickly and efficiently – or largely avoided altogether.

2. Digital rights management

Because a work’s ownership attributes can be connected to the work, blockchain can (and is currently being used to) enable systems in which an IP owner can manage digital assets and layers of versions, and control them in real-time. These types of systems allow IP owners to share and verify certain attributes of a piece of work such as the date/time of creation and author’s detail. Some systems can also automatically verify the rights generation of a piece of written work. These kinds of functions are historically performed manually, and a blockchain-based DRM system could make the process significantly more efficient.

Companies have been investing in these systems for a few years now. For example, Kodak launched a blockchain-based image rights management platform. Spotify also acquired a blockchain startup that seeks to facilitate payments to artists through cryptocurrency.

3. Facilitating IP licensing, distribution, or similar arrangements

Relatedly, blockchain can be used to monetize intellectual property by licensing a work to third parties while still controlling its use. “Smart contracts” could be used to create licenses that involve, for example, encoding certain data onto protected content that triggers royalty payments to the IP owner each time the content is viewed or played.

4. Protecting against counterfeit or stolen goods

Since a block shows information pertinent to a transaction, including who created the property, who owns the property, and who is an authorized licensee, the ideal scenario is that a buyer making a transaction through a blockchain-based system can be assured of its purchase when the subject of the transaction is genuine and has a clean track record, and because the details of a transaction are theoretically immutable, can also distinguish an authentic object from a potential counterfeit. This can provide a guarantee similar to that of, for example, provenance, which shows an artwork’s origin and history of purchase.

Blocks can also include digital identification of the parties for further security, as blockchain identity management systems gain traction. And in fact, digital ledger systems for identity management of individuals and institutions are already in practice in some environments (including credit unions, universities, hospital systems, and some local governments).

5. Recording IP Rights

Once information is recorded in a ledger, it cannot be erased or corrupted (without an attempted “hack” of all computers in the network), and can be easily verified by a third party. Because of this functionality, blockchain technology can be used to record IP rights and can supplement (or even diminish) the role of government IP registries by recording IP rights separately in a decentralized blockchain. For instance, while almost every country has a registration system for copyrights, in almost no country is registration required for those rights to exist. By creating an alternative recordation system to the official registration systems, the role of the government registries may be diminished. Of course, some countries offer other benefits with official registration (such as statutory damages or the right to bring litigation), so don’t underestimate the ongoing value of official registration.

The technology could eventually be utilized by a centralized agency itself (like the U.S. Trademark Office). Such a ledger could even include information about a trademark’s entire life cycle, and could help make many IP functions exceptionally more efficient, from establishing evidence needed to enforce IP rights to auditing IP portfolios to facilitating smooth IP transfers in a merger or acquisition.

The Chain Ahead:

Though blockchain technology is still relatively young, it can be used today to manage and protect your brand, and its potential applications are boundless. However, while its description and potential for driving advancements in e-commerce (and beyond) seems idyllic, we know that nothing is.

Blockchain is a human-developed technology and like any other, it is not all roses and no thorns:

How can we balance confidentiality and privacy/data security concerns with the very public nature of blockchain?

o One response to this critique is that blockchain networks can be access-controlled when needed.

Since blockchain ledgers are often decentralized, with “nodes” across multiple jurisdictions, whose laws apply to disputes that might occur?

o This will continue to remain an open issue until it is legislated or reviewed by courts.

Are “smart” rights/contracts even enforceable?

o “It depends” and it will continue to depend for some time, even though some states, like Illinois, have legalized smart contracts for certain purposes through legislation (as I discussed last year with CoinDesk)

Is the convenience and efficiency of blockchain worth the potentially damaging environmental impact?

o The nature of blockchain and the process of “mining” (independent “nodes” solving complex mathematical problems) requires an immense amount of processing power, which in turn negatively impacts the environment. Turnover of computer hardware further adds to environmental damage.

o Looking forward, in order for this technology to be sustainable as a widespread and reliable solution for other use cases, it will be essential to find ways to minimize the energy consumed by each transaction.

How trustworthy is blockchain, really?

o As with the practice of provenance, which was once seen as an infallible way to verify authenticity of artwork, it has since become clear that it can be faked by those familiar enough with the process. The same will likely be true for blockchain.

o IP infringement via non-fungible tokens (NFTs) and related scams have also become a recent problem, as some artists are finding their work being minted as NFTs and sold without their consent.

With many questions left unanswered, we will keep our eyes on blockchain as a potential tool in our belt, while continuing to remain wary of potential legal problems that could arise from this solution.

In our next article, we will continue to explore blockchain technology by pulling our focus onto an increasingly popular trend in the marketing (and arts) communities: NFTs.

Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.