WIPO White Paper on Blockchain and Intellectual Property (I part)
by Raffaella Aghemo
Introduction
Just in these days the WIPO, World Intellectual Property Organization, has published a long work, 189 pages between main document and annexes, on blockchain technology and the new opportunities it would bring in the delicate regulatory landscape of intellectual property rights: “Blockchain technologies and IP ecosystems: a WIPO white paper.” As these technologies affect every sector and have been widely used in the intellectual property (IP) community, the member states of the World Intellectual Property Organisation (WIPO) have established the Blockchain Task Force, within the Committee on WIPO Standards (CWS), whose mandate is to develop reference models for the use of blockchain in the IP field and to propose a new WIPO standard that supports the potential applications of this technology within IP ecosystems.
The member states of the World Intellectual Property Organization (WIPO) established the Blockchain Task Force within the Committee on WIPO Standards (CWS) at its sixth session, held in 2018, with the following mandate:
(a) To explore the possibility of using blockchain technologies in procedures to provide intellectual property rights (IPR) protection and to process the information on IP objects and their uses;
(b) Gather information on IP Office (IPO) developments regarding use and experience with blockchain, assess current industry standards on blockchain and consider their merits and applicability to IP Offices;
c) Develop reference models for the use of blockchain technologies in the IP field, including guiding principles, common practices, and use of terminology as a framework to support collaboration, joint projects, and proof of concept; and
d) Prepare a proposal for a new WIPO standard to support the potential application of blockchain technologies within IP ecosystems.
This white paper explores the potential applications and opportunities, as well as the challenges and issues that should be addressed to determine the feasibility and cost-effectiveness of using such technologies for the benefit of all IP stakeholders, understood as the legal rights arising from intellectual activity in the industrial, scientific, literary and artistic fields, and traditionally divided into two branches, “industrial property” and “copyright”.
Within the ecosystems discussed in this paper, and in which stakeholders and participants interact, we see the modelling of an IP value chain with four stages: generation, protection, management and commercialisation.
At each individual stage of this value chain, blockchain technology can act as a ‘facilitator’, through, for example, certain proof of date and ownership of patent rights, with autonomous management by the respective owners, who could also use smart contracts for the licensing and assignment of registered IP rights. Tokenization can also help right holders securitise their IP assets or use them as collateral.
Not only that, blockchain technologies can also facilitate the automation of processes and systems used by collective management organizations (CMOs) and access to information by potential users. The latter could also be implemented through the use of non-fungible tokens (NFTs). In addition, smart contract solutions may facilitate further models for negotiating licenses individually or collectively by CMOs or other entities. In addition, industrial property rights, copyright, and related rights can be tokenized and used as bonds to finance artistic projects.
The paper traces the birth of blockchain technology and the events that took place that led to its conception, as well as the ontological characteristics of the technology, for the use and consumption of all kinds of readers, not necessarily all of them at the cutting edge.
“The fact that a blockchain protocol is unalterable is due to its cryptographic and decentralized nature, as its information is distributed across multiple nodes that contain an up-to-date copy, which at the same time is protected by cryptography. Structurally, a blockchain database is organized into mathematically related blocks of transactions in a concatenated manner, so that the modification of one block would be impossible as it would generate a discrepancy in the system with respect to the rest of the blocks that would make the transaction invalid.
Participants in a blockchain do not authenticate themselves via a user session (i.e. login with username and password, as in traditional systems), but use pairs of (cryptographically related) private signing keys that are generated automatically. These private signing keys provide access to modify resources ‘owned’ by the signatory.
The database ledger allows the smart contract and network consensus to verify the validity of a transaction made within the network.”
“The main inherent features of blockchain are:
- decentralisation: the blockchain is characterised by the absence of a central entity mediating transactions between actors who do not necessarily trust each other. In a blockchain network, the same protocol is shared by all participants in the network, which has pre-established rules that everyone must adhere to;
- distributed ledgers: blockchain is a network of identical ledgers shared and synchronised across multiple sites, bodies or geographic areas, which can record transactions executed in multiple locations simultaneously;
- immutability: once a block is inserted at the end of the chain, it is stored permanently in the blockchain without the possibility of modification. This ensures the integrity of the data embedded in the blockchain. Conflict resolution in the network is governed by a set of pre-established rules that are defined in smart contracts…..;
- consensus: since the ledger or ledger database is held independently by each of the nodes in the system in a copy that it stores, there are consensus algorithms that govern the method by which the true state of the network is reached. The goal is for all nodes to agree on what the next block to embed is and, subsequently, that block is extracted; and
- cryptography: based on public key cryptographic protocols, participation in a blockchain implies that any user of the network has a unique identifier associated with their public key, which could potentially be linked to blockchain-based digital identity solutions.
Blockchain can be further enhanced with, among others, the following functionalities, which are further explained below:
- Tokenization: to put it simply, tokenization is the process of converting physical, financial, or intellectual resources into a digital token. Normally, an asset is divided into smaller parts that become many tokens in the blockchain. Once the asset has been tokenized, the owner can exchange it in the digital world, which could affect the asset in whole or in part. The simplest example is moving a bank account with cash onto the blockchain, where the blockchain infrastructure will replace the bank office, and cryptocurrency tokens are used instead of physical coins. A token is a digital representation of an object that reflects its value.
- Smart contracts: the term ‘smart contract’ was originally coined by Nick Szabo and refers to software that automates the terms of an agreement reflecting a digitally specified agreement and the protocol executed by the parties to the agreement. Blockchain enables the automatic replication of the execution of idempotent logic across machines, which are nothing more than code extractions that determine the actions to be performed when certain pre-programmed conditions are met.
- Automation: the blockchain allows numerous possibilities for scheduling automated transactions based on pre-determined conditions. These conditions can be scheduled based on any information that enriches or feeds the database, whether from internal (on-chain) or external (off-chain) sources. The information received can then be used to condition certain actions. This automation is possible or can be further facilitated if the blockchain system is connected to other frontier technologies such as AI and machine learning.
- Self-sovereign identity (SSI): blockchain enables SSI or the decentralised idea that users should be able to create and manage their own identity, without relying on any centralised authority. SSI is based on the use of decentralised identifiers (DID), which are a form of digital identifier that can be used within a blockchain context to identify a natural or legal person and validate an identity.”
The consensus mechanisms used in the work are listed:
- Proof of Work (PoW): this is used in particular as the consensus model behind Bitcoin and a number of cryptocurrencies. The PoW model requires users who want to publish a new blockchain to be the first to solve a computational puzzle to prove that work has been done to achieve the solution of the computational puzzle. The user who solves the puzzle first will see their solution verified by other nodes in the network.
- Proof of Stake (PoS): This consensus model is funded on the basis that the more participation or investment one has in a network, the more likely the investor is to want the system to succeed and the less likely he or she is to sabotage his or her own investment. In the design of a PoS model, participation is held by a structure/agreement established by consensus. The ability of a user to succeed in posting a new block on the chain is proportional to the share invested in the chain. This model is not so computationally dependent to demonstrate the ability to add a new block to the chain. However, additional complexities are introduced into the design approach used to ensure the expected proof by outcome of the stake. One way to achieve this is through Byzantine fault tolerance (BFT). BFT is based on the assumption that the majority of nodes in the chain will behave as expected, the majority of nodes could vote to agree to an execution; this is seen as consensus. A risk with the BFT model is that an agreement could be prevented from reaching consensus in the event of significant malicious attacks or faulty nodes. A notable application of BFT is in Hyperledger. Unlike PoW, which requires a large amount of energy and the eventual sale by miners of their coins to cover their costs, PoS grants mining power based on the share of coins held by a miner. The PoS mechanism is more suitable in environments that can operate with reliable nodes and may require a more customised mechanism to allocate computing tasks.
- Proof by authority: this is a commonly used consensus model applicable in authorised blockchain networks. In order for proof by authority to be implemented, nodes on a blockchain network must have their identity at least visible to the “owner” or managing authority of the chain. The node that tries to publish a new blockchain is putting its reputation and/or authority to publish at stake. As a result, a node may lose its ability to publish or access the blockchain. This application only works on networks where the identity of on-chain nodes to off-chain entities is verified and can be trusted. This model is likely to be used in network arrangements, for example, where all nodes are connected to off-chain entities with a high level of public trust and reputation. It is, therefore, in the interest of the entity to maintain its reputation and trust by following the consensus.
- Round Robin: this consensus model is best suited for an authorised blockchain, where node identities are known and verified off-chain. Round Robin works by allowing all nodes in a chain to take turns in adding a block to the chain. This ensures that no single node is able to create the most blocks. It is important to note that Round Robin is not an appropriate model to use on unlicensed networks, as malicious actors could generate unlimited nodes to cause blocking and bring the network to a halt.
Within the section on Digital Identity, we talk about Smart Contracts: ‘On a blockchain, subscribers participating in a transaction within a smart contract can receive tokens that reflect the nature of the transaction (e.g. royalties) and the value that the transaction represents. The realisation of the smart contract and related tokenization, therefore, implies that the discipline of law has been brought into the realm of programming, facilitating the creation or transformation of employee- or customer-focused business models, enabling a high level of automation in the delivery of its services.”
How can one not miss the paragraph dedicated to tokenization and Non-Fungible-Tokens or NFTs: “Non-Fungible-Tokens (NFTs) are a type of cryptographic token that represents assets that can be digitally traded. They function as verifiable proofs of authenticity and ownership within a blockchain network, carrying several characteristics such as scarcity, uniqueness and non-fungibility.”
SWOT analysis
An interesting SWOT analysis was carried out, showing strengths, weaknesses, opportunities, and threats.
Strengths:
- confidentiality, integrity, and availability of information;
- the immutable nature of technology creates an immutable chain of transactions;
- traceability and transparency to all participants in the transaction; and
- increases the efficiency of information processing, enabling reconciliation and settlement of peer-to-peer ‘trustless’ exchanges.
Weaknesses:
- Lack of centralised control and governance;
- limitations of scalability and sustainability;
- it is still at an early stage and requires further attention on interoperability and standardisation to ensure wider adoption;
- cybercriminals seek blockchain network vulnerabilities;
- legal uncertainty arising from the novelty of the technology and its multi-jurisdictional nature;;
- laws and regulations governing the admissibility of information recorded and stored on the blockchain differ by jurisdiction.
Opportunities:
- Further technical standardisation will be needed to harmonise the use of this technology;
- implementation of adequate data protection and authentication mechanism, common governance policies and practices;
- ability to track and trace both digital and physical assets;
- blockchain can accelerate digital transformation in many industries, defining new business models through innovative digital trading platforms; and
- smart contracts can reduce or potentially eliminate middlemen.
Threats:
- there is no common international regulatory framework for users of blockchain solutions;
- blockchain networks are not immune to cyber-attacks and fraud;
- could be perceived as insecure/unreliable and a quick response time to potential security holes is needed to mitigate this perception;
- the lack of understanding of the technology among potential users as well as technological knowledge and experience requiring high investments for implementation.
In this first part the paper gives an overview of the technology and which aspects, positive or not, would contribute to improve the so-called ‘IP ecosystems’. In the second part of this long editorial, the paper will go into use cases, concrete application, and conclusions.
STAY TUNED…….
All Rights Reserved
Raffaella Aghemo, Lawyer
