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Cybersecurity Research
  1. 1.6 Legal Perspective
    1. 1.6.1 Electronic Signatures & Evidence
    2. 1.6.2 Contract Law
      1. 1.6.3 Copyright Law

1.6.1 Electronic Signatures & Evidence

Sadia Sharmin in Music Copyright Management on Blockchain: Is it legally viable?, investigated whether blockchain can mitigate issues in the music industry, and the challenges of managing copyright on a blockchain.88 For our research topic and for the sake of brevity, we excluded Sharmin’s discussion of blockchain use cases for copyright management because Balazs Bodo, Daniel Gervais and Joao Pedro Quintais, and Michèle Finck and Valentina Moscon discuss that perspective in greater detail. Sharmin’s research questions in the thesis were:

75Torbensen and Ciriello, “TUNING INTO BLOCKCHAIN”.

76Ibid.

77Ibid.

78Ibid.

79Ibid.

80Ibid.

81Ibid.

82Juri Mattila. “The Blockchain Phenomenon “ The Disruptive Potential of Distributed Consensus Architectures”. In: 2016.

83Ibid.

84I. Dunham. “Music information: the need for a central music licensing database”. In: 2016.

85Andreas Gabl and Stephan Krehl. “Application of blockchain technology and crowdfunding to solve structural inefficiencies in digital rights and patents : a comparative analysis”. PhD thesis. Jan. 2017.

86Gabl and Krehl,”Application of blockchain technology and crowdfunding to solve structural inefficiencies in digital rights and patents : a comparative analysis”; Sitonio and Nucciarelli, “The Impact of Blockchain on the Music Industry”.

87Gabl and Krehl, “Application of blockchain technology and crowdfunding to solve structural ineficiencies in digital rights and patents : a comparative analysis”.

88Sadia Sharmin. “Music Copyright Management on Blockchain: Is it legally viable?” PhD thesis. 2018. url: http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-353704.

  1. “What is the legal framework of music copyright and how blockchain technology is relevant to this field?

  2. What are the problems of today’s copyright system in the music industry and can blockchain help to alleviate the problems?

  3. How could blockchain-based technologies be used in the music copyright management?

  4. What legal aspects need to be considered?

  5. What are the risks and challenges of using block[]chain technology based applications in the music copyright management?”89

Sharmin’s motivation for her thesis was tackling the inefficiency in the music industry, the lack of transparency and remuneration for musicians in the supply chain, as exemplified in Wixen Music Publishing, Inc. v Spotify USA Inc.,and the possibility for blockchain to remedy these issues subject to new blockchain-speci c legislation.90 Sharmin chose a qualitative method for her thesis to provide clarity in this uncertain area and selected primary and secondary sources from a combination of national and international legislation, journal articles, reports, official websites of international and national organizations, statutes and case law.91

Sharmin discussed recent government intellectual property agency efforts to understand how blockchain technology can comport existing copyright frameworks.92 For example, Sharmin noted that both the European Union Intellectual Property Office (EUIPO) and the United States Patent and Trademark Office (USPTO) have hosted events to elicit responses from individuals and organizations involved in blockchain and copyright management on the basics of blockchain and how it can comport with intellectual property law.93 Additionally, the U.S. Department of Commerce’s Internet Policy Task Force held a meeting to discuss the future of blockchain and copyright management with individuals and groups spanning multiple industries, including Ascribe and Dot Blockchain (rebranded as Verifi Media) who were both invited.94

Sharmin focused her analysis on how blockchain can conform with the following existing legal frameworks:

  1. electronic signatures,

  2. evidence, and

  3. contract law.95

First, Sharmin questioned whether electronic signatures and timestamps recorded on the blockchain are valid signatures under existing European Union electronic signatures law.96 From Sharmin’s analysis of how blockchain data could be interpreted under the current EU legislation for electronic signatures regulatory framework (910/2014/EU), electronic signatures and time stamps on a blockchain may be valid, but may require an expert to qualify the electronic signatures and time stamps as evidence in a court of law.97 Second, Sharmin ascertained that blockchain data could qualify as admissible evidence in most jurisdictions as long as an expert can explain[] the fundamentals of the technology and assert[] its trustworthiness. Lastly, Sharmin discussed general issues associated with smart contracts such as when a smart contract is considered a traditional legal contract and how can traditional contract principles apply to smart contracts.98

89Sharmin, “Music Copyright Management on Blockchain: Is it legally viable?”

90Ibid.

91Ibid.

92Ibid.

93Ibid.

94Ibid.

95Ibid.

96Ibid.

97Ibid.

98Ibid.

1.6.2 Contract Law

Mark Giancaspro in Is a smart contract’ really a smart idea? Insights from a legal perspective analyzed contractual issues and uncertainties that may arise with the advent of smart contracts under Australian, French, American and English law.99 Giancaspro discussed the following contract law principles in his comparative analysis:

  • “Capacity,

  • Mistake,

  • Formation (Offer and Acceptance)

  • Legal intent in follow-on contracts,

  • Certainty of Terms,

  • Interpreting smart contract code, and

  • Remedial issues.”100

Contractual capacity and mistake are contractual issues that concern the real-world identity of parties on a blockchain.101 On the blockchain, users are identified by a public address,102 a long hexadecimal string of alphanumeric characters, that is disconnected from any real-world identifiers such as a name or physical address.103 For example, all public addresses on the Ethereum blockchain are identified by a forty-two (42) alphanumeric character combination that starts with 0x. 104

Contractual capacity refers to a party’s ability to enter into a contract. 105 Giancaspro analyzed contractual capacity in the context of minors entering into contracts.106 Under Australian, English, American and French law, a minor (a person under the age of majority) generally does not have contractual capacity to enter into a contract.107 Australian, English and American law provide for limited exceptions to the general rule (e.g., a contract for necessaries such as a car or furniture), and in those circumstances, the contract is voidable, i.e., the minor may elect to terminate the contract, at the minor’s discretion.108 Given that public addresses on a blockchain are not linked to real -world personal identifiers, a party may inadvertently enter into a contract with a minor via smart contract.109 Thus, a pre-screening procedure may be needed to deter minors from entering into contracts via smart contracts.110

The application of Mistake to smart contracts faces the same issue as contractual capacity.111 Mistake is a legal defense to contract formation, wherein a party may void a contract because a party was mistaken about the identity of the counterparty or the terms of the contract.112 In Giancaspro’s analysis, Mistake can easily occur with smart contracts because smart contracts are susceptible to identity theft.113 For example, in the case of identity theft, a hacker can steal another person’s private key , thereby obtaining the person’s public key, and

99Mark Giancaspro. “Is a smart contract’ really a smart idea? Insights from a legal perspective”. In: Computer Law & Security Review 33 (June 2017). doi: 10.1016/j.clsr.2017.05.007.

100Ibid.

101Ibid.

102Jake Frankenfield. Public Key. en. url: https://www.investopedia.com/terms/p/public-key.asp (visited on 10/06/2019).

103Tanya. Public and private keys. en-US. url: http://support.blockchain.com/hc/en-us/articles/360000951966-Publicand-private-keys (visited on 10/06/2019); Frankenfield, Public Key.

104Zane Witherspoon. How is an Ethereum address generated? en. Feb. 2017. url: https://medium.com/@zanewithspoon/howis-an-ethereum-address-generated-9f08e6f83f77 (visited on 10/06/2019).

105Giancaspro, “Is a smart contract’ really a smart idea? Insights from a legal perspective”.

106Ibid.

107Ibid.

108Ibid.

109Ibid.

110Ibid.

111Ibid.

112Ibid.

113Ibid.

then using the public key to facilitate fraudulent transactions as if it was the proper account holder.114 Under this scenario, the account holder may allege Mistake to void any contracts entered into with counterparties via smart contracts.115 Unfortunately, this scenario exemplifies the possible lack of trust and predictability counterparties may have assumed would be associated with smart contracts.116 The major problem that arises from Mistake is the want of legal enforceability since mistake is a defense to contract formation.117

Formation, Certainty of Terms, and Contractual Interpretation are issues that concern the smart contract source code.118 Formation is the o er and acceptance elements that are required for the creation of a valid contract.119 Under Australian and English law, an o er is characterised by a party’s indication of willingness to be bound by the terms of a promise he or she has made to another party, with the latter being provided with the opportunity to elect between acceptance and rejection of the proposal. 120 An o er via smart contract is relatively easy to discern when compared with traditional contracting because the smart contract source code is stored and accessible on the blockchain, and the terms of the smart contract bind the user deploying the smart contract.121 In Giancaspro’s analysis, the major issue with Formation in a smart contract context is acceptance because of the instantaneous nature of blockchain technology.122

In this area, the postal acceptance rule may decide when acceptance has occurred.123 The postal acceptance rule applies when there is an expected time lapse between the o er and acceptance, and that acceptance may occur when the acceptance is dispatched or upon receipt of acceptance.124Concerning the postal acceptance rule and public-key infrastructure (PKI), Giancaspro proposed three ways acceptance could be effectuated in a purchase of goods situation:

  1. “once the party seeking to purchase the goods transmits their oer,

  2. once it is received and authenticated through consensus of network users, or

  3. once it is coded and added to the [b]lockchain.”125

Follow-on intent is the issue that most impacts the intent of the counterparty.126 Giancaspro describes follow-on intent as a scenario where the parties voluntarily enter[] into a smart contract (the primary contract) [, and] that contract can itself enter the parties into an additional contract (the secondary contract). 127

Giancaspro identified two issues with follow-on smart contracts:

  1. “can an intention to create legal relations be established in this circumstance, and

  2. can a smart contract or related electronic agents or bots’ autonomously enter parties into legally enforceable follow-on contracts?”128

For our research purposes, we focused only on Giancaspro’s analysis of the first follow-on intent issue. Intent is a major aspect of each jurisdiction’s contract law, with Australian, English and American law (common law nations)129 determining intent based on the objective circumstances of the parties, while French law tests intent

114Giancaspro, “Is a `smart contract’ really a smart idea? Insights from a legal perspective”.

115Ibid.

116Ibid.

117Ibid.

118Ibid.

119Ibid.

120Ibid.

121Ibid.

122Ibid.

123Ibid.

124Ibid.

125Ibid.

126Ibid.

127Ibid.

128Ibid.

129England and Australia see intent as a discrete element of contract law, while United States contract law includes intent as part of offer and acceptance.

based on the subjective circumstances of the parties.130 Regardless of the jurisdiction, Giancaspro concluded that follow-on intent is unlikely to be found because the parties would not have had a chance to consider the effects of additional smart contracts.131

Certainty of Terms and Contractual Interpretation are two concepts in contract law about how the terms of contract should be interpreted.132 Certainty of Terms concerns whether the essential terms of the contract were particularly described in terms of inherent clarity and completeness. Contractual interpretation concerns giving meaning to the terms and purpose of the contract, and is generally a matter for the courts.133 In Giancaspro’s analysis, Certainty of Terms is an issue with smart contracts because of whether the smart contract source code provides reasonable certainty to the essential terms of the contract.135 As Giancaspro discusses, in the process of developing a smart contract, terms drafted in natural language by the parties must then be coded into programming language in order to generate the actual smart contract comprising the agreement of the parties. 135 Furthermore, the natural language drafts of the agreement may not be legally relevant in analyzing whether the smart contract itself is reasonably certain because of the parol evidence rule.136137

Giancaspro identified two additional issues that may arise with Certainty of Terms:

  1. how would a smart contract interpret normative terms in a contract such as “reasonableness,” and

  2. when interpretation is necessary such as a violation of the “duty of good faith and fair dealing.’ “138

In Giancaspro’s analysis, Contractual Interpretation is an issue with smart contracts because smart contract source code is di cult for most programmers to understand, and more so for anyone is not trained as a programmer.139 Interpreting smart contract source code will likely require expert witnesses, and maybe even references to past natural language drafts, if not prohibited by the parol evidence rule.140 Additionally, there are certain terms that cannot easily be translated into smart contract source code, such as terms that are in subjective language.141

Lastly, Giancaspro analyzed contractual interpretation of smart contracts dependent on data oracles, i.e., external data feeds.142 Giancaspro considered a hypothetical scenario where a data oracle for an insurance smart contract created to indemnify created to indemnify a homeowner against inclement weather that is dependent on data oracles for information relating to rainfall, temperature or other factors from a meteorological agency’s website in order to determine if the policy is activated may commit errors or even fail altogether if the data oracles malfunction or become inactive. 143 Giancaspro suggested a possible legal remedy for smart contracts connected to data oracles that malfunction is the doctrine of frustration.144145

Remedial Issues concern the contractual remedies available to the parties if a dispute arises because of a technical malfunction of the smart contract.146 When smart contracts are deployed to a blockchain, they are

130Giancaspro, “Is a smart contract’ really a smart idea? Insights from a legal perspective”.

131Ibid.

132Ibid.

133Ibid.

134Ibid.

135Ibid.

136Ibid.

137The parol evidence rule prohibits reference to prior materials where the express terms have been reduced to a final written agreement.

138Giancaspro, “Is a `smart contract’ really a smart idea? Insights from a legal perspective”.

139Ibid.

140Ibid.

141Ibid.

142Ibid.

143Ibid.

144Ibid.

145The doctrine of frustration is a rule of contractual interpretation wherein a contract is rescinded and the parties are not bound to perform future obligations because it is impossible for either party to perform as originally envisaged through no fault of their own, given that the parties could not foresee the event “as a serious possibility.”

146Giancaspro, “Is a smart contract’ really a smart idea? Insights from a legal perspective”.

extremely difficult to update147, and once a smart contract has executed, the effects are nearly irreversible.148 There have been many cases of smart contracts malfunctioning on the Ethereum blockchain, either by coding errors (developer-side) or hacks, that have led to millions of dollars worth of Ether (ETH) and tokens stuck in a smart contract or sent to the wrong public address.149 This is a major reason why smart contracts are at a high risk for disputes concerning liability for technical errors.150

Giancaspro identified two remedial issues with smart contracts:

  1. reformation151 , and

  2. injunctive relief152..153

Giancaspro determined that reformation is likely unavailable because once a smart contract is deployed on the blockchain, it is extremely difficult to update because of the blockchain’s inherent immutability.154 Giancaspro determined that injunctive relief is also likely to be unavailable because smart contracts are autonomous and self-executing. 155 Once a smart contract is deployed on a blockchain, it cannot be stopped simply by sending cease and desist notifications, nor even when a party provides an injunctive relief order to the counterparty.156

Licensing Balazs Bodo, Daniel Gervais and Joao Pedro Quintais in Blockchain and smart contracts: the missing link in copyright licensing? investigated how a blockchain-based copyright licensing regime would comport with existing copyright frameworks.157 Bodo et al.’s initially focused on the inherent attributes of blockchain they believe would be compatible with copyright licensing:

  • “distributed ledgers;

  • tokenization and digital scarcity; and

  • smart contracts and decentralization.”158

In Bodo et al.’s analysis of distributed ledgers (used synonymously with blockchain), they concluded that because distributed ledgers are a general-purpose technology, it can correspond to the fundamentals of copyright law through many different implementations.159 In Bodo et al.’s analysis of tokenization and digital scarcity, Bodo et al. remarked about the interesting ability to turn any kind of information into a token, i.e., tokeniz[ed/ation], on a blockchain, with four applicable tokenizations in the copyright domain:

  1. “a protected work,”

  2. “a record of rights management information for protected content,”

  3. “terms of use of protected content, and”

147An updatable smart contract is possible depending on the smart contract standard used, however, for most intents and purposes, a smart contract cannot be updated when it is deployed on a blockchain.

148Giancaspro, “Is a smart contract really a smart idea? Insights from a legal perspective. “

149Ibid.

150Ibid.

151Reforming the contract because of an error or misstatement in the terms of the contract that was not agreed upon by the parties. 152Restraining the other party from taking a course of action, such as violating a term or terms of the contract.

153Giancaspro, Is a “smart contract” really a smart idea? Insights from a legal perspective .

154Ibid.

155Ibid.

156Ibid.

157Balázs Bodó, Daniel Gervais, and João Pedro Quintais. Blockchain and smart contracts: the missing link in copyright licensing? en. In: International Journal of Law and Information Technology 26.4 (Dec. 2018), pp. 311 336. issn: 0967-0769, 1464-3693. doi: 10.1093/ijlit/eay014. url: https://academic.oup.com/ijlit/article/26/4/311/5106727 (visited on 12/13/2019).

158Ibid.

159Ibid.

  1. “remuneration of a work” .160

Bodo et al. believe tokens and blockchain’s elimination of the double spending problem present a possible avenue for reintroducing scarcity into copyrighted works.161

In Bodo et al.’s analysis of smart contracts, they concluded that smart contracts can automate transactions (transactions that can easily be described by if-then loops) such as revenue payments, lower transaction costs, and even standardize licensing terms across different uses and jurisdictions.162 However, Bodo et al. cautioned using smart contracts because of the uncertainty of how smart contracts conform with contract law.163

Specifically, contract law issues regarding:

  • identification of the parties;

  • remedies for breach of contract;

  • jurisdictional conflicts; and

  • dispute resolution procedure.164

Bodo et al. then examined one of the most profound powers of blockchain, its ability to disintermediate and decentralize industries through trustless (i.e., low trust) transactions.165 Bodo et al. see blockchain’s ability to disintermediate possibly upsetting intermediaries at every level:

  • “publishers and music labels,

  • CMOs, and

  • online platforms, including those that host user-uploaded content.”166

However, Bodo et al. do not envision blockchain completely decentralizing (removal of all intermediaries) the music industry, rather, they see a trend towards decentralizing by upsetting the power of incumbents through new stakeholders.167 Furthermore, Bodo et al. do not imagine complete disintermediation because current intermediaries control critical assets for disintermediation, such as the type of comprehensive RMI datasets for musical works and sound recordings held by CMOs.”168 Moreover, Bodo et al. even see the possibility of Collective Management Organizations (CMOs) utilizing blockchain themselves to further entrench their status in the value chain through a private blockchain (read-only).169

Bodo et al. identified four copyright domains where blockchain implementations are promising and challenging:

  1. Private ordering,

  2. Copyright registries,

  3. Right Management Information, and

  4. Fair remuneration.170

First, in Bodo et al.’s analysis of private ordering, their major concerns were fragmentation and licensing coordination.171 Fragmentation refers to the ability for an author to separately, and divisibly, transfer or license any rights granted under copyright law to a third party.172 Fragmentation issues would impact blockchain’s

160Bodó, Gervais, and Quintais, “Blockchain and smart contracts”.

161Ibid.

162Ibid.

163Ibid.

164Ibid.

165Ibid.

166Ibid.

167Ibid.

168Ibid.

179Ibid.

170Ibid.

171Ibid.

172Ibid.

applicability as a licensing tool for an international copyright regime because there is no such thing as international copyright right[s]. 173 Rather, a blockchain-based licensing framework would have to be based on international treaties, such as the Berne Convention and World Intellectual Property Organization (WIPO) treaties.174 However, Bodo et al. determined that this would also lead to fragmentation issues.175 For example, the Berne Convention would provide copyright protection for a work made in a member nation in all other 175 member nations (total 176 nations), but only under each member nation’s domestic copyright laws.176 This could lead to fragmentation issues because it is possible for an author to obtain 176 different rights under copyright, of which each right under copyright may be separately, and divisibly, transferred or licensed to a third party (i.e., fragmentation).177 The issue of fragmentation also extends to copyright exhaustion because copyright exhaustion is based on each nation’s domestic copyright laws.178 Copyright exhaustion can be categorized into three different schemes:

  1. National;

  2. Regional; or

  3. International.179

In a national exhaustion scheme, the authorized sale of a work within a nation exhausts the rights holders’ right to control further disposition of the work within that nation.180 In a regional exhaustion scheme, the authorized sale of a work within a region exhausts the rights holder’s right to control further disposition of the work within that region, as is the case in the European Union (EU).181 In an international exhaustion scheme, the rights holder’s right to control further disposition of the work is exhausted when an authorized sale of the work occurs in any market in the world, as is the case in the United States of America (USA).182

Bodo et. al. analogized rights fragmentation to the common law concept of title, i.e., the legal link between a person who owns property and the property itself, as a possible means of understanding how each right fragment may be exploited and possibly licensed to third parties.183 In understanding rights fragmentation and transferring rights through smart contracts, Bodo et al.’s major concern was the issue of smart contract conformance under existing law, especially regarding the need for a written instrument to effectuate transfer of copyright under certain nation’s domestic copyright law.184

Licensing coordination refers to the complexity of coordinating between on- and off-chain transactions for copyright licensing.185 Licensing coordination leads to three major issues:

  1. off-chain transactions,

  2. inconsistent domestic laws, and

  3. desynchronization.186

First, off-chain transactions may lead to certain issues arising, such as conflict resolution and information asymmetry between the blockchain and traditional institutions.187 Bodo et al. suggested that a possible solution to the o -chain coordination issues would be to have the author retain all of their copyright rights, with

173Bodó, Gervais, and Quintais, Blockchain and smart contracts”.

174Ibid.

175Ibid.

176Ibid.

177Ibid.

178Ibid.

179Ibid.

180Ibid.

181Ibid.

182Ibid.

183Ibid.

184Ibid.

185Ibid.

186Ibid.

187Ibid.

non-exclusive licenses preferred for mass uses while exclusive licenses are used sparingly or when best appropriate through the blockchain ( author ownership solution ).188 However, this solution does not avoid all potential conflicts, such as a conflict between a non-exclusive licensee and an exclusive licensee in a given territory.189 An alternative solution Bodo et al. suggested is for authors to transfer some of their rights to a third party, such as a CMO, but conflicts may still arise within a given territory . . . or among territories… Thus, the need for some form of coordination emerges ( CMO transfer solution ).190 Importantly, Bodo et al. noted an unaddressed issue, whether an author who owns all the titles in their work may be able to internationally exploit markets and formats.191 In the CMO transfer solution, global coordination would still be an issue internationally.192 Furthermore, antitrust and other unfair competition law concerns may arise.193 Second, inconsistent domestic laws raise concerns when a smart contract contains restrictions that con ict with the domestic law of a user’s territory, which may see a court impose an appropriate remedy, such as allowing circumvention of DRM or the reduction of any payment due. 194 Third, desynchronization issues may arise between on-chain smart contracts and o -chain traditional contracts.195 Desynchronization occurs when o -chain transactions are not recorded on-chain.196 This is unfortunately an issue that cannot be resolved through blockchain alone, and thus will need heightened o -chain coordination.197

For rights registries, Bodo et al.’s major concerns were the types of distributed ledger registries and conformance with international copyright registration frameworks.198 Bodo et al. define copyright registries as the range of DLT applications that create a registration of information regarding works, which may be voluntary or mandatory.199 Bodo et al. describe two types of copyright registries (hereinafter DLT based registries ):

  1. passive, and

  2. active.200

Passive DLT based registries are used to record RMI information as a time-stamped entry into a public ledger that anyone can consult.201 Given that such information is only useful if it is authoritative, RMI is most likely to be maintained by trusted intermediaries (such as CMOs). 202 In active DLT based registries, rights are tokenized, rights holders are account holders, so DLTs not just record, but facilitate the transactions of rights. 203

In determining conformance with international copyright registration frameworks, Bodo et al. further analyzed active DLT based registries conformance with the Berne Convention.204 Bodo et al. assumed that if active DLT based registries are scalable and reach critical mass, eventually exploitation of works (at least of a certain type, such as sound recordings) in the digital realm [would be] dependent on registration in a digital ledger.205 In this system, works can be easily licensed, uses and remuneration tracked, and enforced by an accompanying smart contract(s).206 This ledger would eventually become the de facto means for exploiting a work, raising legal concerns about whether such a registry would constitute a prohibited formality under international law. 207

188Bodó, Gervais, and Quintais, “Blockchain and smart contracts”.

189Ibid.

190Ibid.

191Ibid.

192Ibid.

193Ibid.

194Ibid.

195Ibid.

196Ibid.

197Ibid.

198Ibid.

199Ibid.

200Ibid.

201Ibid.

202Ibid.

203Ibid.

204Ibid.

205Ibid.

206Ibid.

207Ibid.

Article 5(2) of the Berne Convention prohibits formalities that affect the “enjoyment” or “exercise” of protected rights in relation to non-domestic works. 208 Formalities include registration, recordal of transfers of ownership, notice requirements, and deposit. 209 Enjoyment of rights relates to author’s rights coming into existence and being recognized absent any formality.210 In essence, the prohibition rules out constitutive and maintenance formalities in respect of works of non-domestic origin, as well as those that function as conditions to sue for infringement’. Conversely, certain declaratory formalities are allowed. 211 In Bodo et al.’s opinion, voluntary registration of works on DLT based registries should not violate the Berne Convention because [o]nly copyright-specific, government imposed formalities are prohibited. 212

Third, in Bodo et al.’s analysis, blockchain can provide benefits for rights management information through cooperation, but the issue of unverified data needs to be addressed213 Bodo et al. believe blockchain’s main bene t for rights management information is blockchain’s ability to encourage cooperation among multiple stakeholders, such as songwriters, performers, publishers and record companies, who may own certain rights to a musical work.214 However, one major issue Bodo et al. noted is the blockchain’s inherent inability (based on current technology) for pre-filtering works before adding such works to the blockchain.215 Even though blockchain may safeguard against data tampering, it cannot guard against inaccurate or unverified data.216 This issue raises the need for a dispute resolution measure to handle conflicting claims to a musical work.217

Fourth, in Bodo et al.’s analysis, they see blockchain serving three types of roles for fair remuneration:

  1. enabling payments,

  2. opening “statutory or compulsory licenses and collective rights management schemes to smart contract licensing,” and

  3. providing greater transparency for authors and performers.218

Bodo et al. see blockchain’s role in enabling payments to have a de minimis effect on the status quo in copyright law because it merely adds a new method payment.219 Rather, Bodo et al. see blockchain’s role in opening up compulsory licensing as the most relevant.220 Such an application may help reduce or eliminate the traditional reasons that led to the creation of the compulsory licensing scheme.221 In particular, the transaction costs associated with licensing copyrighted works.222 Transaction costs become prohibitively high when a work has a relatively small value, but ha[s] a relatively large number of users and right holders.223 Transaction costs include:

  • “identifying and matching rights holders and users,

  • the high costs of monitoring use,

  • the costs of enforcement, and

  • the complexities of setting the price and negotiating the terms of use.”224

208Bodó, Gervais, and Quintais, “Blockchain and smart contracts”.

209Ibid.

210Ibid.

211Ibid.

212Ibid.

213Ibid.

214Ibid.

215Ibid.

216Ibid.

217Ibid.

218Ibid.

219Ibid.

220Ibid.

221Ibid.

222Ibid.

223Ibid.

224Ibid.

“Collective management has been successful because it offers substantial economies of scale, making collectively managed licenses preferable to individual licensing.” 225 Bodo et al. propose that blockchain may lower individual licensing transactions costs to nearly the same as collective licensing by:

  1. reducing the transaction costs associated with finding a rights holder through a publicly available, blockchain-based RMI registry (which make up the bulk of transaction costs), and

  2. automating individual licensing through smart contracts based on publicly available usage information (through digital content intermediaries and digital fingerprinting technologies).226

Additionally, Bodo et al. also considered the potential for automated licensing via smart contracts to create new global licensing standards, based on the early success of Creative Commons licenses.227 If possible, it may cause an economic shift in the industry, making collective rights management and compulsory licensing comparatively costlier. 228

Bodo et al. also see blockchain playing a role in minimizing information asymmetry between creators and other stakeholders.229 Bodo et al. discussed that the ties between the music industry oligarchy (three major record labels) and online streaming platforms (e.g., Spotify), is causing creators to feel that they have no platform to discuss their issues nor the chance to share in the spoils of their success.230 Ultimately, Bodo et al. determined that blockchain’s role here will be to shed light on the industry and on a situation that many see as both unfair and unsustainable. 231

Rights Management Michèle Finck & Valentina Moscon further elaborated on Bodo et al.’s analysis of blockchain and copyright in Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0 by investigating possible blockchain applications in copyright law for digital rights management (DRM).231 Finck and Moscon’s research motivation was to investigate possible blockchain-based DRM applications for enforcing copyright law in a more efficient and balanced manner than current DRM systems.233Finck and Moscon frame their investigation of DRM’s impact through the lens of international copyright treaties.234

Finck and Moscon begin their analysis of DRM systems by providing:

  1. a short summary of DRM systems,

  2. how DRM systems have impacted public and private ordering, and

  3. how international copyright treaties have impacted DRM systems.235

First, in general, a DRM system is a code-based enforcement mechanism of the rights of a copyright holder in a copyrighted work.136 DRM systems started to gain prominence in response to the increased digitization of copyrighted materials and the advent of computers137 DRM is generally comprised of technological protection

225Bodó, Gervais, and Quintais, “Blockchain and smart contracts”.

226Ibid.

227Ibid.

228Ibid.

229Ibid.

230Ibid.

231Ibid.

232Michèle Finck and Valentina Moscon. “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”. In: IIC - International Review of Intellectual Property and Competition Law 50 (Dec. 2018). doi: 10.1007/s40319-018-00776-8.

233Ibid.

234Ibid.

235Ibid.

236Ibid.

237Ibid.

measures (TPM) and rights management information (RMI).238 TPMs include hardware and software to protect the rules and identify the content, the user’s IT system and the user him/herself. 239 RMI is information that identifies content protected by copyright or neighboring rights, the rights owners in such content and the terms and conditions of use associated with it. 240 DRMs may also include rights expression languages (REL).241 DRM systems are generally incompatible with other DRM systems.242 The lack of interoperability among DRM systems has likely arisen from a lack of standardization for DRM architecture and the unwillingness of companies to license their technology.243 Furthermore, interoperability is unlikely to arise because it is more advantageous for proprietary DRM systems to be incompatible for two reasons:

  1. developing a monopoly or niche in the market surrounding the DRM; and

  2. the diversity of digital content needing to be protected, in conjunction with different levels of protection needed for each type of content.244

However, Finck and Moscon discussed that a possible benefit from the lack of interoperability is to restrict copyright owners’ control over their content regarding legitimate access and uses by users.245

Second, DRM plays a role in public ordering by enforcing existing copyright frameworks, and a role in private ordering by protecting the rights of private sector entities and individuals.246 Though, DRM’s use in private ordering sometimes contravenes existing copyright frameworks by going beyond the protections guaranteed therein, and even protecting works ineligible for copyright protection.247DRM’s misuse is in private ordering is very prevalent in mass-contract situations, where the terms offered by the licensor to the licensee are often drafted in favor of the licensor while overly restrictive to the licensee because the parties cannot directly negotiate with each other.248 An example Finck and Moscon mention is the usage of DRM for private ordering in the academic publishing sector has ran afoul of the intentions of copyright law by restricting access (restricting the number of copies or prints) and use (copying file).249 Finck and Moscon provide an example of this situation in the academic publishing sector, where DRM has led to restricted access (restricting the number of copies or prints) and use (copying the research paper) of research papers by users.250 This type of activity, as poignantly mentioned by Finck and Moscon, tests the strength of the first sale doctrine251 in copyright law and highlights the need for copyright law to catch up with digitization.252

Third, Finck and Moscon discussed how international copyright treaties have led to a rise in private ordering.253 In formally adopting the World Intellectual Property Organization (WIPO) Copyright Treaty (WCT) at the national level, the United States of America (USA) passed the Digital Millennium Copyright Act (DMCA), and the European Union (EU) passed the InfoSoc Directive.254 The WCT imposed obligations for adequate legal protections and remedies against circumvention of TPMs and removal or alteration of RMI. Both the USA and EU legislation exceeded the WCT’s requirements and effectively extended the protection of technical measures even beyond the boundaries of exclusive rights. 255 Thus, both legislations allowed private ordering-based

238Finck and Moscon, “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”.

239Ibid.

240Ibid.

241Ibid.

242Ibid.

243Ibid.

244Ibid.

245Ibid.

246Ibid.

247Ibid.

248Ibid.

249Ibid.

250Ibid.

251The first sale of a copyrighted work exhausts the copyright holder’s right to prevent further distribution of that copy.

252Finck and Moscon, “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”.

253Ibid.

254Ibid.

255Ibid.

contracts and technical measures to exceed the bounds of copyright law by restricting copyright-permitted uses such as fair use through TPMs.256 These acts have essentially shifted copyright from public to private ordering enabled by both contracts and technological measures. 257 Additionally, this raises the possibility of rightsholders using DRM to influence the market (i.e., a use beyond protecting the rights of the copyright holder) via a strategic barrier to entry in addition to a contract and the rules protecting the technology that facilitate its use, to erect strategic barriers even in secondary markets. 258

Finck and Moscon transitioned to discuss blockchain and smart contract use cases in the copyright domain, and if they can provide an alternative to the current DRM systems.259 Finck and Moscon identified three main drivers for blockchain use cases in the copyright domain:

  1. blockchain’s potential capacity to precisely identify a digital asset,

  2. blockchain’s potential to “foster transparent and disintermediated transactions,”and

  3. blockchain’s potential to be developed as a DRM system.260

Since Bodo et al. discussed the first main driver in greater detail in their paper, for our purposes, we shall only discuss Finck and Moscon’s analysis of the second and third main drivers.261

In Finck and Moscon’s analysis, the second driver can provide much needed transparency and cost savings by automating transactions via smart contracts.262 With the advent of smart contracts, Finck and Moscon see micropayments becoming economically viable because smart contracts can execute payments for smaller fees than previous payment methods while automatically splitting payments among multiple parties.263 Thus, this model lets musicians engage in direct peer-to-peer (p2p) transactions with consumers, and control the pricing and licensing terms of their works.264 However, these blockchain-based models are unlikely to lead to a truly decentralized music industry, rather, these blockchain-based models and associated stakeholders will replace current industry incumbents, and take their place as new intermediaries.265 This outcome is more likely when taking into account that it would be impractical to expect most musicians to learn the legal, marketing, and coding tools to make effective smart contracts.266 Finck and Moscon suggest that for the direct-to-fan model to flourish, there is a need for user-friendly form[s] of smart contract management, which do[] not require the user to personally code the smart contract. 267 Relevant to our research topic, Finck and Moscon discuss how smart contracts may lead to the standardization of licensing terms and conditions for multi-jurisdictional uses of copyrighted works.268 Standardized smart contracts will provide transparency and reduce barriers to using contracts for transactions, and even customizable licenses.269

In Finck and Moscon’s analysis of the third main driver, blockchain has the potential to disrupt DRM systems.270 In this use case, smart contracts (with embedded contractual elements) would automate and standardize transactions in relation to blockchain-based tokenized elements. 271 The smart contract would self-enforce copyright agreements such as licenses, and provide information about rights in copyrighted

256Finck and Moscon, “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”.

257Ibid.

258Ibid.

259Ibid.

260Ibid.

261Ibid.

262Ibid.

263Ibid.

264Ibid.

265Ibid.

266Ibid.

267Ibid.

268Ibid.

269Ibid.

270Ibid.

271Ibid.

materials.272 Additionally, the smart contracts could be used to automate access to digital assets.273 Additionally, blockchain’s characteristics of immutability and replication make it appealing as a cybersecurity measure in comparison with traditional DRM systems which rely on single points of failure, are expensive, can be overcome by a single hacker and interfere negatively with consumer expectations. 274 Finck and Moscon also highlight that automated licensing via smart contracts can o er rightsholders greater security and stronger protections against possible attackers including copyright infringers that seek to access the digital asset. 275 An interesting note mentioned by Finck and Moscon is the difference between automated licensing and traditional DRM systems regarding DRM systems specific focus on control of access and use of digital subject matter. 276 In automated licensing via smart contracts, user rights can be encoded in access-control smart contracts, thereby giving users more rights than in traditional DRM systems.277 Finck and Moscon expect the DRM system to coordinate with a trusted timeserver (alternatively, a separate blockchain or distributed data storage solution could be used) and compare the time with the contract terms coded on the blockchain and take away access once the user’s license has expired. 278 However, even though smart contracts can provide more user-friendly bene ts, smart contracts do not necessarily encode legally permitted copyright uses. 279

An additional use case Finck and Moscon considered was blockchain as a public copyright registry.280 Finck and Moscon believe that blockchain could help reconcile issues regarding trust with RMI databases. RMI databases are plagued by faulty or non-existent data and lack of sharing relevant data, and lack of interoperability.281 Furthermore, for the parties that rely on RMI such as CMOs, it is very tough getting clean data and reconciling data sources.282 As Finck and Moscon mentioned earlier, this may also come from groups with an interest in a natural monopoly on data.283 Additionally, and a very important note regarding storing files on the blockchain, Finck and Moscon mention that the blockchain would only be used for automating transactions (rights and permissions) via smart contracts, rather than storing the digital asset itself.284

Finck and Moscon identified five structural challenges of blockchain systems.285 The first structural challenge that needs to be addressed is that the volatility of cryptocurrencies make them unappealing as a method for royalty payments.286 The second structural challenge that needs to be addressed is whether a blockchain-based copyright management system can generate enough network effects, i.e., the system needs to be used by many copyright owners or manage many copyrighted works to be successful.287 The third structural issue is on-chain and o -chain coordination of copyrighted works ( o -chain double spending problem ).288 The o -chain double spending problem can arise because blockchains cannot control o -chain actions, such that a person could double spend their copyright by transferring their rights on-chain, and then transferring their rights again o -chain.289 The fourth structural issue is the use of blockchain for copyright infringement.290 It is possible for copyright infringers to store infringing content on the blockchain, and then have the infringing content

272Finck and Moscon, “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”.

273Ibid.

274Ibid.

275Ibid.

76Ibid.

277Ibid.

278Ibid.

279Ibid.

280Ibid.

281Ibid.

282Ibid.

283Ibid.

284Ibid.

285Ibid.

286Ibid.

287ibid. (We also refer to this structural challenge as the network-industry cost in Part II).

288Finck and Moscon, “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”; Bodó, Gervais, and Quintais, “Blockchain and smart contracts”.

289Finck and Moscon, “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”; Bodó, Gervais, and Quintais, “Blockchain and smart contracts”.

290Finck and Moscon, “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”.

replicated among the peers on the blockchain network.291 The fifth structural issue is inaccurate data being stored on the blockchain, i.e., the garbage-in garbage-out problem.292The garbage-in garbage-out problem is an issue for copyrighted information because there is nearly no way of authenticating that such information is accurate when it is registered on the blockchain.293

Finck and Moscon assessed from their investigation that blockchain in the copyright domain raises concerns about private ordering and code-is-law paradigm, but can enable innovation in the industry for a fairer copyright regime.294 Blockchain could be used as a means of private ordering to the detriment of legally-protected public policy goals such as access to knowledge. 295 Thus, and as fervently acknowledged by Finck and Moscon, we should keep a careful eye on how blockchain is being utilized.296 Finck and Moscon discussed how blockchain enforces the code-is-law paradigm in two ways.297 First, the protocols of distributed ledgers enforce their creators’ normative choices, and second, smart contracts self-enforce and execute compliance with a pre-determined rule-set. 298 From there, Finck and Moscon discussed that at the end of the day, technological infrastructure is driven by private interests and without appropriate legislation, will disregard users’ interests. 299 Thus, this has led to suggestions outlined by Finck and Moscon to pass new legislation that by default, makes certain uses mandatory and irrevocable by contract and technology, or even making new technology with fair use by design. 300 This is very much needed because a major differences between code and law is the ex ante fashion of code, such that save for the technologically skilled, those exposed to it have no option other than compliance. 301

Lastly, Finck and Moscon espouse that blockchain may enable a more disintermediated and fair era of copyright management. 302 The innovative ecosystem of pioneers in this intersection are trying to develop tools to push decentralization into the copyright domain that empowers musicians.303 Though, user-friendly tools still need to be made, there is progress being made to make it easier for musicians to code smart contracts that comply with applicable law.304

General Birgit Clark and R. Burstall in Crypto-Pie in the Sky? How Blockchain Technology is Impacting Intellectual Property Law described a typology of blockchain applications in the intellectual property (IP) sector (copyright, trademarks, patents, and trade secrets).305 For our research purposes, we shall discuss Clark and Burstall’s typology of blockchain applications in copyright, namely, smart IP rights and registries, evidence of creatorship, and smart contracts and IP.306

291Finck and Moscon, “Copyright Law on Blockchains: Between New Forms of Rights Administration and Digital Rights Management 2.0”.

292Ibid.

293Ibid.

294Ibid.

295Ibid.

296Ibid.

297Ibid.

298Ibid.

299Ibid.

300Ibid.

301Ibid.

302Ibid.

303Ibid.

304Ibid.

305Lead Knowledge Lawyer for Baker McKenzie’s IP Birgit Clark, Dr. Technology Practice, and Ruth Burstall Senior Legal Counsel at Johnson & Johnson Innovation EMEA. “Crypto-Pie in the Sky? How Blockchain Technology is Impacting Intellectual Property Law”. In: Stanford Journal of Blockchain Law & Policy (June 28, 2019). https://stanford-jblp.pubpub.org/pub/blockchain-and-iplaw. url: https://stanford-jblp.pubpub.org/pub/blockchain-and-ip-law (“In the context of IP-heavy industries, blockchain and related distributed ledger technology offer obvious possibilities for evidencing IP protection and registration, either at the registry stage or in court during infringement proceedings. It could also oer a cost-effective way to speed up such processes. Potential use cases include: evidencing creatorship and provenance authentication, registering and clearing IP rights; controlling and tracking the distribution of (un)registered IP; providing evidence of genuine and/or first use in trade and/or commerce; digital rights management (e.g. online music sites); establishing and enforcing IP agreements, licenses or exclusive distribution networks through smart contracts; and transmitting payments in real-time to IP owners”).

306Ibid.

In Clark and Burstall’s discussion of smart IP rights and registries, they see such registries recording the whole lifecycle of IP rights, thereby making IP transactions and audits seamless.307 In Clark and Burstall’s discussion of evidence of creatorship, Clark and Burstall contemplate digital certificates implemented in conjunction with blockchain to record creatorship in an unregistered creative work, and how this may be used as evidence of their conception, use, qualification requirements and whether the right is still in the period of protection. 308 In particular, this can provide a major bene t for music licensing because creators can exhibit both their statement of creatorship and engage in individual licensing.309

In Clark and Burstall’s discussion of smart contracts and IP, Clark and Burstall considered two divergent views on smart contracts310, and how smart contracts can impact IP licensing agreements.311 Clark and Burstall see smart contracts having a positive impact on IP licensing.312 Clark and Burstall contemplate that smart contracts could be used to establish and enforce IP agreements, such as licences, and allow the transmission of payments in real time to IP owners, with such smart contracts including rights management information, such as ownership, use permissions and payment terms. 313 Though, Clark and Burstall think it is too early to determine whether smart contracts are the future of digital rights management, they do envision smart contracts rede n[ing] how creators are remunerated often instantly via micropayments by acting as a platform for creators and distributors of IP. 314Clark and Burstall also discussed global standards and concerns surrounding smart contracts.315 Clark and Burstall noted that there are global standards being developed for self-executing contracts, and hope these standards can lead to a more reliable definition of [smart contracts]. 316 Lastly, Clark and Burstall discussed concerns that may arise with the increased usage of smart contracts, such as:

  • whether smart contracts can “accurately execute more complex contractual terms or legal concepts, such as public domain and multi-territorial licensing information”;

  • how “consumer protection laws and public interest considerations” will shape the “concept of smart contracts”; and

  • the availability of reliable and safe data oracles.317

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