The technology industry and the entertainment community often clash where they intersect — especially when disruption is the raison d’être of many a startup. But there is one particular type of disruption that has the potential to greatly benefit the entertainment industry by significantly decreasing transaction and rights management costs, and improving the ability to enforce IP rights. That technology is called blockchain.
General counsel have been hearing a lot about blockchain lately, notably in connection with digital currencies, like Bitcoin. Commentators have been talking about it more and more in connection with so-called “smart contracts,” and they frequently refer to IP rights, at least tangentially, when they talk about applications for smart contracts. So, what is all this stuff? Will it work? And why should general counsel care at all?
Blockchain seems intimidating, but is actually rather simple. It does the same thing that a check register does — it collects key information about transactions and records them in a journal (or ledger) as a running list. In blockchain, each check — each transaction — is a link, and each link is connected to the previous link, forming a chain. This digital check register is stored in the cloud and multiple copies of the register are saved all over the world. Combined, all these features lead us to the technical definition of blockchain: “an open distributed database.”
Beyond being used as a ledger for checks, each link in the chain can be used to record other kinds of transactions. A vehicle manufacturer could, for instance, use blockchain to document the creation, purchase and sale of a vehicle.
Two unique features give blockchain its true potential for managing IP rights. First, blockchain is resistant to data modification or corruption. Data in blockchain cannot be retroactively altered (interested readers can find good primers explaining this feature in detail here and here.) Second, a blockchain link can be programmed to trigger transactions automatically. More simply, each link on the chain can have the deal points of an agreement programmed to execute automatically.
Going back to our vehicle example, blockchain could be programmed to transfer money from one account to another, and to notify the department of motor vehicles and both parties’ insurance carriers of the sale. Now, think of all the possible applications in managing an IP portfolio.
Blockchain could be used to capture the entire chain of title of a piece of IP. (This would also require a piece of technology known as a “hashing algorithm,” which is fairly simple to implement.) Blockchain could be employed to manage and account for licensed rights as they are parceled out to different licensees. For example, each blockchain link could identify the territory of the license, the duration of the license, the particular media type being licensed (think theatrical exhibition, home video, transactional VOD, all rights, etc.). That alone might altogether eliminate the possibility of territorial rights clashes, which would greatly reduce dispute resolution costs.
Also consider the duration of rights in a license. With blockchain and smart contracts, a computer could automatically disable a licensee’s ability to trade or otherwise deal in the IP once the rights expire. And this is just scratching the surface of what could be done.
If the proponents are correct about the virtues of blockchain technology and smart contracts, the possibilities of how it could be used by media companies to manage their IP portfolios are indeed endless. As the market for media content broadens and profit margins grow slimmer, the possibility that blockchain technology can substantially reduce transaction and enforcement costs should be attractive to any company that deals in intellectual property assets.
Will blockchain fulfill its promise for media rights management? Nobody can answer that and this article offers no predictions. The key takeaway is not to try to convince a studio’s law department to be an early adopter of blockchain, but instead to get a sense of what it does and how it can be put to good use — and to keep a close watch on developments in this technology.
Media companies would also do well to find opportunities to experiment with blockchain technology, preferably in non-mission-critical settings. Perhaps the technology could be better evaluated by having the law department lead a task force with members from the IT department, licensing team, and other appropriate business units to identify the problems blockchain could solve for the company’s media rights management efforts, the risks it minimizes, and any risks it creates.
If the technology holds the promise to make IP rights management painless and less expensive, readers should pay close attention. One way to avoid disruption may be for content owners and sellers to evolve in ways that make the disruption work for, rather than against, their interests.