Date: 2014-09-09
I recently became interested in startups that are building a layer on top of the bitcoin ecosystem as a means to record digital rights. For example, an artist would create digital artwork and, by encoding in a message on the blockchain, assign her rights to the work to another party.
The blockchain appears to be the ideal ledger for this purpose. It is widely distributed and publicly available. More importably [sic], the record made on the ledger is, like the transfer of bitcoins, irreversible. It is worth asking how this method of recording digital rights would be treated at law.
For the purposes of our discussion, we will review English law. The Copyright, Designs and Patents Act 1988 (from here onwards, CPDA 1988) covers much of this area. A lot of standardisation has occurred under the aegis of the World Intellectual Property Organization (an arm of the UN), the World Trade Organization, as well as under EU Directives and Regulations. As such, a similar treatment is expected in most jurisdictions.
The owner of a copyright, initially the author of the work, has the exclusive right to prevent anyone from reproducing the work without the owner’s consent. The copyright is deemed to arise from the moment the work is created. In the UK, there is no general register of copyright. The blockchain as a copyright ledger fills this gap, but does not substantially provide the author of the work any additional protection she does not already have.
Where the ledger may prove to be more useful is for assignment of the copyright from the author to a potential buyer, or from the buyer to subsequent buyers. The law treats copyright as a form of personal property, and having a public ledger that signifies the current owner might allow for better commercial exploitation of the work.
The assignment of the copyright, however, must be made in writing and signed by or on behalf of the assignor. This requirement appears to be in conflict with the attempt to use the blockchain to record digital rights. We consider the following scenarios:
Scenario A - Alice creates a digital artwork. Bob is interested in the work, and pays Alice GBP 100 for the copyright. Alice writes a message denoting as such on a piece of paper and signs it. The next day, Eve tells Alice she is interested in the work. Alice writes the same message on a napkin and signs it in exchange for GBP 100 from Eve.
Scenario B - Alice creates a digital artwork. Bob is interested in the work, and pays Alice GBP 100 for the copyright. Alice encodes a message on the blockchain denoting as such. The next day, Eve tells Alice she is interested in the work. Alice writes the same message on a napkin and signs it in exchange for GBP 100 from Eve.
In Scenario A, both assignments are valid at law, and priority is determined by the first-in-time rule. Bob is considered the valid owner of the copyright, and can prevent Eve from making copies of the work.
In Scenario B, Bob’s assignment will be ineffective at law. The failed attempt at a legal assignment would be treated as an oral contract to assign the interest. This gives Bob a contractual right against Alice. However, if Alice is declared bankrupt, Bob is given the same rights as Alice’s other creditors. He has no special claim to the GBP 100 Eve paid for the copyright.
The assignment to Eve is valid, as she is a bona fide purchaser for value without notice. Bob has no legal recourse against Eve. In particular, Eve may exercise her rights as the copyright owner to prevent Bob from commercially exploiting the work.
In conclusion, under the current law, the blockchain as a digital rights ledger would appears to, at best, give rise to a merely personal right against the immediate assignor or assignee. However, to provide future buyers rights in rem, the written and signed requirement for transfers of intangible goods would need to be overcome, by Parliament or in courts.