Tokenization of intellectual property for IP rights management

Kat friend, Dr. Julia Hugendubel, describes recent developments concerning tokenization of IP rights to manage IP.

Interest in blockchain technology, tokens, and IP, continues apace. Consider the recent WIPO webinar, "Blockchain Whitepaper for IP Ecosystems", at which the view was expressed that the future of IP management rights could include a solution that utilizes tokens, and, in particular, non-fungible tokens. While the tokenization of IP, namely for anti-counterfeiting purposes, was already outlined by the European Intellectual Property Office several years ago, WIPO sees potential applications of blockchain technology in IP ecosystems for "[a]ll types of IP assets: Registered and Unregistered Rights".

Tokenization of IP

In a nutshell, "tokenization" means using a smart contract (i.e., a computer program) to create a token that is then anchored in a blockchain. This means that a computer program is used to create a digital asset that can be transferred from one person to another. (Actually, it is not the token that is transferred, but the access right to this token. By using asymmetric cryptography it is secured that only the owner can transfer the access rights and that the access rights cannot be copied.) The process of creating a digital asset with a smart contract is called "minting".

The result is that the smart contract allows you to represent any IP, e.g., trademarks, designs, patents or copyrights, with a token. Different standards have been developed to mint tokens, such as ERC20 for fungible tokens and ERC721 for non-fungible tokens. The benefit of this standardization is that the tokens can be recognized and easily transferred from all kinds of compatible wallets (a software or hardware solution that stores the keys to manage tokens, e.g., MetaMask or Solflare). The address of a wallet that holds the token can be that of an IP rights holder, or a third-party custodian.

The advantage of using standardized tokens with a sufficiently distributed blockchain is the possibility to digitally display ownership of IP in a secure, transparent and immutable manner. A token could be already issued when you apply for an industrial IP (e.g., by the IP office, by a tokenization tool provided by the IP office that allows the applicant to create such a token, by the applicant himself, or by a third party that offers this service), and be aligned to that IP status, e.g., when the IP is registered. This could then be used for more efficient IP management (licensing, ecommerce, tracking and tracing) because, being entirely paperless, it allows "real-time" registration.

Legal implications

Various legal aspects may be germane to the tokenization of IP. To mint a token, it is necessary to verify the license required for the respective smart contract (e.g., a MIT license). Additional license conditions can be already included in the smart contract (e.g., royalty payments, time of use), or separately linked to the token.

                                                                                  Not all mints are in juleps

That said, the owner of the intellectual property rights, and the owner of the token, may diverge. Thus, the legal nature of tokens and the linked content has to be considered, which depends on the laws of the individual country. The legal classification of tokens – often referred to as "crypto-assets" – and the applicable crypto laws, can differ from case to case. Depending on the crypto-asset, different requirements must be met, e.g., for crypto-assets as defined in the German Banking Act (KWG), or security tokens that are issued under the German Electronic Security Act (eWpG).

Especially relevant for issuers of crypto-assets and crypto-asset service providers in Europe will be the Regulation on Markets in Crypto-assets, which could enter into force in 2022. It is expected that MiCAR will help to harmonize the current understanding of the different kinds of token and strengthen the EU crypto market by providing more legal security and extend existing instruments, such as the passporting of a crypto license from one EU member state to another.

Conclusion

The tokenization of intellectual property can be an efficient tool to manage IP rights, using blockchain technology or a similar distributed ledger technology. Important in this context are self-sovereign identities (SSI), the associated verifiable credentials (VC) and decentralized identifiers (DID). IP offices have already started to use blockchain technology: IP Australia initiated a blockchain project with smart trademark badges; EUIPO, together with Malta and other national EU IP offices, have started to use blockchain technology for registered trademarks and designs; and Rospatent has developed a blockchain-based "IPR management platform".

Moreover, the EU Commission stated in its recently published IP action plan that blockchain technology will help to "achieve more transparency and better rights data management, notably with regard to copyright and an improved identification of rights owners". Nevertheless, blockchain-based IP management, particularly when it comes to industrial IP rights, is still in its infancy. If 2021 was characterized by notable interest and investment in blockchain and crypto projects that further accelerated developments in this field, 2022 might be the year in which we begin to receive greater clarification regarding which token projects will begin to take root.

Picture by Erich Wagner (www.eventografie.de) and is licensed under the Creative Commons Attribution-Share Alike 4.0 International license.