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Blockchain As Digital Evidence in Court. The Power of Giants Ernst & Young and Microsoft

12 November 2018 12:57, UTC
Anna Zhygalina

According to the British consulting agency Muso, the United States became the leader of the pirates content market last year, gaining 27.9 billion visits to piracy domains. The second place was taken by Russia - about 20.6 billion and the third - by India with over 17 billion visits. They are followed by Brazil - 12.7 billion and Turkey - 11.9 billion. Approximately at the same level in the number of illegal content distribution are Japan, France, Indonesia and Germany - from 10.2 billion to 10.6 billion visits to pirate sites for the period of 2017. The total number of visits worldwide amounted to 300 billion last year, which is 1.6% higher than in 2016.

Digital market giants and IT industry leaders see the solution to the problem of copyright protection in the blockchain, positioning it as a reliable base for registration, verification and storage.

Absorb and conquer - new platforms for new ideas and big money

In June, Ernst & Young and Microsoft announced a joint blockchain platform development for managing royalty-class intellectual property rights. The companies stated that the proposed solution will ensure transparency and traceability of transactions in real time, while the system will work in the Microsoft Azure cloud. Initially, the platform was conceived for Microsoft and its partners in game development. However, the IT leader says that the system can become universal for all innovators. But what if Microsoft, well known as a fan of acquisitions and of innovative patents purchasing, successfully implements the infrastructure of this platform, while its partner Ernst & Young will introduce a recently announced cryptographic Protocol for confidential transactions? It is easy to guess what kind of explosive mixture is prepared for developers by the intellectual property market giants. On the one hand, they will offer a corporate audit for copyright on the blockchain, on the other - they will take control of more innovation and a huge share of the intellectual property market.

Not surprisingly, these blockchain based solutions gets the big rush in the industry. According to the WIPO report, not less than a third part of the each product value is an estimate of the invested intellectual property. Thus, according to the Commission on the Theft of American Intellectual Property, the annual value of pirated products in the field of software is more than $225 billion in the United States, while the trade secrets theft reaches the amount of $600 billion. But even the Commission itself acknowledges that these figures do not include the full cost of the damages from copyright infringement.

Another industry giants are also trying to put blockchain at the service of their interests by offering services to authors that guarantee their rights protection. For example, Kodak announced the launch of such a platform for managing copyrights and sales of digital images, while Intel offers to register even unfinished works with its blockchain service. Both companies make tempting offers to authors, either promising to compensate the damage in case of violation of their rights, or offering convenient services for co-authorship.

However, what is the true motive of the industry giants? Can we assume, that IT leaders are eager to announce their “lifesaving” blockchain platforms, offering developers “the most reliable” ways to protect their billions with the one goal - to strengthen the control of the content market. Achieving this goal could provide companies with a huge additional income in the form of transaction fees.

Benefits of the blockchain for copyright

Of course, you can always use the traditional method of copyright registration by filing an application with the patent office. The procedure is not fast and the application form can not be filled without the lawyers’ help. And the fee of $35 to $55 must be paid before the receiving the certificate, which can be waited for six months or longer. For example, the consideration of the application takes from several months to a year in the Library of Congress. In this case blockchain is a cheaper and simpler alternative: the right is registered from the moment of publication of the record.

Another significant advantage of using blockchain is the ability to optimize the audit of copyright, as we wrote earlier. The third advantage: the technology of smart contracts allows blockchain services to enter into secure transactions, automatically paying authors fees for the use of their content.

The drawbacks of the blockchain as protection

Speaking of the fact that the blockchain can significantly improve the lives of authors and protect them from theft by 100%, the main thing is not to miss a few important points.

First of all, the blockchain service, where the authorship was registered, will not protect against piracy. Even if it is a platform that allows authors to distribute their content on various services and receive the required commission, it is extremely difficult to track the illegal distribution of data, since free copying is practically unlimited. For example, in the United States, which have the most developed legal system for copyright protection, the largest pirate site managed to survive after official Google ban. The piracy website owners have created dozens of mirrors, and some of the site's equipment was transferred to drones, which were launched over neutral waters.

Secondly, the blockchain is not a legal document: it can only confirm the transaction by fixing a timestamp, which will serve as proof of the time for copyright registration. However, the transaction itself does not imply ownership of the intellectual product. And this leads us to the third and main problem that can call into question the usability of such platforms: the lack of legitimacy of the blockchain certificate in most countries of the world.

In addition, blockchain has a serious technological limitation: in order to determine the true author in the case of appropriation of someone else's intellectual property, it is necessary to check the legal purity of the transaction. And it is beyond the power of any blockchain platform. This is what the independent consultant for the study of blockchain platforms and CFA from Washington Umed SAIDOV believes. In an interview for Bitnewstoday.com he shared his opinion: "The only thing that blockchain can confirm is that transactions are valid cryptographically. But what rights and obligations underlie those transactions - can’t be validated through consensus”.

In his opinion, the blockchain can serve as a place to store and verify the time of registration of copyright technically, but the regulation of this process would have to be made by legal authority. For example, if the authorship was stolen, and the offender registered first - such situation can be resolved only in court: “If the first entry was false, it would remain on the ledger but would be invalidated” - said the expert.

In fact, litigation is by far the only way to protect copyright from a financial point of view. But what can be the ideal combination of the blockchain and the legal system and are there any prerequisites for their complementarity?

Synergy of consensual and procedural law

In the US state of Vermont the blockchain records were considered as evidence in the legal system for the first time. In 2016, here was adopted a draft, according to which the documents verified by the blockchain gained the legal force. At the same time, the register entries must have been certified by the signature of an authorized person confirming the authenticity of the blockchain in the list of platforms allowed by law.

Blockchain gained full independence as a legal proof in Arizona in April 2017. The Senate approved the historic bill HB2417, which recognizes the legality of data storage in the blockchain, and what is important - on any platform. And smart contracts were legally defined as "signatures and contracts in electronic format" and were used to resolve court proceedings on a par with traditional notarized contracts.

Soon after, several more states took steps towards legalizing transactions on the blockchain. The state of Delaware has adopted a law on the use of blockchain in business documents. And in August 2018, the governor of Ohio signed a bill that officially secured the legal status of the data recorded on the blockchain accompanied by an electronic signature. The impetus for this was the increase of use cases with the public blockchain records as part of the evidence base.

But due to the specifics of the US legal system, innovations were not adopted in all states. And so China, which is actively digitizing the judicial system throughout the whole state, rapidly broke into the leaders. And despite the fact that China has taken steps much later, the government's actions look more consistent and global.

To begin with, a digital court system was introduced here: the first Internet court appeared in Hangzhou in August 2017. And apparently, it is no an accident: the offices of many global online trading platforms such as Alibaba and NetEase are located here. The online court of Hangzhou Internet Court accepts claims of infringement of intellectual rights on the Internet, and the judicial procedure is carried out in real time on the website of the court.

The next step was quite logical - to include digital data at the evidence base of Internet courts. And the impetus for this was the real case: in January 2017, the Chinese media company Huatai Yimei sued an IT-company from Shenzhen for violation of intellectual property rights. The plaintiff presented to the court the blockchain record as evidence: the company had registered all its digital content on the blockchain based platform. As a result, the Hangzhou court ruled in favor of the plaintiff, recognizing the blockchain records as the legal evidence, which was the first case in the court practice of copyright infringement in China. Since then, many Chinese lawyers have recognized blockchain as a "reliable, efficient, convenient and cheap tool".

And this was followed by a decisive large-scale step: on September 7, 2018, the Supreme people's court of China ordered the Internet courts to consider digital blockchain records as evidence in cases involving the use of the Internet. In this case, the record will be considered legitimate in the presence of digital signatures and reliable timestamps and hash data.

The authority of blockchain as evidence is gradually gaining weight in court and these first steps towards the synergy of consensual law, which is the blockchain, and the procedural law - legal authorities of any country in the world, - speak to the great future of blockchain in the judicial system: “In theory the legal authority could manage a smart contract that keeps track of all copyrights. Thus, to verify a copyright at the court, it would be enough to consult the ledger and get the answer. Since the ledger is immutable, it would be easy to prove who was the first to register” - says Umed SAIDOV.

Some countries are already actively working to introduce technology directly into the court system itself. For example, in July, the DIFC Judicial Committee together with the Smart Dubai initiative, announced the development of the first blockchain court to simplify document management and improve the efficiency of the entire system. But the use of blockchain as evidence here stays only as one of the plans.

Blockchain is an irrefutable proof of copyright registration time, but the judge still has the final word. Nevertheless, at the moment, register records are legitimate only in the legal systems of China and some US states, but even here the court refers very selectively to the blockchain platforms that are considered as trustworthy. Therefore, the development of blockchain solutions by such giants as Ernst & Young, Microsoft, Kodak and Intel gives hope that transactions on their platforms will be a weighty argument in legal disputes.