5 minute read 18 Jun 2019
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How blockchain can impact the intellectual property life cycle

By

EY Americas

Multidisciplinary professional services organization

5 minute read 18 Jun 2019

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Blockchain offers rights management from creation to commercialization.

In today’s knowledge economy, an increasing share of business value is derived via intangible assets; thus, success often depends upon the ability to manage and exploit intellectual property (IP). For that reason, companies require managers to effectively acquire, govern and commercialize copyright-and patent-protected content.

The introduction of new blockchain-enabled tools to represent unique assets and to manage the development and payments for IP, will drive innovation across the value chain. By building blockchains that allow users to store and transact IP, business leaders will leverage these platforms to enhance and protect their most valuable resources. Content producers, owners of IP, distribution partners and end consumers all stand to benefit.

The changing business landscape

Businesses that rely on IP-protected material (e.g., media, advertising or software) to create value are confronting two major forces that pose several key challenges.

Internally, unsynchronized IT systems do not enable data to flow, creating friction to locate and comply with copyrights under control. Businesses are also challenged to properly apply attribution and cost compensation to responsible parties, including operating units and individual creators. At time of settlement or exercise of IP, mismatches lead to manual investigation and reconciliation. Consequently, managers can’t track and forecast against reliable targets because information is not validated and available in real-time.

Externally, firms operate in more complex and diverse business networks than ever before. The growing number of partners at every step of the value chain, as well as the multiple uses for a single IP asset, means there is increased demand on firms to integrate operations and manage multiple data feeds. Thus, businesses incur high costs to connect with partners and face restrictions in developing their business and operational strategy.

As opposed to legacy systems built on single party record keeping, blockchain technology is a digitally native platform to manage digitally native assets.

How rights and royalties will work

The blockchain systems of the future will handle the development of IP across three separate phases of the life cycle: tokens to represent the good or asset; tracking services and contributions to IP development; and a platform to manage the sale, licensing, contracting and exploitation of IP.

In the example of an internationally produced and distributed television show:

  1. Create or acquire IP — A producer buys the script for a new show. The blockchain system will create tokens representing the script and each underlying IP asset, including character and title rights.
  2. Contribute to development — A music company is hired to create a theme song for the show. The non-trade agreement, including terms and conditions, is deployed to the blockchain as a smart contract. Credit and debit notes are created and correct charges for services are sent to each side of the transaction.
  3. License the product — Contract agreements are signed between the distributor and IP owners that license the use of their content. As the distributor reports real-world transactions, business logic is triggered on the blockchain to calculate payment terms based on how the product is exploited in the market. Because contract terms are shared between the payee and the payor, each party can verify the correct financial obligation.

The benefits of blockchain for rights and royalties management

  • Better management of intangible assets that are provably unique: Copyright ownership can be proved and attribution can be traced to the originating parties of a shared asset. Using existing tools, various teams can collaborate and iterate on content, while maintaining provenance and the production credit. However, the introduction of blockchain technology allows for the commoditization of assets that can be reused, exchanged and assigned monetary value.
  • Reduced transaction friction via a peer-to-peer network: Transactions and movements of value are shared on the network, thus reducing transaction steps during the licensing and contract management processes. As real-world inputs are captured, a layer of smart contracts automates dependent transactions, alerts relevant third parties and instantly calculates the financial obligation.
  • Improved partner relationships on a transparent ledger: Multiple parties often require visibility into media assets, contract terms and the audit log of transactions. By utilizing a shared ledger, the audit function that gets repeated by multiple business partners only needs to happen one time. The platform also allows for self-service reporting through custom applications and integration with the existing IT systems.

Impact on intellectual property

Over the next decade, blockchain technology will transform how companies catalog and track IP.

It will improve rights management in several key ways. First, companies that control copyrights will have a better foundation for data that can catalog all versions, iterations and contributions to a single asset. All of the inputs to a final product, such as a film, video game or advertising campaign, are accessible in a comprehensive package. Second, the ability to quickly between partners with enforceable contract terms will improve operations across suppliers, distributors and third parties. And the real-time flow of licensing and payments is captured. In this model, a content provider may contribute to a part of a final product and maintain the visibility of the market performance and financial obligation.

By removing long-standing constraints to copyright and IP management, businesses will develop new operating capabilities and strategic market opportunities.

A new paradigm will emerge based on the movement of the IP value with attribution and security as the primary features, not issues to be addressed via workarounds. IP applications will be designed in numerous ways given the requirements for private or public data. However, the end result will be systems like the blockchain solution built for video game and software licenses that reduces compliance burden, improves partner workflow and optimally distributes products that monetize rights.

The use of blockchain will lead to massive efficiencies in the execution of rights and royalties management, as well as building future capabilities based on a new set of technology principles.

Conclusion

At its core, blockchain is a technology used to transmit value across a network of participants. Intangible assets are increasingly more important to the value of a company, and success depends on the ability to optimize the return on investment. The IP life cycle of the future will make sure assets are attributable upon creation, secure from fraud, and operate on a network that promotes operational efficiency and product innovation.

Summary

The use of blockchain will lead to massive efficiencies in the execution of rights and royalties management, as well as building future capabilities based on a new set of technology principles.

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By

EY Americas

Multidisciplinary professional services organization