“The technology industry and the entertainment community often clash where they intersect – especially when disruption is the raison d'être of many a startup,” Partner Thomas Vidal wrote in his latest article for InsideCounsel.

Yet, in spite of this discord, Vidal explained that there is one kind of disruptive technology that offers significant benefits for entertainment companies: when harnessed to manage intellectual property rights, blockchain can substantially decrease transaction and management costs while simultaneously improving enforcement capabilities.

What is Blockchain and How Does it Work?

“General counsel have been hearing a lot about blockchain lately, notably in connection with digital currencies, like Bitcoin,” Vidal said. “Commentators have been talking about it more and more in conjunction with so-called ‘smart contracts,’ and they frequently refer to IP rights, at least tangentially, when they talk about applications for smart contracts.”

While the technology may seem intimidating on its face, blockchain essentially functions as a digital check register, collecting key information about transactions and recording them in a journal in the form of a running list. Each transaction is a “link,” and each link connects with the previous, forming a chain. The digital blockchain ledger is then stored in the cloud, with multiple copies saved all over the world as an “open distributed database.”

Blockchain is Uniquely Suited to Manage Complex IP Rights

According to Vidal, two unique aspects of blockchain make it ideally suited to manage IP rights: “First, blockchain is resistant to data modification or corruption. Data in blockchain cannot be retroactively altered.”

“Second,” he wrote, “a blockchain link can be programmed to trigger transactions automatically. [So], each link on the chain can have the deal points of an agreement programmed to execute automatically.”

Blockchain could therefore be used to capture the entire chain of title of a piece of IP, or be employed to manage and account for licensed rights as they are parceled out to licensees. For example, each blockchain link could identify the territory of the license, the duration of the license, the particular media type being licensed, etc.; potentially eliminating the possibility of territorial rights clashes, which, in turn, would greatly reduce dispute resolution costs.

Additionally, through 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.

Recommendations for Media Companies

As the market for media content broadens and profit margins narrow, “the possibility that blockchain technology can substantially reduce transaction and enforcement costs should be attractive to any company that deals in intellectual property assets.”

Vidal advises media companies to find opportunities to experiment with blockchain technology, “preferably in non-mission-critical settings,” to identify the problems it could alleviate in rights management, the risks it minimizes, and any risks it creates.