Embed Size (px)
Citation preview
Blockchain and IP:
Navigating Emerging IssuesBlockchain, DLT Platforms, Crypto-Tokens, Smart Contracts, and More
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.
THURSDAY, SEPTEMBER 13, 2018
Presenting a live 90-minute webinar with interactive Q&A
David Ng, Lawyer, Patent Agent, Trademark Agent, Norton Rose Fulbright Canada, Toronto, Canada
Evan Smith, Managing Partner, Cogent Law Group, Washington, D.C.
Louis Stone, Managing Director- Global Head of Business Development, Symbiont, New York
Tips for Optimal Quality
Sound Quality
If you are listening via your computer speakers, please note that the quality
of your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory, you may listen via the phone: dial
1-866-258-2056 and enter your PIN when prompted. Otherwise, please
send us a chat or e-mail [email protected] immediately so we can address
the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Viewing Quality
To maximize your screen, press the F11 key on your keyboard. To exit full screen,
press the F11 key again.
FOR LIVE EVENT ONLY
Continuing Education Credits
In order for us to process your continuing education credit, you must confirm your
participation in this webinar by completing and submitting the Attendance
Affirmation/Evaluation after the webinar.
A link to the Attendance Affirmation/Evaluation will be in the thank you email
that you will receive immediately following the program.
For additional information about continuing education, call us at 1-800-926-7926
ext. 2.
FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program, please
complete the following steps:
• Click on the ^ symbol next to “Conference Materials” in the middle of the left-
hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see a
PDF of the slides for today's program.
• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
FOR LIVE EVENT ONLY
CONFIDENTIAL
NOT FOR REDISTRIBUTION
Blockchain 101
6
Blockchain: ● A decentralized database (with a single source of truth), built on an
immutable log of transactions.
Smart Contracts:● Self-executing, deterministic applications in a decentralized system which
binds the behavior of independent computer systems.
© 2017 Symbiont.io, Inc.
Proprietary and Confidential Information
A shared data and computing infrastructure
for managing workflows between independent
(mutually distrusting) organizations.
Smart Contract Platform
7
© 2017 Symbiont.io, Inc.
Proprietary and Confidential Information
What Makes a Use Case appropriate for Blockchain Technology?
8
CONFIDENTIAL
NOT FOR REDISTRIBUTION
Selected Symbiont Blockchain Use Cases Index Data
Data Consumers
Data Providers
Private Equity
Registered Agents Corporations
Law Firms
Borrowers
Syndicated Loans
Lenders
Banks
Mortgages
Investors
Originators
Servicers
9
CONFIDENTIAL
NOT FOR REDISTRIBUTION
There are even good use cases in the legal profession...
Document Management
10
CONFIDENTIAL
NOT FOR REDISTRIBUTION
Document retention (old way)
➢ Create a retention schedule on database
➢ Create a secure destruction schedule for those documents to reduce risks associated with data breaches
➢ Create a Certificate of Destruction that specifies the exact date and method used to destroy your documents
➢ Very Labor intensive and difficult to enforce
➢ Often creates liability, as it is difficult to destroy documents on time
11
CONFIDENTIAL
NOT FOR REDISTRIBUTION
Document retention (new way)
➢ Use smart contracts to codify and execute on document retention rules.
➢ Roles are given permission to manage their documents for which they have responsibility
➢ Only those who have keys can modify
➢ Ensures no liability, documents are automatically destroyed or kept via smart contracts
12
Blockchain and IP: Navigating Emerging Issues
David Ng
Norton Rose Fulbright Canada LLP
September 13, 2018
Distributed Ledger - Use Cases
14
Overview
• Why are you copying me? (Copyright)
• What is your problem? (Patentable Subject Matter)
• What are you doing? (Patent Trends)
• Can I play? (Open Source, Multiple Parties)
• Can you stop that? (Open Source Licenses)
• Privacy please (GDPR considerations)
15
A blockchain is a digital, distributed transaction ledger,
with identical copies maintained on multiple computer systems controlled by different entities.
- David Schatsky and Craig Muraskin, Beyond Bitcoin: Blockchain is Comingto Disrupt your Industry
16
Distributed Ledgers are Copies
• What is being stored on the ledger?
• Financial Transactions
• Images
• Contracts
• Software
• Copies of software defining blockchain rules (mining, consensus, block structure, etc.) are running on each computer
• Is it subject to copyright?
• Who owns the copyright?
• Do I have a license?
17
Is it Patentable?
Blockchain and distributed ledger technologies rely on:
• Computing devices
• Communication between devices
• Software
• Rules, schemes, mathematics, encryption
Courts, patent offices invalidating/rejecting computed-implemented patents and applications for lack of patentable subject matter
18
Is it Patentable?
• U.S.
• Post Alice – 35 USC 101
• Creating shadow credit/debit records – fundamental economic practice –ineligible for patent protection
• Abstract? Significantly More?
• Canada
• Amazon one click patent – Federal Court of Appeal
• Examiner’s strip out computer elements if they are not “essential” to the invention
• Computer problem?
• Europe
• Software must cause a “further technical effect”
19
What is your problem?
• Developments will have greater chance of success if they:
– Improve the operation of a computer / technical process
– Provide a solution to a challenge that does not exist outside the realm of computers
• Blockchain / Distributed Ledger Challenges
• Scalability
– Slow confirmation times
– Blockchain size
– Computational waste
• Consensus rules – majority hash attacks
• Key management / security
• Smart Contract Input Sources
• Connecting external world with blockchains
• Identity / Fraud
• Cryptographic weaknesses
• Immutability – fixing errors/fraud
• Privacy
20
Patent Trends – Blockchain / DLT Filings
0 0 0 0 1 11
63
286
815
$0.30 $5.27 $13.28
$770.44
$313.92 $434.46
$997.69
$13,412.44
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
0
100
200
300
400
500
600
700
800
900
2010 2011 2012 2013 2014 2015 2016 2017 2018
PublishedApplications/Patents
Bitcoin Price
21
Patent Trends – Top Applicants
22
Open source software / platform
• Open source software licenses are prevalent in DLT solutions
• Most popular• Apache 2.0• GPL v3
• Can impugn patent, copyrights• In derivatives/improvements, code built with libraries
• OSS Licenses• May restrict ability to sell / license code, enforce IP rights• May grant free licenses to your code / patents• May terminate your license to use the open source code
• Also• MIT• BSD
23
GDPR - Privacy / Data Protection
• Personal data – broad definition
“any information relating to…an identifiable natural person… who can be identified, directly or indirectly, in particular by reference to an identifier such as…an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person…”
• DLT’s immutability, distributed-nature potentially incompatible with GDPR
•Right to erasure, right to correct data
•Personal data not kept for longer than necessary
•Kept up-to-date and accurate
•Data export controls
24
GDPR – Smart Contracts
• Article 22
“data subject shall have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly significantly affects him or her”
• Right to contest
• Right to obtain human intervention
• Right to express his/her point of view
• Smart contracts, AI may automatically act on a decision
25
27
Disclaimer
Norton Rose Fulbright US LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP and Norton Rose Fulbright South Africa Inc are separate legal entities and all of them are members of Norton Rose Fulbright Verein, a Swiss verein. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to clients.
References to ‘Norton Rose Fulbright’, ‘the law firm’ and ‘legal practice’ are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together ‘Norton Rose Fulbright entity/entities’). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a ‘partner’) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity.
The purpose of this communication is to provide general information of a legal nature. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.
Depending on what you are doing, using blockchain technology can involve a range of laws and regulations.
Some of the most common compliance issues are:
1. EU General Data Protection Regulation (GDPR)
2. U.S. Laws and Regulations
• Financial Crimes Enforcement Network
• Securities and Exchange Commission
• Commodity Futures Trading Commission
• State Regulations
The information provided in this presentation is an overview of issues and is not legal advice; to ensure compliance you should obtain specific legal advice taking into account your activities in specific jurisdictions
Legal Compliance and the Blockchain
29Evan Smith
The U.S. has relatively few restrictions on businesses that collect and store data.
The new EU gives individuals significant rights to direct if and how their data may be stored. The regulations include:
• Consent requirements for retention of personal data.
• The ”Right to be forgotten”
• The Right to access and rectify data
Privacy on the Blockchain: The GDPR
30Evan Smith
Key compliance issues/requirements:
1. Obtaining consent of the person whose data is stored.
2. Enabling the “right to be forgotten.”
GDPR and Blockchain Technology
31Evan Smith
Because of the distributed nature of many blockchain applications, there are a lot of open issues:
1. Who is the responsible party for a given blockchain?
2. When and how does EU law apply?
3. How does anyone comply with an individual’s request to delete all their data, when the data is stored in an immutable, distributed ledger that nobody has an ability to edit?
Complicated Questions
32Evan Smith
1. Article 29 Working Party Opinion 05/2014 (WP 216)— defines difference between pseudonymized and anonymized data.
2. Data protection rules don’t apply to anonymous data, but threshold to qualify as anonymous is high.
3. Hashing is considered a pseudonymization technique.
4. Encrypted data can be traced back and is considered personal data, not anonymous.
5. Would deleting crypto keys and records correlating a person to a blockchain entry qualify as “forgetting?”
Possible Technical Solutions?
33Evan Smith
Regulatory frameworks for blockchain-related businesses are evolving, as these state and federal agencies work to understand public needs, apply existing regulations, and create new regulations:
• Financial Crimes Enforcement Network (FinCEN) –anti-money laundering, transaction reporting, national security
• Securities and Exchange Commission – ICOs, Exchanges
• Commodity Futures Trading Commission – Token sales, Options
• State Regulators – Money Transmitter regulation and other state-specific laws
U.S. Compliance Overview
34Evan Smith
The Financial Crimes Enforcement Network is an agency of the Treasury Dept.
The Bank Secrecy Act requires monitoring and reporting of suspicious activities.
• FinCEN Registration required if your business meets their definition of a Money Services Business.
• Common situation: Blockchain-related businesses engaged in “currency dealing or exchange” (e.g. trading Bitcoin for cash) usually must register.
• Rules require implementing a written anti-money laundering, know-your-customer (AML/KYC) program and reporting certain transactions, with a person assigned to oversee compliance.
FinCEN/BSA Overview
35Evan Smith
Securities Law: ICOs
How does an ICO typically work?
• White Paper typically defines the venture and the use of funds
• Fundraising is “announced” for a specific period of time, e.g., Sept to November
• Tokens can have a pre-determined price that remains fixed during the fundraising, or lower initial pricing.
• Supply of tokens can be fixed but the fund level is dynamic, i.e., can change as funds flow in; hence token value can increase as funding increases
• There can be a dynamic supply of tokens, meaning that the supply is not fixed, but new tokens are created as they are allocated
Evan Smith
SEC Warnings re: Regulating Coin/Token Offerings
July 25, 2017
“[V]irtual organizations and associated individuals and entities increasingly are using distributed ledger technology to offer and sell instruments … to raise capital. These offers and sales have been referred to, among other things, as Initial Coin Offerings or Token Sales….”
“[T]he U.S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale.”
Evan Smith
ICOs and the Howey TestAll four elements are required for the coin/token offering to be an
“investment contract”
Element Indicates Security Suggests Non-Security
Investment of Money
Tokens are bought with something of value like USD, XBC, ETC, ETH
Tokens are given away for free (no benefit to issuer).
Common Enterprise
White Paper, tokens “sold” in a crowdsaleor other mechanism, funds used by developers to launch enterprise under their control.
Enterprise already operational, tokens are purchased to participate in the “website” / enterprise.
Expectation of Profit
Token conveys equity share in the enterprise, entitlement to profits, voting rights, or future claim to repayment.
A right to access the website, but no associated expectation of profit.
Profits result from efforts of third party or promoter
Promoters of the ICO control project? Success depends on efforts of developers and promoters? Token holders passive and simply waiting for the project to succeed (or fail)?
Token holders have some control over the direction of the project, or contribute to development.
Evan Smith
SEC Warnings Re: ExchangesJuly 25, 2017
Exchanges: Systems that meet the definition of an exchange must register as an exchange or qualify for an exemption. Under Exchange Act Rule 3b-16(a), you are operating an exchange if you:
(1) bring together the orders for securities of multiple buyers and sellers; and
(2) use established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of the trade.
Evan Smith
Risks of Being “Clever”?• Applicable laws and regulations were written before
this technology existed and do not directly address it.
• It’s possible to entrepreneurs and their lawyers to find possible loopholes, and often a complete absence of comment, on a particular approach.
• Is it worth being aggressive? Uber grew rapidly by ignoring taxi regulations. But securities fraud is a crime for which people go to jail.
The regulators will decide how to apply the regulations to what you are doing.
You will then have to convince a judge that the government is wrong.
40Evan Smith
SEC & CFTC Coin/Token Actions• Dec. 11, 2017: SEC Action re the Munchee ICO: In re Munchee
Inc., Securities Act Release No. 10445, (Dec. 11, 2017), https://www.sec.gov/litigation/admin/2017/33-10445.pdf.
• Apr. 3, 2018: SEC Charges Founders of Mayweather-backed ICO; arrests founder while trying to flee the U.S. Coindesk: https://www.coindesk.com/sec-halts-mayweather-endorsed-ico-charges-founders-fraud/
• Commissioner Brian Quintenz states "an effort that is underway at both the SEC and CFTC to coordinate and harmonize regulatory oversight.”
• Examples of recent cooperation between the SEC and CFTC include the cases against the alleged My Big Coin and CabbageTech cryptocurrency scams, according to an annotated transcript of Quintenz's remarks.
Evan Smith
SEC & CFTC Coin/Token Actions
• https://www.coindesk.com/cftc-officials-want-close-cooperation-sec-crypto-rules/
• My Big Coin – Jan 16, 2018: CFTC sues for fraud for pocketing $6 million in customer funds that had been solicited between 2014 and 2018. https://www.coindesk.com/cftc-sues-crypto-scheme-big-coin-fraud/
• Cabbage Tech, May 7, 2018. CFTC sues Cabbage Tech and Federal District Judge agrees with CFTC that cryptocurrencies are commodities. https://www.coindesk.com/us-judge-rules-cryptocurrencies-are-commodities-in-cftc-case/
• See Memorandum Order: https://www.scribd.com/document/373196920/Memorandum-Order#from_embed?campaign=SkimbitLtd&ad_group=100652X1574425X310344485436e2ba9c8b6f4563289fca&keyword=660149026&source=hp_affiliate&medium=affiliate
Evan Smith
• SEC Cease & Desist Order re Tomahawk Exploration LLC, Aug. 14, 2018:
• Tomahawk launched ICO in June 2017, sought to raise $5 million through the ICO to fund the cost of drilling wells, and would issue 200 million TOM tokens on a “decentralized exchange” based on a blockchain platform.
• Tomahawk’s online offering materials linked TOM tokens to equity ownership in the Company.
• The Tomahawk coins were securities within the meaning of the 1933 Securities Act and the Howey case.
• The Company failed to file a registration statement or qualify for any exemption.
• Tomahawk and its founder made false projections of oil reserves and production, falsely represented that they had leases, and that the founder had a “flawless background” when he had been convicted of securities fraud.
SEC & CFTC Coin/Token Actions
Evan Smith
1. Money Transmitter License Laws
• These laws were originally intended to prevent consumer fraud or loss when dealing with businesses that take possession of and transmit consumer funds.
• Depending on the process used, some crypto purchase/sale transactions may qualify as “money transmission” under state laws.
• Most state laws are vague and it is often unclear whether a license is required.
• State-by-state legal evaluation is necessary if the business might trigger these licensing requirements.
• One technique to confirm that a license is not required is requesting a “No Action Letter.”
2. New State Laws - example, New York “BitLicense”
State Laws
Evan Smith
