Intellectual property (IP) is a category of property that includes intangible creations of the human intellect, and primarily encompasses copyrights, patents, trademarks,etc. Apart from these commercial assets, IP is commonplace in daily life, including the cartoon character of Peppa pig, a popular emoji and picture.

In the context of this article, the IP we are talking includes both the aforementioned two types. We’ll explore the combination of IP and blockchain, furtherly their applications. The report first analyses the attributes and painpoints of IP, then explores its practices with blockchain, and the possibility of migrating it onto the Bytom blockchain.

Painpoints of Intellectual property

1. It takes long time to produce IP value

How does IP generate its value? To create its value, it shall be acquired and used by the mass. The creation of IP value includes the processes of development, entitling, publicity, benefit, derivative development, as well as maintenance of rights and interests. The development of an IP product is a concrete stage for the later processes, but any errors occurred in these processes would strangle the yet-to-come value. All the processes before values are generated need lots of time, and bear potential risks.

For example, the English writer Tolkien published The Lord of the Rings in 1954, but it was well known by public until 50 years later in 2001 when the film was adapted into a film by director Peter Jackson. The reason why this IP became popular after 2000 is that the subsequent processes of IP value was finally opened up. An IP may have been there long ago, like a diamond buried in the mud waiting to be dig and polished.

2.The externality of value realization

Externality, or spillover effect, is the cost or benefit that affects a party who did not choose to incur that cost or benefit. IP in operation usually brings positive externality, for example, the advent of an invention will also help to improve production craft and optimize production process. iPhone is such an example, it is a valuable invention but its greater value is to drive the upgrade of the entire mobile phone industry.

3.The solid attribute of value circulation

IP is virtual and digital as it is intangible, while on the other hand, it is real and atomic for it can be delivered, divided and transferred like an entity in accordance with the laws.

As IP asset can be divided, it reminds us the asset analysis in our first article Asset Get Freely Flow from Solid to Gas State. It seems IP is an asset in solid state for it is not flexible to trade, and lacks applications of securitization.

Connection with blockchain

To solve its problems, the author believed blockchain technology could provide a solution to managing the output of IP value, realizing its positive externality and transforming its inflexibility in circulation. It will be elaborated from the perspectives of technology, transaction and ecology.

1.Technology. Blockchain could help improve the efficiency, cost and connotation of IP asset. The first connection between IP asset and blockchain is the verification of its development stage. As mentioned above, IP is virtual and real, in this context, its digitized and internet-oriented part is easy to be infringed. To avoid that, at the birth of an IP asset, it can be registered on a blockchain with time stamp to proof its existence. In practice, there already have been cases where blockchain has been applied to the copyright field, and there have been judicial precedents in the United States (Vermont), China and other places, which recognize records on blockchain as evidence in the judicial process. The second practice is to reduce costs. Every year sees a large number of IP assets (such as patents) be abandoned by enterprises, that’s not for the reason that these patents have no values, but the costs to maintain a patent exceed the patent value itself. Blockchain applications can help registration authority reduce cost for IP assets registration, realize IP management across different countries and regulators; it’s even possible for enterprises to build a blockchain-based sharing platform for IP assets in a bid to jointly safeguard and use assets on the platform. The third connection is the connotation management of IP. The connotation of IP assets is very rich, for example, a copyright may contain the “right of revision, right of reproduction, right of distribution, right of rental, right of exhibition, right of performance, right of presentation, right of broadcasting…”, all these rights could be managed on a blockchain-based smart contract.

2.Transaction. At present, IP assets are featured by solid phase in transaction with operations like transaction and authorization being complex. Blockchain can divide IP assets. It can divide equity, such as right to earnings, ownership right, year, etc. The division of equity can make the transaction liquidity better, so that the financing function of IP assets is also improved. This part will be detailed in the third part of this article.

3.Incentive/Ecology. Blockchain plays a part in raising the social productivity, as well as adjusting the production relations. Through the internal ecosystem such as the construction of token-incentive system, contributors get reward and destroyers get negative record onchain. In terms of the incentive of IP assets, developers, authorized persons, propagators and buyers, all need to enjoy the ecological incentive centering on the ultimate revenue of IP.

It is difficult to detail on the incentive mechanism in this article, but offer 3 reminders. First, to follow the market rules. Do not make it an internal game or speculation where its practical price deviates from its market value. Second, to highlight the features of IP assets. That means IP assets need to be mastered and transformed to create value. Its incentive system is for the purpose of locating the well-suited objects and application scenarios. Third, to stress the protection for the creator. At present, the protection for the creator in the traditional market is insufficient. In the market value created by IP assets, the income of the originators is far less than that of the investors and operators of the system. Some good novels could generate great social values, but their authors get low return. The incentive system of blockchain should highlight the profit share of the originator in the whole industrial chain.

IP assets go onchain

1.Blockchain-supported native IP assets. With the mature development of the blockchain technology, the “world computer” function of blockchain is growing more and more powerful, it is believed that blockchain would be a fairly good carrier of creation, and unique IP assets would be created on blockchain in the future, which can be seen from the Ethereum-based CryptoKitties. Such IP assets are able to develop into an independent IP category which will be a brand new and large-scale market.

2.IP assets go onchain. Just like the case of equity goes onchain, after it goes onchain, the IP asset itself becomes a program where complex operations could be performed. In our preliminary vision, onchain IP assets go through processes of registration, transaction, division, conversion, destruction, termination (transformed to a new asset) and so on.

Envision of IP asset go onchain

Be more specific, an IP asset, for instance, a novel, can be registered on a blockchain while still in draft in case of lose or plagiary, and later its copyright can be registered onchain. This copyright is also a kind of program which could be divided into various sub-rights (such as publishing right, adaptation right, broadcasting right) and transferred. The writer of the novel could reserve some future interests at the initial verification process to ensure some long-term earnings if his work becomes a sensation. Destruction means the holder of an IP asset puts an end to its circulation and transfers it to a null address. Termination refers to the expiration of IP equity, and it goes back to the creator or be open to the public.

The continuous circulation of the above processes and the setting of a good token-incentive mechanism will make IP assets a more dynamic asset and to create real value.

Translated from the fourth article of this series over asset blockchainization on Bytom “比原链资产上链研究四：IP资产” by Ma Qianli, vice president of 8btc News, responsible for the scenario realization of asset migrating onto Bytom Blockchain. Having competitive capability in IPO, M&A and asset securitization with many successful cases, Qianli was the director of investment banking arm in Codi Capital, and securities affairs representative of vöhringer after graduating from Shanghai University of Finance and Economics.