Generally speaking, a Blockchain is a peer-to-peer operated distributed digital ledger that records all transactions executed for a particular asset. The ledger is “distributed” because each user of the network has its own copy of the blockchain, and each user’s copy is updated with new information simultaneously. The greatest benefit of distributed ledger applications, in comparison to conventional financial networks, is that exchanges of a particular asset can be verified, monitored and enforced without the presence of a trusted third party or a central institution.

Currently, Blockchain-based technologies almost entirely cover so-called virtual currencies, with Bitcoin being the most prominent example. However, the technology could have applications well beyond cryptocurrencies and is evolving to be applied to a broader range of assets. The asset being transferred could be a nominal amount of currency, like the Euro, or it could be a unit in a securities issue, or something unrelated to the finance sector like intellectual property rights or plots of land.

A (growing) number of legal questions need to be answered, if Blockchain applications are to be put into practical mainstream use. The nature of these questions has, however, yet to be fully grasped. A small number is briefly outlined below.

The Applicable Legal Rules

There is no European Union law that specifically addresses the use of distributed ledger technologies. However, what is evident is that the applicable legal framework will – to a large extent – depend on the particular asset that is being transferred using blockchain technologies. Depending on the asset, different rules are involved.

Legal Effects of an Entry in the Blockchain Ledger

A Blockchain is a distributed network of Information; a digital record of all transactions executed for a particular asset. However, the legal effects of an entry in the Blockchain ledger that describes a transfer of a particular asset from one address to another are, so far, unclear. A question that has been pointed out by authors is, for example, whether the acquirer of an asset that has been transferred through Blockchain has obtained property.

In Germany, various registers provide us with information on the ownership of assets (e.g. land titles) or on the entitlement to rights. While, for example, the patent or trademark register do not have constitutive effect because the entry itself does not confer the right to exclude others from making or using the patent or trademark, the entries still have presumptive legal effect. Pursuant to section 28 para 1 of the German Trademark Act, for example, “[i]t shall be presumed that the party recorded in the register as the proprietor is entitled to the right arising from the registration of a trade mark.”

In the absence of a specific legal framework, a presumption of ownership or of entitlement to rights cannot be derived from distributed ledgers; and, more importantly, an entry in the ledger cannot have constitutive effect on the transfer of rights or ownership. Pursuant to section 873 para. 1 of the German Civil Code, for example, the transfer of ownership of a plot of land requires the registration of the change of ownership in the land register. Thus, an entry in the Blockchain ledger would, by itself, not be sufficient to obtain property in a plot of land. However, it is conceivable that an entry in the ledger could trigger a contractual obligation, if the formal requirements of the law which governs the contract were satisfied which, by way of example, might require notarization in cases where the contractual obligation to transfer ownership concerns a plot of land.

 

This article was originally published on AllAboutIP – Mayer Brown’s  blog on relevant developments in the fields of intellectual property and unfair competition law. For intellectual property-themed videos, Mayer Brown has launched a dedicated channel available here.