#BlockLegalTech 2018 – Blockchain Tech is Legal Tech

From cryptocurrency, to Web 4.0, to an interactive, decentralized worldwide network of all things, people and systems, distributed ledger technology (DLT) is the hot-tech, paradigm shift de jour. DLT technology transcends cryptocurrency and promises to impact a wide range of industries beyond finance. As several states advance legislative efforts to uphold the legal integrity of smart contracts and DLT-enabled transactions, here at Michael Best, we are evaluating how best to integrate and use DLT for smart contract legal services.

In my area of intellectual property litigation, we are already hearing rumblings about DLT. A month ago, after I discussed the possibility of using blockchain technology to develop a real-time, market-based trademark registry, a colleague alerted me to Erich Spangenberg’s IPwe venture that is launching a DLT based patent registry. IPwe claims to harness AI, predictive analytics and sophisticated data management techniques to create an entirely new type of patent ledger. According to their website, IPwe’s DLT patent platform will efficiently perform traditional buy/sell/license patent transactions and enable currently impractical transactions, like crowdsourcing R&D and patent-based financing. IPwe also offers a tool that evaluates the scope of patent claims and assigns ratings for patent quality and validity. In response to a question as to what should be done to crack down on the long-standing problem of fraudulent trademark registration solicitations, TTABlog’s John Welch replied, presumably tongue in cheek, “Blockchain! It’s the answer to everything.”

With all this in mind, last week I attended my first blockchain conference—the Block [Legal] Tech conference hosted by the Illinois Tech – Chicago Kent College of Law. The conference was billed as a day-long conference on the evolving regulatory and legal issues in the blockchain and cryptocurrency space, to include presentations on the future of U.S. regulation of crypto-assets, government’s role in promoting blockchain adoption, minimizing the risks of crypto-litigation, the role of lawyers (“crypto counsel”), the evolution of smart contracts and the impact on the legal profession, and other legal issues that stem from the use and implementation of blockchain and distributed ledger technology.

Like discussions of the technology, the conference and speakers were fairly wide ranging in topics and perspectives, but cryptocurrencies were the center of gravity. While Michael Best has a vibrant DLT practice for Bitcoin and Cryptocurrency transactions and regulation, as an IP litigator, that was not my particular area of interest. Even so, the conference was informative and thought-provoking.

One of the morning speakers, Ken Seddon of LOT Network, after presenting scare slides stating that the vast majority of patent litigation is troll litigation (a dubious assertion), advanced the interesting proposition that a substantial portion of troll lawsuits are based on patents that originated from technology companies, not patents from individual inventors or patents invented/prosecuted by trolls. According to Mr. Seddon, tech companies themselves are largely responsible for the troll epidemic. In response, LOT Network started a patent pool – a defensive of aggregator of sorts. In this aggregator, whenever a member assigns a patent to a troll (defined as an entity that generated more than 50% of its gross revenues from patent assertions), the assigning patent owner automatically conveys a royalty-free, lifetime license to practice the patent to the then current members of LOT Network, thus inoculating members from lawsuits in regard to the assigned patent. The larger the LOT Network grows, the more it shrinks the troll threat. Currently, LOT Network members hold 1.2 million patents, and the rates to join are very low. In fact, membership is free for companies with annual revenues of less than $25 million.

Digital ID’s Jennifer O’Rourke discussed how they use DLT to develop a permanent and verifiable identity service where users control what, how, and by whom their information is shared. Among other advantages, if eCommerce and social media sites adopted this technology, it should substantially reduce the incidence of fake online identities and counterfeit websites. Facebook alone is reported to have in excess of 100 million fake accounts.

The engaging crypto counsel Joshua Klayman explained why the financial industry, stockholders and even cynics need to understand DLT.  She presented data showing that initial coin offerings (ICOs) were a rapidly growing segment of investment markets and a significant percentage of IPOs. She sounded confident in her explanation that U.S. law presently regulates digital tokens, to include utility tokens, as securities, commodities, currencies and/or property. (I believe it was also Ms. Klayman who pointed out the irony that cryptocurrency is often portrayed as a favored tool of crime syndicates, however, that should be the last form of currency a criminal should want to use since the ledger is a permanent, immutable record and chain.)

Professor Angela Walch, the first admitted Crypto Skeptic who presented at the conference, is the rare attorney whose presentation skills are equally accessible, engaging, and brilliant. She discussed how much confusion surrounds DLT, in part because the technology is rapidly in development and in flux, and means different things to different people. She criticized legislatures who are rushing to pass legislation governing a technology few understand and even fewer agree upon. Professor Walch stated that the strength of DLT purports to be that it is immutable, distributed and requires no trust, however, when pressed, Professor Walch claims that each of these assertions will collapse. Unfortunately, the format of the panel did not afford enough time for her to develop this fundamental critique in much detail, however, she highly recommended the article by Adrianne Jeffries ‘Blockchain is Meaningless’. Professor Walch admonished the attorneys in the audience to avoid the hype and that our job is to do ongoing research, not just in the law but in the tech world in order to be effective counselors. She reminded us of our duty to ask the difficult questions.

Wulf Kaal, founder and CEO of Semada, explained how the evolution of communication technology – from telephony, to the internet, web 2.0 and the supposedly forthcoming smart web 4.0 – has and will continue to have a transformational impact on business and how we live. He gave numerous examples of how new tech companies are challenging and rapidly displacing the established titans of their industries – think Airbnb versus Marriot and Amazon versus Walmart.  Professor Kaal believes that deep learning, machine learning, data analysis, and distributed computing will continue to transform how we live and do business; he stated in one of the more memorable lines from the conference, “Data is the new oil, and information the new currency.” As part of this, we can expect to see the continued exponential increase in cyber security incidents. He also discussed that while our plummeting rate of “trust” in other people and institutions favors advances in DLT, it raises more fundamental, troubling questions about our society. In what sounded good to my trademark ears, Professor Kaal mentioned that trust on the internet is accomplished through reputation, and that sybil attacks and sock puppet accounts cripple the ability to build trust on centralized networks like Facebook and Amazon, a problem that harkened back to Ms. O’Rourke’s aforementioned DLT identity solution (counterfeiting has the same effect on undermining reputation, see, e.g. eBay). Professor Kaal explained how, on currently siloed social media and eCommerce sites, there is little to no privacy; you don’t own your data, and there are no networked synergies between platforms. He presented a perspective of a decentralized, fully integrated network of people, things and machines. Such a network would itself integrate machine learning or AI, which people are referring to as the smart web 4.0.  A worldwide Hal, 18 years later than expected?

Tony Lai, founder of Legal.io and member of the Stanford CodeX Blockchain Group, provided an excellent transition from Prof. Kaal.  Mr. Lai reminded me of a crypto-version of Professor Richard Epstein – the only thing quicker than his transition between detailed slides was his speed of speech. He elaborated on the vision of a more fully networked and integrated society and economy, where the blockchain component of the economy is projected to have a $3.1T value by 2030. Work will be more platform-based than employer/employee relationships. The fully integrated web will continue to breakdown hierarchies and silos. His comments were directly tied to his slides, and the conference would have benefited by the audience members having copies of the slides from Professors Kaal and Lai.

I found Nina Kilbride, Chief Commercial Officer at Monax, quite interesting as Monax operates where the rubber meets the road for the practice of law.  Monax develops DLT solutions for fleet leasing, corporate governance, content creators and law firms. Not surprisingly, Ms. Kilbride’s presentation focused on the solutions Monax is developing for lawyers and law firms, specifically standardized smart contract tools that firms can integrate into their practice. Monax’s standardized tools will work on major DLT platforms that are instantly replicable, reduce costs and push toward contract commoditization. I believe Ms. Kilbride referred to the products as “no-code” tools for legal products. I assume these are “no-code” tools in the same way that Lexus and Westlaw are no-code (i.e. the user interface requires no familiarity with code or DLT).  Ms. Kilbride had another one of the more memorable lines, to the effect that “blockchain technology is fundamentally legal technology.” I think the opinion is valid, particularly from Prof. Walch’s perspective that lawyers who have clients using this technology need to understand the technology. Regardless, it was a popular sentiment at a blockchain legal conference.  Monax knows its audience, and lawyers should watch this company closely as it appears to be on the cutting edge of disruptive technology for our industry.

Peter Hunn is the founder and CEO of Clause, which leads the Accord Project, dedicated to the development of standards for smart legal contracts and DLT applications in the legal industry. Clause collaborates with numerous other platform and international standardization associations, organizations and law firms, to include Hyperledger and Ethereum. Mr. Hunn believes smart contracts should significantly reduce the transaction costs associated with the formation and execution of contracts.

After lunch, the conference focused on cryptocurrency issues, particularly in the area of state regulation. One of the more interesting afternoon speakers was the outspoken Preston Byrne, co-founder and former COO of the aforementioned Monax. Mr. Byrne fielded questions from Twitter for much of his presentation.  Echoing the sentiments of Professor Walch, Mr. Byrne critiqued the SEC’s characterization of Ethereum as a security since nobody really knows what “decentralized” means from a legal perspective. He added though, that at some point, the regulators are going to stop publishing guidance with regard to ICOs and start enforcing and prosecuting those that have not complied with SEC requirements.

There were many other quality presenters not mentioned above. I missed the last few in the afternoon as I had to depart early to enjoy a five hour delay at O’Hare. I regretted missing the final and pinnacle speaker, FinCEN Director Kenneth Blanco who apparently was well received. He explained that ICO broker dealers may need to register with FinCEN. If brokers are registered with one regulatory agency, they may need also to register with other agencies, depending on the broker’s particular facts and circumstances. His prepared remarks are published here.

Even for a non-cryptocurrency attorney, I found my time at the Block [Legal] Tech conference well spent.  I look forward to returning next year.

 

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