As a special feature of our blog, we include special guest postings by experts, clients, and other professionals—please enjoy this blog entry which includes guest author Rolf J. Haag.
It has been impossible to miss the surreal volatility in Bitcoin’s per unit price—having gone from $1,000 in January 2017 to almost $20,000 (~$750B mkt. cap) toward the end of last year and retracting to under $8,000 (~$500B mkt. cap) in February 2018. Whether these G-LOC-inducing price undulations are reflective of a radical paradigm shift in the mode of financial transactions, history’s greatest pyramid scheme, or some mix thereof, remains to be seen.
On the one hand, the Winklevoss twins asserted that Bitcoin’s price could easily go up another twenty times while Nobel-laureate economist Joseph Stieglitz admonishes that the whole concept should be illegalized all together. Either way, the blockchain open and immutable ledger transaction recording technology itself, is emerging as one of the key aspects of Bitcoin’s value proposition and when applied to other areas of business, e.g., by Ethereum, it has the potential to have an enormous impact on the mechanics of information exchange in bio/pharma R&D and as result will change how we approach legal issues of intellectual property and technology transfer.
How Blockchain Technology Works
In its most basic form, blockchain technology is a new type of auditable database technology for tracking all kinds of transactions. It represents a decentralized, digitized, date-stamped and immutable transparent record of ledger entries documenting who transferred what to whom when. Blockchain is decentralized in that identical versions of its sequentially dependent ledger entries or “blocks” are simultaneously stored on approximately 11,000 blockchain participants’ computers around the world called “nodes.” Bitcoin and other cryptocurrencies set the rules for the chain and function as value tokes for exchange between users.
Each new transaction block submitted for entry into the blockchain contains standardized information such as a date stamp, encrypted information including a description of the transaction as well as the encrypted “identity” of the blockchain participants. In order to extend an existing chain, a new block must also contain the identity of the last block in the blockchain to which the candidate block is to be appended. Before such a new block can be added to the existing blockchain a majority of the nodes must agree that the new transaction block is legitimate. This authentication and verification process relies on a complex cryptographic algorithm that provides each new block with a digital ID or “hash.” This computing-power-intensive process involves “mining” which allows Bitcoin nodes to reach a secure, tamper-resistant consensus while the blockchain grows. Moreover, those blockchain participants who offer their computing resources to validate transactions are offered rewards.
Once a new block is added to the blockchain, it is secure, immutable and highly resistant to third-party attack. Indeed, it is nearly impossible to change the contents of a block in the blockchain because more than 50% of all the independent and decentralized nodes must agree to make a specific change to a particular block. Interference with this process would be exceedingly difficult for a hacker to pull off without direct control of a majority of the nodes. Additionally, the cryptographic nature of each block allows information contained therein, e.g., actual transferor/transferee identity and description of assets, to remain confidential. If a third party wishes to audit or track certain transactions, a block transferor/transferee may give that third party’s auditor certain credentials, i.e., “a key pair,” in order to fully access the contents of the relevant transaction’s blocks in the blockchain.
Moreover, because the information in each block is: 1) in a standardized form; 2) immutable; and 3) from a validated source; third parties can have a high degree of trust in the veracity of its contents. Trust is, after all, at the heart of commerce and vital for market efficiency.
Furthermore, certain blockchain technologies such as Ethereum, which is a distributed computer existing in the cloud, allows for the creation of DecentralizedApplications (“DApps”) which enable online execution of ‘smart’ contracts, e.g., Non-Disclosure Agreements and License Agreements, which when completed by the parties are submitted to the blockchain. This will work by scripting an Ethereum code that reflects the rules of contract such that when certain conditions are met, the smart contract automatically executes and cryptocurrency/information transfer takes place according to the coded contract rules.
Current Issues in Technology Transfer
Between 2007 and 2012, U.S. industrial biopharmaceutical annual R&D spending was documented to have dropped by about 15%. BigPharma’s internal early stage research programs disproportionately fell victim to such cuts and it is of no surprise, therefore, that we continue to see an increasing amount of initially publicly-funded academically derived technologies flowing through start-ups into larger biopharma companies.
Two major bottlenecks hindering the efficient flow of promising academic early stage technologies to commercial entities and ultimately patients are: 1) The identification of a truly unique technology; and 2) Chain of title issues related to such technologies (see our Chain of Title post here). Currently, early stage technology entrepreneurs, venture capitalists and larger pharmaceutical companies (all are basically investors) must hack through an intransparent information thicket comprising University Tech Transfer Office pitch literature, far flung conferences, and self-identified key opinion leaders, to capture plum technologies ripe for commercialization. Additionally, inventors creating these valuable technologies frequently collaborate with scientists at other universities, corporations and private research service providers. These complex arrangements of funding sources, inventors, technicians, institutions and employers are a minefield with respect to issues of technology control and ownership.
Once an investor has identified a promising technology and has a reasonable understanding of what entity might actually hold ownership rights, e.g., a university, they engage in the often tedious process of contacting that entity and negotiating a Non-Disclosure Agreement to obtain access to the confidential information, needed to determine whether to move forward with and ultimately place a value on, a spin-out license.
Currently, blockchain-based platforms are being developed in which registered scientists and investors can efficiently exchange early stage technologies in a manner that directly addresses the technology identification and chain of title bottlenecks described above. These decentralized peer-to-peer networks allow scientists to upload their confidential and non-confidential research project summaries and partnership proposals in blocks to the blockchain. Once verified in the blockchain these documents are in-effect date-stamped and ‘notarized’ with respect to the information they contain, e.g., invention disclosure records, patent applications, scientific data, business plans and identity of all inventors and principals. As additional collaborators involved in a given project in other locations for example, add supplemental analysis and data, this on-line ‘discussion’ is captured in the blockchain as additional appending blocks.
Subsequent additional blocks containing the associated formalized invention assignment records for each of the identified inventors to their respective institution or employer can also be added. Indeed, applications can be generated so that these Assignment Agreements can be reviewed and executed on-line and then directly uploaded to the blockchain.
Investors can then search the blockchain by way of author, institution/owner, submission date and subject matter (e.g., small molecules, biologics, regenerative medicine, medical devices, diagnostics, oncology, cardiovascular, etc.) in order to quickly identify those technologies most relevant to their particular business aim or model. Once such technologies are identified, applications such as Ethereum can manage the online execution of Non-Disclosure Agreements which are then recorded in the blockchain. Once such an NDA is executed, the Investors will then receive the appropriate “Key-Pair” to decrypt the confidential information in the blocks they are desirous of accessing.
This immutable blockchain recordkeeping will be of immeasurable value in the context of a retrospective determination of who invented or disclosed what, where and when. Indeed, answers to these very basic legal inquiries are at the core of gauging the value of a technology from the perspective of the patent laws. Transactional and M&A lawyers will immediately recognize the importance of such records in the context of conducting or defending a due diligence investigation prior to closing mission-critical strategic IP-based transactions. Patent litigators on the other hand, will see the critical nature of such records when litigating issues of patent validity (e.g., timing and source of prior art disclosures and on-sale offerings), patent inventorship/ownership (e.g., who conceived of what and when?) as well as infringement (e.g., who used/made what technology, when and where?). Patent prosecutors will understand that the ability of securing blockchain date stamps without actually making a patent filing can also be of great utility. Questions related to the discoverability and scope of Attorney-Client Privilege that attaches to confidential information encrypted yet still shared on a peer-to-peer network, however, remain to be resolved.
Ultimately, scientific entities and investors will wish to formalize a transaction the form of a definitive IP license or asset purchase agreement. Applications may be developed that allow for the negotiation and execution of such agreements in electronic form which will then along with the original NDA, exchange of information records, be recorded in the blockchain. Thus, a complete digital, auditable and confidential IP chain of title from academic scientific collaborator to inventor to university to biotech start up to BigPharma company would be readily available in a single location.
These blockchain-based collaboration databases will over time resemble an enormous searchable, and verified decentralized uniform commercial data rooms that are updated in near real-time by those offering their technologies for commercialization. One could imagine the development of Artificial Intelligence (AI) applications that are constantly scanning and evaluating blockchain R&D submissions and reporting the results of their analyses to business intelligence experts and investors.
Using blockchain technology to remove the hurdles associated with centralized and corruptible research databases running disparate standards, the sharing of confidential information, as well as the distrust and ambiguity related to IP ownership and control; will greatly improve the efficiency of how early stage biomedical technology is disseminated from the lab to a corporation and ultimately to the patient. As such, blockchain technology promises to revolutionize all aspects of translational medicine. Indeed, secure, decentralized and consensus driven blockchain technology threatens to remove trusted intermediaries in transactions such as banks, brokerage firms, credit agencies, accountants and civil law notaries.
Seyfarth Shaw is recognized as one of the most innovative law firms in the world. SeyfarthLean®, is the Firm’s proprietary, value-driven client service model, which combines the core principles of Lean Six Sigma process improvement with project management and tailored technology solutions. SeyfarthLean has been unique to the legal profession and a contemporary approach to providing, delivering and managing client and legal services. To support the SeyfarthLean approach, the Firm created SeyfarthLean Consulting, a dedicated team of 30 technologists, legal project managers, data analytics specialists and process improvement professionals, who work with clients and law firm partners to improve the delivery of legal services and stay on top of the latest developments in legal IT.
Seyfarth Shaw LLP’s Life Sciences Patent Team seamlessly works with its eDiscovery and Information Governance practice as well as the SeyfarthLean® Consulting Service to address complex client matters related to blockchain technology, cybersecurity, digital forensics, internal investigations, eDiscovery consulting and litigation response, data breach prevention and response, cyber-stalking mitigation, cryptocurrency, and information technology related policies and practices.
 Rolf J. Haag, MBA; Guest Author, Director, Global Mass Payments, Western Union Business Solutions, and blockchain/cryptocurrency technology expert.