Smart contracts? No, better contracts.

Contracts are legally binding agreements between two or more parties, and they pervade almost every aspect of our personal and business lives. Business owners and managers use contracts all the time in dealings with employees, partners, clients, suppliers, ...

Quite often, contracts refer to information that, for various reasons (too large, too sensitive, too rapidly changing, …), might be problematic to include or refer to in the contract itself.

The consequent ambiguity may weaken or void the contract. The promise or set of promises the contract contains may become impossible to be legally enforced, and, if violated, the damaged party may be prevented from legal remedies.

This is a quite common scenario for innovative companies dealing with intellectual property assets. Most notable examples being: NDAs, licensing agreements, employment contracts, technology transfer agreements, …

The blockchain may easily solve this conundrum: relevant information and documents may be registered on the blockchain by embedding their cryptographic fingerprint (hash) in a transaction, and then using this transaction as a practical and convenient reference in contracts, therefore removing the aforementioned ambiguities and practical complexities.

Benefits - The resulting “blockchain-enhanced contract“ won’t reveal any sensitive data, while being very specific and therefore offering higher chances of enforcement. Additionally, contracts will be able to refer to any kind of textual and non-textual data: large datasets, software, multimedia, CAD files, 3D models, …

Confidentiality agreements

There are numerous instances in which a company, and especially an innovative company, may want to share confidential information with another party (e.g.: external labs, suppliers, consultants, ...). In these cases it is recommended to make sure that the receiving party is bound to not use the information deemed as “confidential” to the detriment of the disclosing party.

A usual way to address this concern is using a Non-Disclosure Agreement. These are the elements common to any NDA: a) identification of the parties; b) definition of what is considered to be confidential; c) exclusions from confidential treatment; d) duration of the confidentiality commitment.

Pain - An overly broad definition of the confidential information (b) could invalidate the entire agreement.

Solution - Generating blockchain certificates for the disclosed documentation and use them in the NDA to define the perimeter of the data to be treated confidentially by the receiving party.

Technology licensing contracts

Over 80% of all license and technology transfer agreements cover proprietary know-how and trade secrets (source). As the WIPO recommends, a precise definition of the technology that is being licensed is required. This may sound obvious, but it is an underestimated issue that can give rise to disputes after the agreement has been signed.

Since trade secrets and know-how are not subject to registration, it is not possible to identify them with a register number. Therefore, it is necessary to describe or identify them within the contract itself or via annexes.

Beware of licensing technology for which there is no clear written specification or other documentation. Do not accept vague references to the subject matter such as “the state-of-the-art XXX technology”.

— Successful Technology Licensing, WIPO, (pdf)

Pain - A licensing contract that explicitly describes trade secrets may increase the risk of leaking information to unauthorized third parties.

Solution - Licensed technology may be identified by a single blockchain certificate representing the collection of documents that constitutes the “subject matter” of the agreement.

Employment contracts

Rising employee mobility and strategic employee poaching by competitors, means more valuable knowledge leaves the company in the form of know-how and experience. Confidentiality clauses in employment contracts prevent employees from communicating or profiting from proprietary information related to company operations.

Also in this case, an excessively broad definition of what should be considered confidential may void the clause. Therefore, if the confidentiality is breached, the company (disclosing party) will carry the burden of proving that the leaked knowledge items were confidential in nature, and explicitly transferred to that employee.

A Virginia state court invalidated an NDA […] finding that it was "not narrowly tailored to protect the legitimate business interests" of the employer. The court explained that the provision was overbroad.

How Weak Are Employee “Nondisclosure Agreements”?, Foley.com

Pain - Demonstrating which confidential information the company have been sharing with a specific employee.

Solution - Include in the regular employment contract a confidentiality clause tailored on the knowledge of specific projects the employee will have access to, represented by blockchain certificates. Update the blockchain certificates on a regular basis and when the employee leaves. A simple but effective deterrent against disloyal behavior.

How does Bernstein fit in?

Bernstein is a simple web app that conveniently registers IP assets on the Bitcoin blockchain. Bernstein certificates are legally recognised worldwide and independently verifiable by any third party.

At Bernstein, we love “paper and ink” contracts. They are the fabric of modern society. By using Bernstein, companies can quickly generates certificates for their digital assets (know-how, trade secrets, business information, …) and use them in all kind of contracts, an easy and effective way to bridge the gap with the digital world.

Bernstein certificates can be linked one to the other to prove how a certain set of documents/files evolved in time. This unique feature enables the creation of agreements that are always able to unambiguously refer to the latest version of relevant information. E.g.: the latest dataset shared with a business partner, the currently valid privacy policy, the status of a specific r&d project, …

Thanks to Bernstein unique zero-knowledge architecture, all documents registered on the blockchain will remain perfectly private. Even to Bernstein itself.

Benefits of Bernstein for CONTRACTS

• support for documents in any format and any size

• unlimited, versioned and encrypted file storage

• convenient and secure sharing

Or learn more on the Bernstein website.

LEGAL ACCEPTANCE of blockchain records

• Chinese Supreme Court Will Allow for Blockchain-Authenticated Evidence, Investopedia, Sep 2018

• Blockchain records and the EU eIDAS Regulation, Thibault Verbiest, Decentral

• Chinese court is first to accept blockchain as means of evidence, Richard Brunner, Dennemeyer Blog, July 2018

• Paper - Blockchain adoption in governments and legislations, Jean-Maxime Riviere, may 2017

• Legality of Bitcoin by country or territory, Wikipedia

Notable experts & Groups

• Yorck Hernandez, LN

• Thibault Verbiest, LN

• Richard Brunner, LN

• Bela Gipp, WWW, LN

• Stefan Schicker, LN

• Tom Braegelmann, LN

• Nico Kuhlmann, LN

• Meetup - Munich Legal Hackers

• Meetup - Hamburg Legal Hackers

• Hub - Reinvent Law

Do you have suggestions for this list? Tell us!

Online resources

• Article - Trade secrets and employee loyalty, WIPO Magazine

• Article - The Key Elements of Non-Disclosure Agreement - Forbes

• Paper - Practical Considerations in Trade Secret Licensing, Maxim V. Tsotsorin

• Article - The Dangers of Overbroad Confidentiality Agreements, Employment in the Law - Spring 2012

• Report - The future of IP, Dennemeyer, June 2017

• Article - Can blockchain shake up the legal sector for the better?, The Guardian, Oct 2018

• Association - Licensing Executives Society International - LESI