Blockchain IP: DAOs Are Innovative—But Will They Be Inventors?

“The existence of natural persons in [a DAO] collective has the potential to allow them to escape the legal pitfalls that befall machines and monkeys when attempting to generate IP.”

https://depositphotos.com/552044794/stock-photo-dao-decentralized-autonomous-organization-business.htmlIntellectual property (IP) provides us a front row seat to the cutting-edge of technology. The legal questions arising at this frontier are often as complex as the resulting inventions and creative works. The Federal Circuit’s recent Thaler v. Vidal opinion clarifies an important patent law concept, specifically whether an artificial intelligence (AI) may be listed as the inventor of a patent. The current industrial revolution powered by blockchain and crypto continues to raise issues about how it meshes with our current IP legal framework.

AI and Apes Are So Far Losing the Fight

Emerging technologies raise fascinating legal challenges, ranging from apes to AI. In the 2010s, the courts confronted the copyright challenge of whether a Macaque monkey “selfie photo” met the statutory requirements of authorship pursuant to the Copyright Act. In sum, no banana; it did not. Accordingly, the U.S. Copyright Office published an opinion, subsequently included in the Compendium of copyright law, clarifying that “only works created by a human can be copyrighted under U.S. law, which excludes photographs and artwork created by animals or by machines without human intervention.”

In the AI realm, the Copyright Office has repeatedly rejected copyright claims around AI-generated art. Dr. Stephen Thaler attempted and failed to obtain copyright registration for an AI-generated artwork entitled, “A Recent Entrance to Paradise.” Again, the agency’s reasoning was based on the principle that works created by machines without human intervention are ineligible for copyright protection. The agency argued that the artwork “lacked the required human authorship necessary to sustain a claim in copyright” because Thaler had “provided no evidence on sufficient creative input or intervention by a human author in the Work.”

U.S. and international courts have considered whether an AI can be named as an inventor. Dr. Thaler sought patent protection on inventions created by an AI known as DABUS. These patent applications were rejected by the USPTO and the courts. In a related story, IPWatchdog noted that “[t]he USPTO reasoned that ‘conception—the touchstone of inventorship—must be performed by a natural person.’” The majority of foreign jurisdictions have similarly ruled against the inventorship of AIs. In sum, the Federal Circuit may have finally resolved the inventorship question for AIs by construing the Patent Act’s text and meaning.

The Next Frontier: DAO

The latest question at the cutting-edge of “who, or what may, be an inventor” begs whether a decentralized autonomous organization (DAO), a new type of digital blockchain-based organization, can participate in IP-related activities, including the invention, ownership, licensing, and enforcement of patent rights. Although this background seems damning, a DAO’s distinguishing features may produce an outcome that differs from past precedent.

A DAO is defined as an “entity that use[s] blockchains, digital assets and related technologies to direct resources, coordinate activities and make decisions.” One common denominator is that each DAO comprises a collective governance for its digital assets. This area of digital blockchain organization is rapidly evolving, incredibly diverse, and highly innovative. For any given DAO, observers note that the functions, means, and objectives can vary widely with the intended collective’s goals. Each DAO has its own attributes for governance, transparency, structure, means, and functions, as defined via the blockchain coding. A DAO’s goals and objectives may also evolve and change over time, subject to the vote of the community collective.

As a collective, the entity can engage in any number of activities at the direction of its collective members, arguably including owning and selling property and services. Some recent examples of these include:

RealEstate DAO. This entity is one of many that plans on owning physical property. In February 2022, it announced that it “plans to purchase and manage a collection of highly desirable vacation properties” available for use by its token holder members.

PleasrDAO. This entity is described as a “collective of artists, DeFi leaders, NFT collectors and crypto influencers that collect culturally significant NFTs with a charitable twist.” Notably, it has raised and spent millions on collecting digital art with the goal of giving proceeds to charity. It is reported to have 74 members, who collectively own its asset holdings.

ConstitutionDAO. This entity was formed with the goal of purchasing at auction one of the few known original copies of the U.S. Constitution. In 2021, it was formed to allow its token holders to vote on what to do with said copy. While it raised $47 million from more than 17,000 contributors, the purchase was ultimately unsuccessful.

VitaDAO. This entity describes itself as a “decentralized membership collective” and “a new cooperative vehicle for community-governed and decentralized drug development and intellectual property.” It plans to raise investment capital and to own and license patented medical technology through a model that overcomes many of the traditional inefficiencies and problems with traditional biopharma medical investment and research approaches.

Intellectual Property Issues

Current legal precedent teaches that the U.S. IP system is geared toward human participation —read “natural persons.” Machines need not apply. As the Copyright Office Compendium explains, “The copyright law only protects ‘the fruits of intellectual labor’ that ‘are founded in the creative powers of the mind,’” citing the U.S. Supreme Court’s 1879 Trade-Mark Cases. However, the issues of inventorship, ownership, and assignment are too often conflated. A corporation may have employees who are the true inventors, but they may have an obligation to assign the resulting patent instrument to the organization. The legal inquiry at the heart of this issue is whether a DAO may be the digital tree that provides “the fruits of intellectual labor.”

A distinguishing feature of DAOs is that as a collective, it represents a group of human individuals (“the organs”), often the token holders. The existence of natural persons in such a collective has the potential to allow them to escape the legal pitfalls that befall machines and monkeys when attempting to generate IP. As discussed above, the Patent and Copyright Act rely on traditional doctrines of creative activity by “natural persons” for conception, authorship, and other “ministerial” acts (e.g., 35 U.S.C. § 115 lists the requirements for any individual to submit an “inventor’s oath or declaration.”)

DAOs currently exist without specific standards and charters, giving rise to much legal uncertainty regarding many questions about their character, rights, and liability. Accordingly, DAOs present the following policy questions for IP stakeholders:

  • Whether a DAO may be inventor or author of an innovative work?
  • Whether a DAO may be the owner of IP rights, either through an assignment or license?
  • Whether a DAO may enforce its IP rights, such as through an infringement action?

The answers to some of these questions seem to be clear, if not legally trivial. If a DAO may own real property (e.g., real estate or a copy of the Constitution) or may own and license digital assets (e.g., NFT art), it seems obvious that a DAO collective may also vote to acquire, assign, and license IP rights. In fact, patent ownership is at the heart of VitaDAO, per its white paper.

In contrast, it is entirely less obvious whether a DAO may be an inventor under the Patent Act. At present, DAOs vary tremendously by their code, organizational structure, governance, and functions. For the purposes of this blog, let us assume that presently a DAO’s legal structures will not provide it with the necessary attributes of personhood necessary for it to be an inventor. Specifically, a DAO cannot legally sign an oath to accompany a patent application. In the alternative, this begs the question of whether the DAO collective’s individual human organs can participate jointly in inventorship on behalf of the entity?

Can a DAO’s human organs, or any such collective, jointly invent as a team?  The image of the lone inventor is widely considered a modern anachronism. The modern reality of research and development makes clear that teams collaborate toward inventive goals. U.S. patent law has long recognized joint inventors. The Patent Act (§ 116) expressly provides for joint inventors, even when “each did not make a contribution to the subject matter of every claim of the patent.” The team size listed as the inventors of a patent has steadily increased over the years. Observers note that the Patent Act (§ 116) neither provides a bright line test for joint inventorship nor a specific requirement that joint inventors work within a physical proximity or at the same time.

A recent blog reported that it is increasingly common to see many co-inventors of a patent. Consider two recent Microsoft U.S. patents, U.S. Patent No. 7,013,469 and 7,017,162 that each have 51 co-inventors. The listing of 51 co-inventors is not terribly far afield from the PleasrDAO’s reported membership of 74 persons. It is an unprecedented question whether a DAO, as a collective, can have its human organs jointly decide—via a collective voting mechanism—on the elements of an invention that would survive as a patent claim. This element of human intervention appears to satisfy some of the necessary patent law requirements, per Thaler v. Vidal.

U.S. patent law recognizes the “true and only” inventors. Accordingly, several legal theories suggest that a DAO’s collective patenting activity should be permitted. First, patent law recognizes that every contributor to an invention, no matter how minor or how distant in time and space, has a right to be acknowledged as a co-inventor. Second, in 2004, Congress specifically enacted legislation to encourage joint inventorship. With the CREATE Act, Congress amended 35 U.S.C. § 103 (non-obviousness) to encourage joint collaboration by entities by allowing:

subject matter developed by another person and a claimed invention shall be deemed to have been owned by the same person or subject to an obligation of assignment to the same person if [a joint research agreement exists].

This legislative proposal was later incorporated into the America Invents Act (“AIA”). In sum, the CREATE Act holds that some type of “joint research agreement” or equivalent contractual relationship exists among the parties. As many know, blockchain systems often include code providing for a smart contract. Again, while these systems are not standardized, they may be coded in a way that satisfies the statutory requirement and the joint agreement requirement. (Pro tip: blockchain counsel know that, all too often, smart contracts are neither smart nor binding).

This conclusion further contrasts the fundamental differences between AI and blockchain worlds. At present, no DAO has attempted to patent an invention or to register a copyright for a work. Any such attempt will likely be messy and will immediately provoke a legal challenge. But resistance is futile, but, these attempts are inevitable. Recall that it was only within the past few years that some other novel fundamental questions (e.g., AI questions) burst through the legal frontier. Though we have barely scratched the surface of blockchain and DAOs, the bleeding-edge of this technology—and novel legal challenges—may be arriving sooner than we expect.

Time to Adapt for the Future

DAOs promise enormous opportunities for the democratization of organizations, including innovation around governance, transparency, powering applications, conducting tasks, delivering services, fundraising/capital formation, and creativity. Among the many real-world, practical-use cases is an exciting new paradigm for the creation, ownership, licensing, and the many uses of IP. The greater participation of DAOs through its collective members’ actions in the IP system promises exciting, if not revolutionary, opportunities for innovation, investment capital formation, and R&D in fields such as banking and finance, medicine and longevity, and arts and culture.

In many ways, the strengths of the U.S. IP system, such as its stability and utility, are rooted in 19th century jurisprudence and thinking. A fundamental challenge for the 21st century is to adapt the IP system for a future that centers on digital assets and decentralization. Policy makers and lawmakers may need to adapt, if not refine, our system to power the new digital DeFi frontier, including its new structures and applications. Who knows? The next National Inventor Hall of Fame® inductee could very well be the DAO next door.

 

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Copyright:cihangirstock 

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4 comments so far. Add my comment.

  • [Avatar for Mark Annett]
    Mark Annett
    August 14, 2022 08:32 pm

    @Erich Spangenberg there are a lot of different rules/exemptions both state and federal, which are chiefly related to whether or not you can advertise your entity to the public or not. Exactly how much paperwork you need to do depends on which exemptions that you try to use. But yes, you can be talking about needing to do exactly the types of things you mentioned, which can be prohibitively expensive.

    However, if you only want to have an entity made up of accredited investors, then you can get around nearly all of the registration requirements but that kind of defeats the purpose of having a DAO in the first place.

    Thanks for asking your follow-up!

    Mark

  • [Avatar for Erich Spangenberg]
    Erich Spangenberg
    August 12, 2022 06:34 am

    Mark–

    You are covering a really interesting point. Not my area, so when you say “register,” does that mean a full-blown prospectus and audited financials and regular quarterly reporting or is there an easier and more efficient way?

  • [Avatar for David Lewis]
    David Lewis
    August 11, 2022 01:48 pm

    It seems to me that as soon as you list the DOA as an entity, onto itself, instead of listing each of its human organs individually inventors, it is totally analogous to a corporation with essentially one exception. Specifically, unlike a corporation, a DOA does not have the laws that corporations have, imparting personhood to it.

    It seems to me that the main advantages that a DOA has over a corporation in being an inventor are (1) the element of confusion over what the DOA is and (2) each DOA is something different, which potentially can create more confusion and gives an opportunity to essentially ask the same question again and again of the same court(s). If one asks the same question again and again, in different ways, eventually one may get a different answer. Unfortunately, that second advantage does not bode well for the rights of the actual “true and only” inventors, whose only compensation is often essentially just the recognition given in the patent document of being an inventor.

  • [Avatar for Mark Annett]
    Mark Annett
    August 11, 2022 09:52 am

    Interesting article, one also likely needs to consider the impact of the Howie Test on inventing because it may turn the DAO into a unregistered security

    Under the Howie test something is a security if there is
    – an investment of money
    – in a common enterprise
    – with the expectation of profit
    – to be derived from the efforts of others

    The VitaDao which you mentioned, has tried really hard to avoid being a security, by “creating no expectation of profits.” According to members of the VitaDao Core Team in this podcast, the “Dao owns the IP and there’s also, no, VDX not any expectations of profits that you could have because first of [00:38:35] all the goal here is … to fund research, and really open up that research and then to try and make it accessible…”
    (Source: https://ideamachinespodcast.com/vitadao)

    So, if the DAO is organized with the expectation of profits and the creation of patents is central to its business then unless all the members are taking part in the creation of the IP, for example it truly is a joint research project then the DAO will end up being a security. Because if the are members who are just along for the ride then they are investing in a security. Note: voting alone is not consider enough participation to shield a DAO from being labeled as a security.

    A patent is required to have the true inventors recorded. If it is not registered as a security then unless all the members contributed then the DAO would likely be considered to be in violation of the Howie Test if it tried to register a patent, assuming that IP creation was core to its purpose.

    However, if it was registered as a security then the Howie Test would obviously not be violated and therefore a DAO, would have a much better shot at prevailing on being recorded as an inventor. Or at least have eliminated one legal challenge to it being one.

    Cheers,

    Mark

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