Problems of using smart contracts in the framework of copyright protection of intellectual property results

Pakhomov Valeriy Nikolaevich Postgraduate student; Department of Civil Law Disciplines; Syktyvkar State University named after Pitirim Sorokin 83 Tentyukovskaya str., 45 sq., Syktyvkar, Komi Republic, Russia, 167005 valeriy-pakhomov@yandex.ru Other publications by this author

The legal policy of the Russian state in the field of copyright protection should be based on reliable ideas about current trends in the development of public relations in the field of intellectual property turnover. When developing and implementing legal management decisions, various factors affecting the nature and forms of actions of private law entities, including the conditions and circumstances of the technological transformation of modern society, should be taken into account. It is fair to note that for the sphere of turnover of copyright objects, the process of digitalization (digitalization) of human creative activity is of paramount importance today ^{[1, p. 101]}.

Digitalization should be considered as one of the leading factors in the transformation of the legal mechanism of copyright protection. It implies the continuous introduction of digital technologies into various spheres of life, including creative activity and the turnover of intellectual property objects. The nature of digitalization lies in the transition from traditional forms of interaction to more efficient and flexible digital solutions. Digitalization is changing the face and the very nature of creative activity. Thanks to the digitization of creative works, there is a possibility of their mass distribution in the virtual space. This poses new challenges for the government in developing effective copyright protection mechanisms in the new technological reality. The emergence of new technologies, such as blockchain and machine learning technologies, require a revision of the current legal norms of the copyright protection mechanism ^{[2, p. 53]}.

Among the numerous technological innovations of recent years, the spread of which leads to new solutions in the field of legal policy on copyright protection, it is worth highlighting the phenomenon of smart contracts as a special type of computer algorithms. A smart contract is a computer program that automatically executes and regulates the terms of an agreement between the parties based on predefined rules.

Issues related to the use of smart contracts in civil circulation have recently begun to attract the attention of Russian civil society, which has led to the publication of studies in which attempts have been made to dogmatically analyze this phenomenon. This was done most thoroughly in their works by A.A. Volos, A.I. Savelyev, L.V. Sannikova and Yu.S.Kharitonova, L.G. Efimova and O.B. Sizemova, E.V. Zainutdinova.

At the same time, the issue of legal support for the use of smart contracts still needs additional scientific research, which will outline the framework of the main doctrinal approaches to understanding the nature of this phenomenon and identify the main directions of development of the legal policy of the state in this area.

Nick Szabo, an American lawyer and cryptographer, became one of the pioneers of the concept of smart contracts. It was he who came up with the idea of the possibility of the process of concluding a contract on the network between two persons unfamiliar with each other, which is based on a self-executing code ^{[3, p. 22]}. In his works, he described how blockchain technology can be used to automate various processes and develop new forms of legal agreements. Szabo proposed the terms "smart contract" and "digital currency", which had a significant impact on the development of cryptographic technologies ^{[4, p. 22]}.

The smart contract operates on the basis of blockchain technology, which is known to be decentralized. Due to this, smart contracts eliminate the need for trusted third parties, which reduces the risks of non-fulfillment of civil obligations in the sphere of turnover of copyright objects. Due to the decentralized nature of the blockchain, information about the status of the smart contract is available to all participants, which minimizes the risk of manipulation.

The automatism of the fulfillment of contractual obligations used in smart contracts assumes that, subject to the conditions laid down in the code, agreements reached between participants in civil turnover are executed automatically, which minimizes the time costs and errors associated with their voluntary fulfillment. The execution of smart contracts takes place without direct human intervention. Smart contracts represent an innovation in the mechanism of private law regulation, although at the legislative level, legal support for their use is extremely fragmented. In a number of by-laws (usually of a strategic nature), smart contracts are mentioned as effective tools for decentralized management in a particular area, however, civil legislation still does not contain a detailed system of norms that would regulate public relations in the field of the use of smart contracts ^{[5, p. 69]}.

Recent private law novels demonstrate that the legislator is not inclined to consider a smart contract as an independent contractual structure or, in a broader sense, as a type of private law contract. At the subordinate level, smart contracts are also considered primarily as a technological solution in the field of ensuring the fulfillment of obligations of the parties to a civil contract. There are no well-established approaches to determining the legal status of smart contracts in law enforcement practice either – courts rarely take into account the use of this technology and do not involve the operators of the relevant platforms as third parties in resolving civil cases.

The formalization of relations in the field of the use of smart contracts is currently implemented mainly at the subordinate level, since a number of strategic planning acts set out the concept and certain targets for the spread of the use of smart contracts as parameters of technological and infrastructural development of the Russian state. At the same time, at the level of individual norms of civil legislation, it should be noted that there are no formalized rules for the use of this technology.

Indirectly, smart contracts have been implemented into the system of Russian legislation through the development of legislative acts in the field of regulating digital rights of the individual. Smart contracts, as one of the most striking examples of the use of blockchain technologies, are programs that run automatically when pre-determined terms of an agreement between participants in civil turnover are fulfilled. The automatic fulfillment of the conditions stipulated in the smart contract minimizes the risk of human error and guarantees compliance with contractual obligations.

There is some disagreement in the legal doctrine on this issue. A.I. Moskalenko suggests considering a smart contract as an electronic contract ^{[6, p. 19]}, while E.Y. Matveeva states that it is not a special contractual structure ^{[7, p. 102]}.

Thus, there is a competition between two legal ideas in the doctrine – a smart contract as a technology for ensuring the fulfillment of private law obligations and a smart contract as an independent type of private law agreement (contract). The first legal idea does not require a significant transformation of the system of contractual structures provided for by civil law. However, if we recognize the correctness of this interpretation of the smart contract, then the rules of the law of obligations should be expanded due to the rules of technological support for the fulfillment of obligations under the main agreement. If we recognize the validity of the second legal idea, then the legislator should review the accepted norms on the forms of the contract, assuming that the agreement can be executed in the electronic form of a smart contract.

Following the formal and logical analysis of the concept of a smart contract, it should be concluded that the phenomenon is a kind of contract as a form of agreement in private law. The practice of using the concept of "contract" in civil law is ambiguous. On the one hand, civil legislation operates primarily with the concept of a contract, on the other hand, the concept of "contract" is applied to contracts in the field of state (municipal) contracts. A contract in civil law is an agreement between two or more parties, which establishes mutual rights and obligations. It should be noted that the term "contract" is often used as a synonym for a contract.

A contract, in turn, is a type of contract that implies a specific set of rules and regulations governing the obligations of the parties. A contract is not just synonymous with a contract, but it is a separate category that has its own legal nature and characteristic features that set the framework for fulfilling obligations between the parties.

The main function of a smart contract is to automate and simplify the fulfillment of obligations, which makes it a technological means of supporting the process of fulfilling obligations. However, it should be emphasized that a smart contract is not limited to just a simple algorithm. A smart contract includes the terms of the parties' agreement, which are fixed in its program code. Unlike a regular contract in civil law, where execution may depend on the will of the party to the agreement, a smart contract functions automatically, following pre-established algorithms.

The nature of smart contracts primarily indicates their technological function in the process of fulfilling private law obligations. Decentralized platforms on the basis of which smart contracts operate provide a high degree of data protection and transaction reliability, and in combination with blockchain technologies, smart contracts become an important tool for creating secure and efficient ecosystems, ensuring compliance with the rights and obligations of the parties without the need for centralized control. Smart contracts are automatically executed when pre-defined conditions are met, which minimizes the need for intermediaries and reduces the likelihood of copyright manipulation ^{[8, p. 256]}.

Thus, the first problem of using smart contracts in the framework of copyright protection of intellectual property results is the lack of satisfactory legal support for this process in civil legislation. The system of civil law does not allow us to single out a separate group of legal norms governing relations in the field of the use of smart contracts as a separate private law institution.

Another problem with the use of smart contracts in the framework of copyright protection of the results of intellectual activity is the impossibility of its termination. Termination of a contract in civil law is the leading means that provides flexibility in the behavior of the parties to a civil law relationship. Upon termination of contractual obligations, the parties return to their original position, eliminating the legal consequences of the previously concluded agreement. Such termination may be carried out by mutual agreement of the parties, in cases of violation of the terms of the contract by one of them or in other cases provided for by law ^{[9, p. 241]}.

In the structure of the mechanism of private law regulation, the possibility of contract termination also serves as a manifestation of the free will of participants in civil turnover. The parties agree on their obligations based on their own interests. At the same time, they have the right to take stock of their relationship at any time and decide to terminate the agreement. This circumstance forms such a quality of obligation in private law as its reversibility.

The reversibility of the fulfillment of obligations under the contract assumes that each party has the right, in certain legal situations, to renounce an earlier agreement and terminate the fulfillment of this obligation. However, the reversibility of a private law obligation under a smart contract faces a number of serious problems. Meanwhile, any technological innovation should not "conflict with the principles of civil law, as well as the conceptual foundations of private law institutions, primarily with the general provisions of contract law" ^{[10, p. 256]}.

The problem of terminating the execution of a smart contract arises due to the features of its automatic execution. Smart contracts based on blockchain technologies provide the ability to automatically fulfill conditions without the participation of the parties. However, such a system does not always take into account the need to terminate the contract in case of a change in circumstances. Acceptance of the terms of a smart contract presupposes their self-fulfillment, which in the doctrine of civil law is considered as the fundamental impossibility of termination of a private law agreement.

The automatism of the execution of the terms of a smart contract assumes that the conditions laid down in its program code are executed strictly in accordance with the prescribed algorithms. The fulfillment of the obligations of the parties takes place regardless of their desire ^{[11, p. 6]}.

As a result, the irreversibility of fulfilling obligations under a smart contract creates a contradiction between this technological solution and the classical approaches to the construction of a civil contract that have developed in the civil doctrine. Civil law provides mechanisms for terminating a contract, but smart contracts, being based on blockchain technology, do not have such flexibility. This can lead to legal conflicts when one party cannot terminate its obligations, thereby violating the principle of protecting the rights of participants in civil law relations. Thus, termination of a smart contract can be a difficult task requiring additional legal means.

During the execution of the smart contract program code, the terms of the agreement cannot be changed unilaterally (with the agreement of the parties to the agreement), which means that the parties cannot terminate or change contractual obligations. This can only be done if such an option is provided for by the initial conditions encoded in the smart contract. The transaction-oriented model of legal regulation allows you to apply the conditions of invalidity of transactions to a smart contract, change or terminate a smart contract concluded on the blockchain, "apply appropriate protection and liability measures to the smart contract party and, in addition, determine the law applicable to the smart contract and the jurisdictional authority that will consider a dispute from a smart contract" ^{[12, p. 144]}.

As discussed earlier, the immutability of a smart contract is a significant attribute of this technology, since every transaction and every condition entered into the blockchain are fixed and remain unchanged forever. This eliminates the possibility of arbitrary interference or termination of the contract. However, this can lead to difficult situations if the parties decide to change the terms of the agreement after its execution ^{[13, p. 24]}.

The automatism of a smart contract poses a significant threat to the interests of the parties to the copyright relationship. The self-enforceability of a smart contract creates an additional threat to the interests of third parties who may be affected by the terms of the contract, but are not its direct participants. For example, in the sphere of copyright turnover, there is a risk that the parties may conclude a smart contract that creates restrictions on the use of works without taking into account the legitimate rights of third parties. In addition, the smart contract basically excludes any guarantees for third parties, which can provide legal uncertainty and potential violation of the legitimate rights of these parties. The lack of the possibility of interfering with the contract to make changes or terminate it creates serious obstacles to protecting the interests of third parties ^{[14, p. 33]}.

Civil law knows several grounds for termination of obligations between participants in civil turnover, but not all of them are valid for the scope of smart contracts. Thus, non-fulfillment of obligations is one of the grounds for termination of the contract. The technological nature of smart contracts virtually eliminates the possibility of arbitrary default.

However, it is very difficult to amend or terminate an agreement that has already been reached. Firstly, making changes to the program code of a smart contract is impossible without the direct intervention of the developer. The parties to the agreement are deprived of a real opportunity to act independently, they need to resort to the help of third parties, since "it is not possible to independently amend or terminate the smart contract without contacting the developers, since this contradicts its nature as an immutable, strictly defined, self-executing program code" ^{[15, p. 91]}.

Another problem is the termination of a smart contract in the event of a significant change in the obligation or a significant violation of the contract itself. These criteria are evaluation categories. They are problematic for the operation of smart contracts, since automated systems are not able to take into account all the nuances of the application of valuation concepts.

The algorithmization of evaluation concepts in the software code of a smart contract is very limited. Evaluation categories often depend on the situation and may require context analysis, which is impossible within the strict instructions of the code. As a result, smart contract algorithms cannot recognize the changing terms of a private law agreement. In practice, an adequate assessment of the extent of the change in the nature of the obligation is given within the framework of law enforcement discretion.

The impossibility of termination of smart contracts on similar grounds related to the use of valuation categories indicates certain limitations for their application in the sphere of turnover of copyright objects. During the execution of such contracts, situations may arise that require the discretion of the law enforcement officer, which smart contracts are not able to take into account. This limits not only the parties' ability to resolve disputes related to termination of obligations.

The immutability and self-enforceability of smart contracts as technological attributes of these phenomena should be considered as restrictions on the operation of the principle of freedom of contract in civil law. This tool is based on software algorithms that, once embedded in the code, cannot be changed or terminated without the participation of its developer. In case of circumstances that are not provided for by the terms of the smart contract, the parties cannot suspend the fulfillment of the obligation ^{[16, p. 66]}.

The use of smart contracts in the digital environment is limited. These contracts work best within closed ecosystems. However, in more complex and dynamic legal relationships, such as those that arise in the field of copyright, the automatism of smart contracts can be a problem for participants in civil turnover. The inability of smart contracts to take into account changes in circumstances or violations of the rights of the parties makes it difficult to apply them in the context of the realization of private property interests of subjects of civil law ^{[17, p. 5]}.

Finally, the incompleteness of the legal effectiveness of smart contracts in the sphere of copyright turnover indicates the need for their integration with classical means of private law enforcement. Smart contracts, although they offer automation and transparency, cannot completely replace traditional legal mechanisms. Therefore, it is necessary to develop hybrid models that combine the advantages of digital technologies and traditional tools of civil law.

There are situations where it is necessary to radically change the terms of an existing smart contract. The most drastic way is to terminate the contract completely, followed by making changes to the program code. This approach allows you to adapt a smart contract to new conditions. At the stage of developing a smart contract, it is important to consider possible circumstances that may require changes or even termination of the contract. This can be caused by various factors, such as changes in legislation, market dynamics, or the occurrence of unforeseen circumstances. The inclusion of such terms in the initial code ensures the flexibility and stability of the contract.

The potential of using smart contracts to protect copyright objects can be revealed through the formation of a registration system (registry), within which voluntary registration of these objects will be carried out.

Decentralized smart contract platforms are a reliable means for registering copyright objects. Using blockchain technology, such platforms ensure the immutability of data about works, which makes it impossible for unauthorized changes to information. This is very important for authors who want to protect their works from plagiarism. The registration of copyright objects on such platforms can act as a legal fact confirming the circumstances of the creation of creative works, since "data in the registry is constantly stored in the form of blocks of information recorded in a common chain when a certain quantitative data limit is reached" ^{[18, p. 144]}.

The distributed database underlying blockchain technology is an innovative solution for providing a reliable and secure copyright registration system. Unlike traditional methods, which can be subject to forgery and manipulation, the blockchain ensures transparency of transactions, so the use of smart contracts allows you to automate the process of transferring rights to the results of intellectual activity.

The essence of blockchain, as it is known, is to create a decentralized and secure database where information is stored in the form of a chain of blocks connected to each other. The guarantee of the immutability of information is one of the key advantages of the blockchain, since each record is protected by cryptographic methods and cannot be changed without automatically changing the associated data chains. This makes the technology of smart contracts and blockchain as a whole an ideal solution for authors of creative works, since recording data on the creation of the result of intellectual activity acts as a reliable mechanism for substantiating subsequent claims. The problem can be solved "by creating not a public, but a private blockchain on the basis of the organization, which only authorized persons will have access to" ^{[19, p. 94]}.

Considering the importance of blockchain-based technological solutions for the field of copyright, it is necessary to take into account the fact that smart contracts can act as an element of a more voluminous technological design – smart licenses.

This tool is an innovative model based on the use of blockchain technology, which makes it possible to automate the licensing process of digital works. Unlike traditional licenses, which require significant time and resources to manage, a smart license provides a more transparent way to qualify the rights and obligations of parties to a private law relationship. An element of a smart license is a smart contract, which, as a programmable code, may contain conditions regarding the use of digital content, including the rights to reproduce, distribute, and modify copyright objects.

It should be noted here that the "zone of validity" of smart licenses today mainly covers the sphere of turnover of digital copyright objects - that is, creative works that were either originally created in digital form or were digitized later (as a rule, with the destruction of the tangible medium). The transfer of rights to digital works through the provision of a smart license is the most common practice in the virtual space when it comes to the turnover of digital works. The use of smart contracts under smart licenses ensures fast and secure transactions. However, there is every reason to believe that smart licenses can be extended to traditional copyright objects if the parties to a private law agreement wish to digitalize the conditions for the transfer of rights to the result of intellectual activity. They can be used to register property, since the use of smart contracts is fast and economical, which makes them a better alternative to previous systems ^{[20, p. 134]}.

From a legal point of view, a smart contract can also act as a legal fact that generates certain copyright consequences. By providing automated processing of data on the owners of rights and the conditions of use of works, such a contract forms a clear basis for coordinated actions on which authors and copyright holders can rely. With the help of smart contracts, the author can maintain control over his work.

The flexibility of the copyright regime for the protection of intellectual property results provided by smart contracts allows authors to use the opportunities to adapt the conditions of use of their works for different categories of users and legal situations. At the same time, there is no need to register copyright objects in the traditional sense, which simplifies the process of protecting rights and reduces administrative barriers.

Thus, smart contracts embedded in a distributed database of blockchain technology ensure the automatic fulfillment of the terms of the transaction between the parties without the need to contact intermediaries. This reduces the overall risks for participants in civil turnover, including when transferring rights to copyrights. With the help of smart contracts, it is also possible to create various licenses for the use of works, which makes the process of transferring rights more flexible and accessible to creative people. As a result, the optional copyright registration system will be transformed from an outdated and unreliable model into a modern solution that meets the requirements of the digital age. The purpose of such a registry is "to expand the possibility of using a work in an endless chain of persons, while respecting the rights of authors and copyright holders" ^{[21, p. 47]}.

The Russian legislator is currently facing a number of legislative policy issues, the resolution of which stimulates private law activity in the use of technological solutions such as smart contracts and smart licenses. First of all, Russian legislation needs to define the legal status of smart contracts, which can be considered as a separate type (subspecies) of an agreement concluded in electronic form. This will allow the formation of open approaches to the recognition of smart contracts as legitimate legal structures capable of ensuring the fulfillment of agreements reached between the parties to a private law relationship within the framework of law enforcement practice. The legislator should also consider the possibilities of legislatively ensuring the use of smart contracts and smart licenses as optional mechanisms for registering or certifying circumstances related to the creation of copyright objects.