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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

When polling fellow tech lawyers about blockchain, most of them seemed to be waiting out getting up to speed on the technology to see if the hype would stick and whether clients would actually implement blockchain solutions at an enterprise level. Would blockchain for business applications, such as supply chain and data transfer, explode like the “cloud” and “automation” or fall by the wayside as other technologies outpaced it?

While the staying power of public cryptocurrency platforms is still in question, the use of blockchain technology to enable business solutions seems to be increasing, with blockchain use cases moving from the innovation lab into implementation.

So it is time for tech lawyers to sit up and consider how to contract for the development and deployment of blockchain solutions and how to participate in a network utilizing blockchain technologies. While some aspects are the same as with other technologies—alliance agreements, development agreements, and implementation—the distributed nature of the technology requires us to think differently about the scope of services being offered, how the technology is used, and who is responsible for what. And there is also a whole lingo you need to learn.

To get started, set out below is a quick primer on the key terms and a list of key contract considerations.

The basic lingo:

  • Blockchain (From Blockchain Glossary): A blockchain is a type of distributed ledger, composed of unchangeable, digitally recorded data in packages called blocks (rather like collating them on to a single sheet of paper). Each block is then “chained” to the next block, using a cryptographic signature. This allows block chains to be used like a ledger, which can be shared and accessed by anyone with the appropriate permissions.
  • Nodes: (From Blockchain Glossary) A computer connected to the blockchain network. (From Blockgeeks) A copy of the ledger operated by a participant of the blockchain network.
  • Distributed Network: (From Blockgeeks) A type of network where processing power and data are spread over the nodes rather than having a centralised data centre.
  • Smart Contracts (From IBM): Smart contracts are an integral part of blockchain technology. They automatically execute transactions and record information onto the ledger without human intervention. Conditions of smart contracts are mutually agreed on by network members.

Checklist of contract considerations:

  • Ongoing Services
    • Technology maintenance and support
    • Technology enhancements
    • Network oversight
    • Network administration
  • Performance Standards
    • Availability
    • Transaction time
  • Network Participants’ Guidelines and Terms
  • Legal and Regulatory Compliance
  • Dispute Resolution and Governance
    • Use of experts
  • Jurisdiction
    • What law applies to governing documents
    • What law applies to the transactions on the network        
  • Data Privacy and Security
    • Mapping of data flows
    • EU GDPR: deletion/correction of personal data
  • IP and Data Rights
    • Use cases
    • Core technology
    • Technology changes
    • Technology escrow
    • Transaction data
    • Smart contracts
    • System data/logs
    • Reports
  • Financial Considerations
  • Liability
  • Audit Rights
  • Monitoring Regulatory Environment and Addressing Change
  • Enforceability of Smart Contracts
  • Termination/Exit

Stay tuned for future blogs with more detailed discussions on blockchain.