By Bob Needham
Michigan Law
Although blockchain technology initially offered promise to solve some difficult issues concerning ownership of digital assets, that potential never materialized, according to Professor Aaron Perzanowski.
In a recent article, “How the Blockchain Undermined Digital Ownership,” Perzanowski argues that blockchain—the open-ledger technology behind cryptocurrencies—has actually harmed the concept of ownership of digital goods, from books and music to NFT artworks and beyond. “Failed and fraudulent blockchain projects left many consumers reasonably convinced that the notion of digital property was a fad, if not simply a scam,” he writes.
The article—which arose from a symposium at Washington and Lee University—also offers some thoughts on how questions of digital ownership can still be addressed in the future.
Perzanowski, the inaugural Thomas W. Lacchia Professor of Law, answered five questions about the issues raised in the article:
1. Why should we care about the concept of digital ownership?
Consumers have historically exercised some degree of independence from the sellers of the goods that they buy. Once you make a traditional analog purchase, you take that item home, you get to use it how you see fit, you get to dispose of it. You can lend it to a friend.
When we shifted to the digital space, copyright holders—sellers of content like books, music, and movies, but also the companies that manufacture our devices—understood that shift as an opportunity to rewrite those rules so that they can exercise control over how the content or the device is used.
We can see that mentality being applied to your vehicle, which has copyrighted software everywhere, or your e-book collection, which one day Amazon might decide is now gone. What happens when you’ve spent your money investing in building a digital collection?
Those are the kinds of practical issues that I think we ought to alert consumers to.
2. What’s been wrong with the way that the courts have approached these issues thus far?
The biggest problem is that courts have a tendency to be too deferential to end user license agreements and terms of service—these long, complex, unreadable and unread documents that consumers are presented with when they enter into some transaction. Too often courts look at those documents as dispositive of the question of what rights consumers acquire. Do you have the right to resell this object? Do you have the right to make modifications to it? A lot of courts will say, well, let’s pull up the document and see what Amazon said or see what Tesla said. That’s useful as one piece of evidence, but I don’t think it ought to resolve the question.
Historically, property law was really skeptical of the idea that the seller gets to retain control after they sell you the product. But in the digital space, I think courts have become much too comfortable embracing that worldview.
3. When blockchain technology first came along, there were reasons to think that it might solve some of these digital ownership issues. Why didn’t that happen?
A lot of money poured into the space, which might have led to an infrastructure where digital transactions could occur. The problem, though, has been that most of the high-profile digital assets fall into two categories. First, a lot of that money went into cryptocurrencies that turned out to basically be fraudulent “pump and dump” schemes where they get the price to go high, and then the initial backers pull out and take all the money with them. And second, a ton of money went into NFTs, which became a speculative, get-rich-quick kind of space.
Because the focus was on these massive speculative investments, nobody ever really turned their attention to how we make this into a mechanism so that somebody who bought an e-book from Amazon for $15 can sell it for $8 after they’ve read it. Nobody wants to build a sustainable long-term business. They want to turn $10 million into $1 billion.
4. One interesting point in your article explains how even NFTs are not truly “owned.” Why is that?
When you pull up the terms of these NFT marketplaces, they have their own end-user license agreements and their own terms of service, and they basically say a lot of the same stuff that Amazon or Apple or anybody else says—which is that you don’t really own any of these assets. So you buy some bored ape for a lot of money, thinking you’re going to be able to use it for commercial purposes. Yet the license agreement says, here are some things you can do and some things that you can’t.
Some of them impose resale royalties. If you do sell it at a profit, at some point you have to kick back some of the money to the original producer. There are circumstances where they can pause exchanges, so you can’t actually offload it even if you want to. So while they make this promise of true digital ownership, I don’t think they’ve made good on that promise. I think there are potential false advertising claims to be brought against some of these NFT marketplaces because the rhetoric and the reality don’t really match up.
5. How can these issues be resolved?
There are lots of ways that we could solve these problems, but we have one that’s well-tested and well-developed: the idea of personal property. I’d like to see the law try to incorporate those principles into the digital space.
The focus on technology has been misplaced. We’re not going to code our way out of this problem. The technology that we need is really legal technology. We have a good understanding of how personal property has worked in our legal system for the last 500 years, and I think what we need is for courts to start to incorporate those common-law lessons into their dealings with digital assets.
So far, that has not been a terribly successful effort. There’s only a handful of cases in the US that squarely address these issues, and the courts have not been willing to reorient their thinking from focusing on copyrights to property. There are some ongoing cases that might be helpful in the long run. There are a couple of false-advertising class actions going on against Apple and Amazon, basically claiming that they have misled consumers by telling them they’re buying or purchasing these digital assets, when in reality the company’s position is that they have this very conditional license arrangement. It’s a slow and not entirely encouraging process, but we’ll see how these cases play out over the next couple of years.
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