TheRetailer_Autumn_2019

Legal issues to consider when adopting blockchain solutions

SOPHIE LEVETT SENIOR ASSOCIATE DLA Piper

WHILST BLOCKCHAIN OFFERS OPPORTUNITIES TO TRANSFORM RETAIL, IT’S IMPORTANT TO BE AWARE OF THE RISKS INVOLVED IN ADOPTING BLOCKCHAIN SOLUTIONS. The implementation of blockchain solutions has the potential to be transformative for the retail sector, by reducing barriers, increasing visibility, trust, and interoperability between different parties in the supply chain. There are also new opportunities for retailers in the form of alternative ‘open’ currencies that operate on blockchain technology, such as Bitcoin and Facebook’s proposed ‘Libra’ currency. Yet as businesses race to transform their models and operations, there are key legal concerns to consider when entering into contractual agreements for blockchain solution. IP Rights At present, the IP position for standard/base solutions is relatively consistent across the market. Vendors want to retain ownership of the solution they have spent time and money developing and to encourage customers to take a limited license in respect of it (i.e. a right to use the software for a defined period of time, subject to certain conditions such as a defined number of users). The position is more complex when considering custom developments or modifications that blockchain vendors undertake for a particular retailer. There is a tension between developers wanting to retain closed ownership of their developments to protect their investment and to further monetise it, the need for developments to be shared with the broader blockchain community in order to foster innovation, and a customer’s desire to retain ownership of the developments that it has paid for and which could give them a competitive edge. These competing interests mean that ownership of IP within blockchain solutions will be hotly negotiated. Retail customers should, therefore, ensure that appropriate consideration is given to what IP ownership rights are really needed and consider whether business benefits could be achieved, for example, by working together with vendors to allow bespoke IP to be licensed to other retailers, thus improving blockchain uptake and potentially increasing supply chain efficiency and sustainability across the sector more broadly. Retailers should also be aware of any open source software incorporated in to the blockchain solution they are considering, as this will impact their licensing and ownership position irrespective of what is written in their contract.

Security and data A key feature of blockchain technology is that it creates a permanent, immutable database or record of information being stored, which is extremely difficult to hack. While apparent security benefits may be a draw for retailers, the permanence of blockchain may be problematic if data being stored includes customer’s ‘personal data’. This attracts many questions; how can retailers reconcile their obligations under data protection law to minimise the retention of personal data, with the use of a blockchain solution? How can retailers comply with a request to delete data when a customer’s data is permanently stored in a blockchain? How can retailers meet their obligations with respect to data privacy while also increasing transparency via the adoption of blockchain based solutions? These questions will need to be considered on a case by case basis in conjunction with the retailer’s data protection officer, and an assessment made on the facts in each scenario. Ownership of data sets stored in blockchain solutions will also be a key topic of negotiation; vendors of blockchain solutions may look to take ownership of data stored within the solution in order to monetise it. This will be even more complex and should be resisted if that data contains personal data, as is the case for many retail businesses. Again, issues of competitive-edge and potential benefits to be derived from the data will also be highly relevant here. Performance metrics Concerns about scalability of blockchain solutions, as well as a lack of previous performance metrics, makes contracting for performance standards difficult to navigate. As vendors are likely to offer solutions and associated services on a ‘one to many’ basis, many solutions will be provided ‘as-is’ with limited assurances as to performance standards. If retailers are considering incorporating blockchain to their supply chain, the lack of contractual guarantees around performance may well be unacceptable, especially when compared to the protections retailers usually look to explore in their IT contracts. However, blockchain is early in its implementation and, as adoption spreads, vendors may well open up more to negotiating their terms, as has happened with cloud vendors.

When nodes can be located anywhere, it will be difficult for retailers to identify which laws apply to that blockchain.

44 | autumn 2019 | the retailer