Blockchain in Legal Industry – Transforming Legal Issues

Blockchain technology is becoming an eventual element which could disrupt every industry around the world. Widely known for its ability to store information in a transparent and immutable ledger, blockchain offers businesses a higher level of precision. Legal industries are also looking to revolutionize their operations with the distributed ledger technology.

By storing and validating records of transactions, legal firms will be able to maintain an accurate chain of custody and other legitimate activities on the blockchain.

Currently, all lawyers are buried under the mountain of excessive paperwork. Keeping the historical records of the cases is a challenging task for every legal advisor.

However, blockchain has the potential to disrupt the legal industry and there’s a Global Legal Blockchain Consortium which seeks to adopt decentralization in the business of law.

In 2017, PwC revealed that 70% of surveyed law firms would utilize smart contracts for transactional legal services.

Out of the analysis of total legal firms, 41% will use blockchain for transactional legal services, 21% for business support and 31% for providing high-value legal services.

The transparent, immutable and secure nature of the blockchain will allow lawyers to record and solve various types of legal matters. From property records to court records, chains of custody, UCC filings, funds transfers, legal opinions, and contracts, there can be a wide range of ledger-based activities in the legal industry.

Blockchain could have multiple use-cases in the legal industry, including smart contracts, land registry, intellectual property rights, chain of custody, litigation and settlements, and financial transactions.

The following use cases illustrate the impact of the blockchain in the legal industry.

Use-cases of blockchain in legal industry

1. Smart Contracts

Currently, legal contracts are written with physical signatures, which require a significant amount of time to accomplish for a binding legal agreement. Due to the manual processing of the legal documentation, it is vulnerable to the human error.

Blockchain could bring this to an end by making the legal documentation more accessible and transparent. By creating a contract which can automatically execute based on when specific requirements are met, the cost and friction of generating and securing legal agreements are reduced.

Let’s understand how legal documents are transformed into smart contracts.

User Personas involved in binding the legal documents to the blockchain

• Signing Authority – Who approves the contracts defined by a lawyer.
• Lawyers – Who handle the legal issues and create contracts.
• Parties – Individuals involved in the legal issue.

Technical Components for different users in the system

Front-end technology

• Web portal/Mobile App for Lawyers
• Web portal/Mobile App for Involved Parties
• Web portal for Signing Authority

Backend Technology

• Microservices programmed using node.js
• Permissioned Blockchain Component

Here’s how smart legal contracts could be created on the blockchain

a. Users sign-up to the platform

Every user, including lawyers, parties and signing authority register to the platform with government-approved identification documents and other essential information.

Lawyers sign up to the blockchain based platform with the following information

• ID proof
• Proof of Work Experience
• Company’s name if works for any legal firm

Similarly, signing authorities register to the blockchain network with details like

• ID proof
• Government-approved license as a signing authority.

After getting approval from the community of admins, an authorized signatory is onboard to the blockchain based platform.

b. Parties create a digital contract and lawyers validate it

Parties involved in the legal issue draft a digital contract with the specific terms and conditions.

After the terms and conditions of the contract are finalized, lawyers get a notification.

Lawyers then have to validate the legal agreement by ensuring that it adheres to the laws and regulations.

c. Signing authorities sign the legal contract

The contract is sent to the involved parties to seek approval and ask if any change is required. Lawyers send the finalized contract to the signing authority who has the powers to commit the authorized organization to a binding agreement.

d. Contracts are moved to the blockchain

Once the signing authority signs the legal agreement, it is transformed into the smart contracts and deployed on the blockchain.

Smart contracts can automate the legal operations to get rid of the legal issues and the involvement of lawyers.

Unlike the traditional agreements, there will be no more need to maintain a bundle of paper files which are vulnerable to errors due to human intervention.

Smart contracts would trigger the rules to execute the legal agreement after the specified conditions are met.

2. Intellectual Property

In 2017, the US Patent and Trademark Office (USPTO) received more than 440,000 new applications for the trademark.

The annual report for the Fiscal Year 2017 also revealed that USPTO took approximately 16.3 months to complete patent average first action pendency (a period from the filing of an application to an initial office action) and 24.2 months to perform patent average total pendency (a period from the application filing to issued or abandoned patent).

A bulk of Intellectual Property (IP) Filings have to undergo a manual review which is a long-tail and time-consuming process. It is not only difficult to register new IP, but also to transfer ownership and update filings.

Due to the lengthy approval process, it becomes challenging to examine who created the IP first.

Blockchain can bring disruption to the handling of patents and trademarks by reducing approval wait times and required resources.

Read further to have an in-depth understanding of the Blockchain implementation in Intellectual Property Rights.

User Personas Involved in the Blockchain based Solutions for Intellectual Property Management

• Content Creators – Who have a creative flair and authorship of original data. For example, authors, artists, photographers, designers, software developers, musicians, writers and anyone who is the owner of the original data.
• Content Consumers – Who are willing to consume the digital content and support content creator’s artwork.
• Copyright Entities (Lawyers) – Who are committed to protecting the intellectual property of content creators.

Technical Components for user-personas in the system

Front-end technology

• Web Portal/Mobile App for Content Creators
• Web Portal/Mobile App for Content Consumers
• Web Portal for Lawyers

Back-end technology

• Permissioned Blockchain Component
• Microservices programmed using node.js

Here’s how the blockchain based solution for intellectual property (IP) management could work

a. Content Creators sign up into the platform

Content creators who want to get their creative work patented would have to sign up to the blockchain based platform for IP management and to upload intellectual property on the blockchain.

Creators sign up to the platform with the following information

• Name
• Contact information
• Address
• Date of Birth
• Designation

Since the personal information will be stored on the blockchain, there is no chance of data disclosure without the user’s consent.

b. Content Creators upload IP on the blockchain network

After signing up to the platform successfully, the next step is to add an intellectual property for which a patent application needs to be filed. The content creators can upload the information related to IP on the blockchain network.

While adding Intellectual Property to the blockchain, a content creator needs to enter the following information

• Title
• Name of author
• Name of owner
• Classification (Category)
• Keywords
• Abstract

After inputting the above information, a content creator can upload their intellectual property. Saving it on the blockchain enables traceability and auditability to prevent data from manipulation or duplicity.

Once the intellectual property is added to the blockchain, it can be made visible to all other members of the network, without the possibility of alteration.

c. Content consumers requesting to consume the digital content

Content consumers willing to utilize the digital content would also have to register to the platform for accessing it.

They would also sign up to the platform in a similar way to the content creators.

Once the profile is created, the content consumers can request creators to utilize the digital content for a specific purpose.

Before a creator approves the request, the smart contracts would only enable consumers to access the details like the name of the owner, ratings, and abstract.

Content consumers would have to pay fees in specific tokens or fiat money to consume the entire original information published by the content creator.

After the creator approves the request, an NDA agreement is signed between them and content consumers.

The agreement is stored on the blockchain to ensure that the consumer agrees to the terms and conditions and to eliminate the need for maintaining paper files.

d. Copyright entities(lawyers) solving the disputes with the help of blockchain

Whether a user wants to establish proof of the authorship, share confidential information with partners, transfer IP rights, or decide to make a defensive publication, copyright entities can help solve various types of disputes with the help of the blockchain.

Imagine someone has used one line from the poet’s poem as a new slogan for their company without the creator’s consent. A few months later, the poem’s creator reads an advertisement and finds a line written by him. Then, he decides to approach that company.

If the organization claims the line as their new creation, the content creator may consult the lawyer.

Instead of fixing the appointment with a lawyer, they can provide lawyers the access to the original publication stored on the blockchain.

Due to the potential of blockchain to save time-stamped and auditable records, a lawyer can quickly prove whether the organization is falsifying or not.

3. Chain of Custody

Collecting evidence is the crux of any investigation process. The ability to validate the findings and proper documentation is essential, especially when the duration of a case lasts for many years.

Evidence which was collected at the beginning of a case may become critical in later stages. If the chain of custody is documented correctly and regularly, it will be easier for the legal authorities to locate the vital information whenever required.

It’s not only essential to document what is obtained as evidence, but documentation also requires who collected the information, when was it gathered and other details which validate the evidence.

Chain of custody documentation provides information about the collection, storage, transportation and handling of the electronic evidence.

Maintaining paper-based documentation for chain of custody can be a cumbersome task and vulnerable to errors and modifications due to human intervention.

Moreover, storing the electronic evidence in the centralized database raises the security concerns. It is quite challenging to keep the evidence secure which was collected five or six years ago.

Therefore, blockchain comes into the role to bring auditability and traceability to the system by enabling time-stamped cryptographic records.

Let’s understand how blockchain can transform the chain of custody procedure and help legal authorities to take quick decisions.

Here are the user personas which can be involved in the blockchain implementation of the chain of custody 

• Evidence collector/Crime Scene Specialist – Who collects the evidence from the exact location where the incident occurred.
• Digital Forensic Specialist – Who uncovers the information related to the collected data.
• Evidence Custodian – Who stores the evidence documents the access to it and making it prepared to be testified in the court.

Technical Components for user personas in the system

Front-end technology

• Web portal/Mobile app for the crime scene specialists/evidence collectors.
• Web portal/Mobile app for digital forensic specialists.
• Web portal for evidence custodian.

Back-end technology 

• Permissioned Blockchain Component
• Microservices programmed using node.js

How could a blockchain based chain of custody platform work

a. Evidence Collector gathers the evidence and uploads it to the blockchain network

A crime scene specialist/evidence collector visits the crime area to pick the pieces of evidence.

They look out for the evidence and store the related information on the blockchain.

While adding the proof to the blockchain, an evidence collector could enter the following information

• Type of evidence, whether it’s a physical, digital, personal, scientific, trace, relationship or personal evidence.
• Where was it collected? (Exact location)
• When was it found?
• How was it collected?

Unlike the centralized way to store the data in the single location, information about evidence can be distributed across every node in the network to remove the possibility of the single point of failure.

Due to the immutable and auditable characteristic of the blockchain, it is impossible for anyone to alter the ledger. Therefore, storing information for a long time cannot affect the historical records.

b. Digital Forensic Specialists can quickly uncover the information

Once the evidence collector updates the information on the blockchain, digital forensic specialists are notified to work on it further.

Forensic experts analyze the pieces of evidence provided by the crime scene specialist and accordingly prepare reports which can help in solving the legal issues.

After coming up with the specific statistics and information, they save the forensic report on the blockchain.

Every member within the network can access the report, without being able to modify or tamper it.

c. Evidence Custodian can directly query the blockchain to gather information

Evidence custodians would no more have to wait for evidence collectors or forensic specialists to provide information.

Instead, they can directly submit their queries via APIs and get the required information with the help of smart contracts.

With blockchain, time to prepare the documentation will be reduced. Also, traceability feature would allow the jury to reach a verdict quickly by tracing back the time-stamped and real-time records of the information.

So, blockchain can strengthen the credibility of forensic practice areas which are currently emphasized on paper-based evidence logs and handwritten notes.

4. Litigation and Settlements

Litigation is used to describe proceedings initiated between opposing parties to defend or impose a legal right. It is settled by an agreement between the parties, but sometimes also decided by a judge or jury in the court.

Issues which can fall under litigation can range from banking transactions and frauds, contractual matters, to regulatory mechanisms, restructuring problems, and mergers and acquisitions.

Litigation comprises various activities to be done before, during and after a lawsuit to impose a legal right. It may include pre-suit negotiations, arbitrations, appeals and facilitation.

Similar to other legal processes, the litigation is also a time-consuming process and involves a lot of paper documentation work.

Moving litigation to the blockchain can help reduce the time and bring more transparency to the system.

We shall now discuss how blockchain can bring enhancements in the litigation process.

User Personas which can be involved in the blockchain implementation of litigation

• A plaintiff who files a case or initiate a court action to seek a legal remedy.
• A defendant who responds to the lawsuit or is charged with a crime.
• Lawyers who support plaintiff and defendant to get the justice.
• A Jury or Judge Court who makes the verdict.

Technical Components for User Personas in the system

Front-end Technology

• Web Portal/Mobile App for plaintiff.
• Web Portal/Mobile App for Defendant.
• Web Portal for Lawyers and Judge Court.

Back-end Technology

• Permissioned Blockchain Component
• Microservices programmed using node.js

Let’s understand how blockchain could bring transformation in the litigation process.

Blockchain enabled Litigation Process

a. Lawyers sign up to the platform

Lawyers register on the blockchain based platform with relevant information including professional license number, experience certificate, specialization type, and contact details.

Since the details are saved on the blockchain, all members of the network can access it, but cannot modify it.

b. Plaintiff chooses the lawyer and files the complaint

A plaintiff can sign up to the platform with personal information including name, address, ID proof, and occupation. After logging in to the blockchain based litigation app, they can look out for the specialized lawyers/attorneys.

When a person (plaintiff) starts looking out for the lawyers through search API, smart contracts will trigger rules to fetch the required information from the blockchain. Plaintiff would then choose a lawyer to get the legal support.

After a lawyer is chosen, the plaintiff would have to file a complaint including facts of the disputed matter, damages caused by the opposing party and pertinent legal claims on the blockchain.

A lawyer selected by the plaintiff can be notified and he can either reject or accept the legal case request based on the received facts.

c. Defendant gets notified and responds to the filed complaint

Once the plaintiff files the complaint, a defendant can be notified through email to respond to the allegations.

A defendant would sign up to the blockchain based application to access the complaint file. Since the document will be saved on the blockchain, there would be no chances of manipulation or alteration.

Defendants would also search for the lawyers similarly to that of a plaintiff. They would then submit the answer to prove the allegations made in the complaint wrong or fake.

Regulations for the litigation can be built within the smart contracts to solve the disputes seamlessly.

d. Judge Court can make a verdict through information stored on the blockchain

Due to the potential of blockchain to maintain immutable and auditable records, neither a plaintiff nor a defendant can manipulate the legal documents.

Judge court within the blockchain network can access time-stamped records of information to settle the disputes between the two parties.

The jury can submit the verdict on the blockchain which will be accessed by all members of the network.

Settling litigations on the blockchain can bring transparency in the legal system.

If in any case, the old legal issue reopens and the court has a new judge, the information stored on the blockchain would reduce the time to gather all essential documents over again. Also, it would eradicate the need for maintaining long-tail paper logs.

Since we are discussing the potential of the blockchain in the legal industry, it is essential to understand if blockchain offers legal protection or not.

Let’s understand the blockchain-related regulations and laws and how governments are adopting them.

Blockchain Technology Regulation

Though blockchain comes with the ability to transform almost every business around the world, it requires the regulatory oversight.

Before any technology reaches broad adoption in the world, people usually anticipate its downfall and governments come up with wide-ranging regulations.

Currently, blockchain is in the middle of this process as governments are issuing blockchain-related laws. Let’s understand how governments are making their steps in regulating the technology and what is the adoption timeline for the blockchain.

The term “blockchain” first gained traction in 2015 that introduced the secure and immune way of storing data. In the following year, ICOs also gave businesses a new way to avoid a traditional capital with a promise to disrupt industries with the blockchain.

The popularity of ICOs resulted in the proliferation of illicit financial activities known as “pump-and-dumps.”

China and few other countries banned ICO launch in 2017. That is why governments have started considering blockchain by introducing new regulations.

Let’s review some of the countries which are coming up with the regulations and laws for the distributed ledger technology.

• Switzerland is among the pioneers in the blockchain field and Zug, a city in that country, hosts various blockchain startups to offer legislative protection and taxation to the blockchain companies.
• The Canadian government also permitted to issue an ETF for blockchain technologies, which can now be exchanged on the Toronto Stock Exchange. Also, the National Research Council (NRC) of Canada is utilizing blockchain to track and publish information related to grant funding.
• Saudi Arabia is planning to establish legal norms for blockchain technology implementation without forbidding cryptocurrencies.

Blockchain implementation and regulation poses no danger to businesses willing to embrace the technology, while it is essential to understand what the future holds for the adoption of the blockchain.

As blockchain technology is maturing, we will continue to see its implications in the legal industry. Lawyers will emphasize more on drafting complex agreement as smart contracts triggers rules embedded in those agreements. Smart contracts will make enforcement of laws and compliances more efficient.

The team of Blockchain Experts at LeewayHertz can give you in-depth knowledge of how the attributes of the blockchain will bring transformation in the legal industry. Contact Us.