Tuesday 14 February 2023

Bitcoin & Database Right

Database right came into being in Europe (specifically the European Union) with the arrival in 1996 of EU Directive 96/9/EC on the legal protection of databases (the "Database Directive"). This was put into effect the following year in the UK by way of the Copyright and Rights in Databases Regulations 1997 (the "Database Regulations"), which is still in effect in the UK with a few post-Brexit amendments. 

Database right was an entirely new ('sui generis', i.e. of its own kind) thing, similar to copyright but intended to cover things that copyright could not cover directly, in particular pure information rather than literary works. In simple terms, database right was intended to protect a database owner's investment in creating and maintaining their database from being appropriated by others using information from the database without their permission. 

An early case in the UK relating to database right was British Horseracing Board v William Hill which, after a referral to the ECJ, ended up at the UK Court of Appeal in 2001. BHB's database right in racing data was found to be infringed by William Hill's unauthorised extraction and reuse in their online betting service. The case established that database right was potentially quite powerful for preventing others from using information that would not itself qualify for copyright protection. 

More recently, in November 2022 a claim was made by Craig Wright against various Bitcoin developers and companies, claiming infringement of copyright in the Bitcoin software, White Paper and 'Bitcoin File Format', along with infringement of database right in the Bitcoin blockchain. The copyright claim is fairly straightforward, in that Mr Wright claims to have written the White Paper and Bitcoin software and therefore anyone using or copying either will be infringing his copyright. This is, of course, disputed and the outcome will depend on whether Mr Wright can prove his claim. This will proceed to trial, although with the exception for the time being of the copyright claim to the Bitcoin File Format, which was struck out last week as having no prospect of success. The claim to database right, which will also be the subject of the trial, is a bit more complicated and, to me at least, is an interesting one to pick apart. So, in a change to my usual commentary on patent matters, I will carry out a brief review of database right, how this might be applied to Bitcoin and whether Mr Wright has any plausible claim. 

Firstly, what is a database? According to Section 6 of the Database Regulations a database is "a collection of independent works, data or other materials which - (a) are arranged in a systematic or methodical way, and (b) are individually accessible by electronic or other means". This broad definition appears to cover the Bitcoin blockchain. This is a series of data blocks that started to be created on 3 January 2009 and continues to be created with a new block arriving on average every ten minutes. Each block is generated by 'mining', which is a process of collating all transactions transmitted to the Bitcoin network that can be fit into a single (size limited) block, the block being created by the miner that finds a hash value for the block that meets a particular target difficulty. Once created, all other nodes on the network validate the block as correct and it becomes the next one in an unbroken chain, with each block referring to its immediately preceding block. The Bitcoin blockchain, which is accessible to anyone with an internet connection, therefore should qualify as a database, with the blocks being independent works in the database that are arranged in a systematic way and accessible by electronic means. 

Secondly, it is crucial to define who the maker of the database is. According to Section 14 of the Database Regulations, the maker is "the person who takes the initiative in obtaining, verifying or presenting the contents of a database and assumes the risk of investing in that obtaining, verification or presentation". The important part of this definition is the need for investment, which goes to the heart of why database right was created in the first place. The person who takes the initiative and assumes the risk of investing in creating a Bitcoin block is the miner. Mining is an energy-intensive process, requiring a large number of calculations to be made to find a correct hash value to mine a block. To do this requires substantial investment in equipment and energy. The maker of any Bitcoin block must therefore be the miner. In practice, this would be the person or company responsible for running a particular mining operation that created a block. 

There are in reality lots of miners, all independently trying to create new blocks in a competitive process that over time drives up the cost of creating blocks. The Bitcoin blockchain will therefore have many different makers. This is accounted for by Section 14(6), which states that "a database is made jointly if two or more persons acting together in collaboration take the initiative in obtaining, verifying or presenting the contents of the database and assume the risk of investing in that obtaining, verification or presentation". So, the Bitcoin blockchain is a database with many different makers. The miners can be considered to collaborate, given that each block is, once mined, transmitted to all other miners who then use it as the basis for subsequent blocks.

Thirdly, we need to define who actually owns the database. Section 15 simply states that "The maker of a database is the first owner of database rights in it". The Bitcoin blockchain is therefore a database that has many joint owners, all of which are miners. 

There is, however, a catch. Database right was originally defined by Section 18 as a right that would only apply to individuals and bodies national or resident within the European Economic Area (the EU plus a few extras). Following Brexit, this was redefined in the UK to be individuals or bodies national or resident within the UK (plus the Isle of Man). The Bitcoin blockchain would therefore only qualify for database right if blocks were made within the EEA or, as from 31 December 2020, within the UK. A further qualification to this is that the making has to have been at a "material time", which is defined as "the time when the database was made, or if the making extended over a period, a substantial part of that period". This would appear to allow for some part of a database to be made outside of the EEA or UK, provided a substantial part of it was made within the EEA or UK. It is evident that some blocks will inevitably have been made within the EEA since the creation of Bitcoin, but does this amount to a "substantial part"? 

Where does this leave Mr Wright? In his Particulars of Claim (PoC), he defines the Bitcoin blockchain as a database within the meaning of the Regulations, defining it in particular as the part from blocks 0 to 478,558 on 1 August 2017 and further in the period from October 2015 to 1 August 2017. Mr Wright, from his claim to have invented Bitcoin, also claims to be the owner of the database right in the blockchain. Mr Wright is, however, an Australian national and was, until around October 2015, resident in Australia. On this basis alone therefore, his claim does not appear to establish that there is any database right in the Bitcoin blockchain. To establish that there is, he would need to show that he was a joint maker in collaboration with others who would qualify as EEA/UK nationals or residents. This seems to be a difficult hurdle to overcome. At best, Mr Wright could claim to be a joint owner of database right in the Bitcoin blockchain, but only if other joint owners within the EEA or UK collaborated with him. 

But what about the period from October 2015 to 1 August 2017? If Mr Wright was in the UK during that period, wouldn't that establish a claim to database right? Perhaps, but only if he can prove that he created some blocks during that period. Mr Wright may then be able to claim to be a joint owner of database right without needing others to join him. There is, however, unfortunately no evidence provided to this effect. 

Another puzzle is, if database right is found to subsist in the Bitcoin blockchain, whether one out of many joint owners of the database is permitted to bring an infringement action without the permission  or involvement of the other joint owners. The Database Regulations do not say how action can be taken for a jointly owned database, but for other IP rights such as copyright and patents the other joint owners would need to be involved and at least made parties to the proceedings. This would clearly be a difficult process for the Bitcoin blockchain, involving possibly many thousands of parties, many if not most of which will be unidentifiable. 

As a final point, even if Mr Wright were to somehow overcome all of the above hurdles, he would still need to prove that he actually created some of the blocks of the blockchain. To anyone familiar with how Bitcoin works, this would be very simple. All that would be needed is to provide a signature verifying ownership of coins in the relevant coinbase addresses. Mr Wright has failed to do this for any addresses, so the possibility of this coming about seems remote. 

In summary, although the possibility of the Bitcoin blockchain qualifying for database right appears at least theoretically possible, the chances of Mr Wright establishing that he is an owner, let alone the sole owner, of the database right appear to be very small. I look forward to finding out how the trial turns out, but I suspect we will be waiting for quite some time. 

Postscript (20 Feb 2023): Although the database right question can most likely be resolved without needing to look at whether anyone is infringing Mr Wright's IP, if we consider that database right does subsist in the Bitcoin blockchain, can any owner claim infringement? This can be resolved simply by looking at the wording of Section 16, which states that "a person infringes database right in a database if, without the consent of the owner of the right, he extracts or re-utilises all or a substantial part of the contents of the database" (emphasis added). What happens once a block is mined? The miner immediately transmits the mined block to all others on the network so that they can verify it and add it to the blockchain. Otherwise, the miner will not be able to claim their coinbase and transaction fees for mining the block. A condition of mining is therefore that the miner consents that all other nodes on the network can copy and verify the block. Therefore, even if the miner is determined to be the owner, they automatically consent to the block being extracted or re-utilised by the act of transmitting it to other nodes on the network. There can therefore be no infringement of any database right in a Bitcoin block.