Andrey Krichevsky: “Forget about rights collective management societies, the world has changed”

President of IPChain Association on the Stone Age in the Protection of Intellectual Rights and the public-private blockchain for Musicians and Inventors

Andrey Krichevsky has been working in the field of intellectual property for more than 11 years: he was at the origins of the creation of two of the four state-accredited societies for collective management of copyright and related rights – the Russian Organization for Intellectual Property (VOIS) and the Russian Union of Rightholders (RUR), and also was the initiator of the creation of the Confederation of Rightholders’ Societies of Europe and Asia (CRSEA).

A year and a half ago, Krichevsky became the ideologist of creating IPChain Association and at present develops an intellectual property management system in the blockchain. The ultimate goal of this system is to connect directly the players of the creative economy with consumers. Its participants will be able to store data here and earn money on any of their creations – from new software to the industrial design of a cup.

– What is the volume of the intellectual property market in Russia?

– Speaking to the doctrine, intellectual property is divided into two parts: copyright and related rights and industrial property. A separate part is trademarks and means of individualization, that is, everything related to brands. Copyright and related rights primarily work in the media and IT industries. This market is quite active in our country; it is similar to all foreign ones more or less, considering the country specifics. In pieces, of course, copyright prevails – the number of product units is much larger here: music, cinema, photography, design, architecture, and software.

However, Russia is not even close to other countries in terms of the use of patents, in terms of the real economic turnover of industrial property, we are in the Stone Age. Companies from other countries are actively working with patents – they buy and sell, create patent pools, use patents and trademarks in the company’s capitalization, and use them as a means of pressure to promote their goods on the markets or to indirectly compete in other countries’ markets of goods and services. And the USA with might and main patent even business methods and software.

Well, in some cases they have the same problems as we do. One of the basic problems is the assessment of intellectual property. Everyone agrees that ordinary valuation methods are not applicable to intellectual property.

– The small number of patents that is still being registered in Russia, is this really a breakthrough development or rather a formality?

– It’s not even about the development. In China, more patents are registered than in the whole world – 1.3 million per year. We have less than 40,000.  In 1987, around 85,000 inventions were registered in the USSR, several thousand fewer in the USA, Japan lagged about 30%, and Germany and Great Britain kept at 1/3 of the USSR figures. And this level remained until 1991. Now the United States, Europe, Korea, and Japan can more or less compete with China. All of South-East Asia accounts for 60% of all intellectual property in the world. Another issue is that we have not resolved at modern level the problem of digitizing patent databases. Accordingly, patent search is lame. As a result, patent analytics operates on insufficiently quality or unstructured data. The question immediately arises of the effectiveness of Russian patent landscapes – Rospatent Projects Office has its visualization and analytics almost at global level, but the “raw data”, alas, is still upsetting.

– What is a patent landscape?

– Patent card, visualization of analytics for making strategic decisions in the field of innovations. When you have developed a technology and want to see what is happening around, where your sphere is growing, what are the breakthroughs. We are now talking with the Eurasian Commission about launching a project to create an integration service for patent information in order to retrospectively digitize patent archives in Eurasia territories, index and enrich the data with meta-information, and then work out a taxonomy – to build synonymous series. This way we will get a powerful motivation to form patent databases and smart patent search.

– Does intellectual property work as an asset in Russia? If I come to a bank and want to get a loan secured by patents, for example, what will I hear in response?

– We are now trying to somehow raise the issue of lending secured by intellectual property. This applies not only to patents, but also to copyright. While the Central Bank considers intangible assets as a very bad guarantee – they categorically answer that they won’t even think about it, supposedly it is a very small and uninteresting market. Forget it. But we took a different path: we are creating a crowdfunding platform – loans secured by intellectual property. A musician recorded the album; it was released and sold out; the musician wants to record a new album, he needs money. He comes to the platform and tells users: “It cost this exact money, here is my old album.” The users give him a loan secured by the pledge of the old album, and get rights to it, if he does not return the money.

Music at the Exchange

– Is there any understanding from what part of the music which is at present being publicly played royalties are paid to the authors, and what part of such music is still not covered by the Russian Authors’ Society (RAО) and the Russian Union of Rightholders (RUR)?

– I think that more than 70–80% is covered.  There are certain episodes and users who do not pay, but in general the market, of course, has become very civilized. In music, we strive to get away from collective management of rights and come to an individual management. First of all, this is necessary for the exchange to work and digital services to be connected to it. Three years ago, Fonmix appeared – a music service, b2b player. It allows user companies to access an array of music, and the copyright holder can receive an actual report, what music was played, for example, in that exact hairdressers. Money can also be distributed automatically. The next step is to connect the copyright holder directly to the player so that it can interact with the user. This requires an exchange so that you can upload music, develop a pricing policy, and determine the rights that the author is ready to transfer for this or that money. And the system will start working on its own, with both sides interacting directly.

– How many users does this player have now?

– Their number is growing gradually. Now there are more than 15,000 users and about 30,000 outlets, where music is used, taking into account Belarus, Kazakhstan and Armenia. In 2019, music has been monetized through the player for approximately 1 billion rubles. This is 1/3 of all public reproduction of music in Russia.

– Do Yandex.Music and Google Play transmit data to Russian Authors’ Society (RAO)?

– No. This is a different type of use, it is the Internet. They work [directly] with copyright holders. True, there is also a problem of reporting, and transparency. We receive a report from them, but we cannot validate it. And it’s not just that film producers are now raising the question of that a system is needed in which there will be reporting of online storefronts. I think that IPChain will solve this problem in many ways; in the near future we will connect the first music online storefront to the network.

– Are negotiations being held with Yandex and Google?

– No, because no constructive negotiations are possible with them. They act in the language of ultimatums and hear only such tonality. . TV and film industry – we worked with them, in general, achieved at least something. I think that the music industry will also put forward its demands. It is worth remembering that in addition to these services, there are others. Besides Yandex.Music there is VKontakte in the same segment that works according to the laws of the market.

– Do you speak on behalf of Russian Authors’ Society (RAO) now?

– I speak on behalf of the music industry. In fact, really forget about these collective management societies. Today these are services only, they no longer play any role in the market and do not claim to be major players, as before. Now, of course, there are other market players and a different world.

– You are talking about creating an intellectual property exchange. How does this project compare with the National Register of Intellectual Property, which was created in 2016 by the First Music Publishing House, organizations associated with the Union of Cinematographers, organizations of Gazgolder Group and other market participants with the support of Rospatent and the Ministry of Culture?

– At present it is an n’RIS service for depositing, preventing violations and involving intellectual property in economic turnover. This is an ecosystem project; one of its tasks is to ensure copyright to be deposited. You recorded a song; you need to register the authorship. You upload the song in a secure cell online, get access, one access key is stored within the service, the second key is given to you, the third key is kept at Skolkovo. You get a certificate that you are the copyright holder. In the event of a dispute, you can ask the court to turn to your protected cell and prove your authorship. An important feature of the service is tracks delivery to shop windows, for example, in iTunes. All aggregators work with albums, one song cannot be sent there, and the shop window will not work the author directly. So, you need to go to the publisher, who will take the song from you to its catalogue and then give it to the aggregator. In the very near future n’RIS will carry track delivery to the shop windows. The next step is anti-piracy. There are currently no solutions on the market that automatically detect pirated content. n’RIS with the help of a solution based on artificial intelligence in automatic mode, without human intervention, can generate a report that there are certain number of pirate links to your work, certain number of copies loaded at such an address. Next step is a purely legal work, which by the way is also automated.

“Data Lake” and the State

– Please give the definition of IPChain.

– In general, this is called a “registry”, but beautifully and romantically you can call it a “data lake”. The second definition is a “communication bus”. The computer has various devices: motherboard, video card, keyboard. Each of them has its own information language and should have a system that serves to transfer data between functional blocks. So, a signal came from the keyboard, it doesn’t get directly to the video card, with the help of the ‘bus’ it is transmitted to the motherboard, processor, video card, and to all other components of the system. IPChain is a register of information on rights and objects of intellectual property that records the entire life cycle of an object. And this is a means of communication for various market actors, for the exchange of information. In IPChain participate only authorized major market players – those who value their reputation and are responsible for their actions. Each of these participants is a network node. Accordingly, the input of information into the network is possible only through these nodes, and they are responsible for the information that is released into the network.

– And where is your profit in the story of IPChain?

– This idea was originally non-profit. Such an infrastructure simply cannot be effective if the goal is to make a profit. But on the basis of this infrastructure commercial services will “live”. For any digital IP service to work, you need reliable information about rights and objects. Otherwise, these are huge transaction costs, which immediately affect the transaction price. If you have an environment in which information is validated, the parties are verified, then you can drastically reduce both time costs and transaction costs. Our interest is that a number of commercial services, which we conceived and implement on the basis of IPChain, be successful.

– I wrote a program. What is my interest then to go with it to IPChain?

– You wrote it, received a certificate of registration with Rospatent. And tomorrow you’ve finalized it, and you’ve got a version of your program. And then, for example, you wrote the same thing in another programming language. Even if you get certificates on all these, protection will only be given against obvious copying of your program code. Accordingly, you need a trusted infrastructure that will register your algorithm together with an interface and a description of the functionality, and you need a smart service that can compare your object of copyright with others, even if they are written with a modified syntax or in another language.

– Why the coverage in IPChain is wider than in Rospatent database?

– First of all, due to combining within one network of information on all types of intellectual property, including atypical ones (such as innovative projects, rights to broadcast cable signals, etc.). Do not forget that industrial property rights arise in the form of copyright; this is an inextricable cycle. Its preservation allows ensuring a greater volume and completeness of the creative economy.

But in general, it’s more correct to speak not of a wider coverage, but of a greater depth of the registry. First of all, due to the fact that through IPChain the market itself exchanges information. Rospatent collects information according to its templates and stores data in the same way. The patent application has more information than the patent database. You will not get full information by a patent search. The one who files the patent application or owns it has all the information. IPChain unites market participants who fill out information about their rights and objects themselves.

– That is, IPChain serves as a deposit?

– More precisely – recording facts and data. Now the system performs primarily the function of storage. The current challenge for the network development is the exchange of information between nodes and their rights management systems. “Roscosmos” has its own system, Rospatent, Russian Authors’ Society (RAO), “Citronics”, “Soyuzmultfilm”, Warner Music, etc. – their own. It is necessary to make sure that when information about the objects of right changes in the Warner Music rights management system, the RAO system and other network members immediately learn about it. The next stage of development is smart contracts. Smart contracts need reliable information and recording facts. That means, IPChain carries three functions: recording information about the objects of rights, the exchange of such information and the conclusion of smart contracts.

– How many participants are currently in IPChain?

– About 20 knots, the largest companies and agencies. Rospatent and the Intellectual Property Rights Court are also among our nodes. I believe that in the future there will be thousands of nodes.

– And this network will cover the entire creative economy in the future?

– I think so. The important point here is that IPChain is not competing with anyone. And it is not owned by anyone. Since the network has external nodes, it no longer belongs to the founders, because information appears in the entire network simultaneously. There will be competition between the countries and blockchain platforms for protection of intellectual property.

– And in the future, for example, of 10 years do you want to replace Rospatent?

– No, of course. What is the Rospatent in its essence? It is a service of the state registration of rights. And if you consider it like this, then no one can replace it. In our country, the state is a key participant in all processes, and without the state seal/stamp, a lot of things are considered invalid.

– On May 6, the Ministry of Communications and Mass Media published a draft Presidential Decree on the creation of public-private partnership “Russian Center for Intellectual Property”. It is about creating a network platform for exchange of information on intellectual property. – What does IPChain have to do with this?

– This is a long story.  The national project “Digital Economy” stipulated for the creation of a public network platform for the exchange of information. As a result, IPChain became such platform. We developed a network, technical requirements were approved, we responded to them, put them into operation. Then there were meetings with officials who said: “Listen, this is all very cool, but you understand that this should be with the participation of the state.” As can be seen from the draft Decree, we transfer the rights and technologies to the created platform to the public-private organization, and it becomes its operator.

– Why is this happening?

– As for the state, it is clear: it wants to control the system that contains an array of personal data, an array of commercially sensitive data. This affects quite important sectors of the economy.

– And why, as a platform developer, do you need the state to participate?

– Firstly, it will bring a certain status to this platform. Secondly, there are more advantages, functionality, access to the development of standards for the circulation of rights and IP objects in a digital environment.

IPChain was and remains a non-profit infrastructure, the only difference from others that its operator will be a public-private organization. In a country where the state plays a basic role, it is better to be a near-state story.

– What do you think, how long will a large-scale collecting of users on this platform take?

– Up to 5-7 years.

Global blockchain

– You say: “We are forming a new market.” What would you call this market?

– Digital market of intellectual property.

– If we talk about the future 10 years, what is the volume of the digital market of intellectual property in Russia?

– Today, the volume of the digital content market (music, movies and other types of media) is about $ 1 billion. I think it’s too early to talk about digital industrial property. At the same time, the annual revenue of participants in the creative economy sector is about $ 100 billion. Given the growing trend of transition to the digital market, I think that the potential digital IP market is tens of billions of dollars.

 How can you achieve such performance?

– First of all, due to synergies with other national markets, at least with those that are geographically, economically or culturally close to us. If we talk about the IP sphere, our task is to connect different countries into a single network, to form a common infrastructure of trust and communication. Market participants have a desire to interact, there is a basis for this, and tools. It remains only to realize that it actually works. This is a complicated story, but it is already taking shape. Armenia creates its own IPChain network, for example. We believe that every country should have its own national network, which will connect to similar networks in other countries.

– Who writes software for you?

– About 100 of our developers.

– What countries are you negotiating with at present?

– Now the most advanced negotiations are in Armenia; at the same time there’s an ongoing work in Spain, Israel, France, Germany, Kazakhstan, Belarus, and Georgia. We have already established cooperation with Singapore. Then, Hong Kong and China. In these countries, we are in dialogue with patent agencies, with market participants – with everyone.

– There you discuss creation of a system similar to IPChain? Do you have a “shell” that can be transplanted to any market?

– Yes. Then this “shell” – the new “data lake” is independently filled with information there, and then we connect the networks through communication nodes and cross-search services. Returning to the question of the non-commercial nature of the network, it is obvious that the main profit for its organizers and participants is the amount of information in the network and its coverage. Recall Metcalfe’s law – the usefulness of a network is proportional to half the square of the number of users on this network.

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