Smart Contracts: Enforcing IP Licensing Agreements Automatically via Blockchain

This article is written by Anandi Chaturvedi, Chanakya Law College, Rudrapur, Uttarakhand [BA.LLB.-5th year] during her internship at LeDroit India

Scope of the article:

This article examines the application of smart contracts and blockchain technology in the enforcement of intellectual property licensing agreements. It analyses the legal validity and enforceability of smart contracts under Indian law, with reference to the Indian Contract Act, 1872, the Information Technology Act, 2000, the Bharatiya Sakshya Adhiniyam, 2023, and the Digital Personal Data Protection Act, 2023. The article explores judicial developments, practical use-cases in IP licensing, and challenges such as immutability, jurisdiction, data protection, and dispute resolution. A forward-looking perspective is provided on hybrid contractual models and policy reforms for integrating automated enforcement within India’s IP regime.

Abstract

The rapid digitization of creative and industrial assets has necessitated a shift from traditional, human-governed licensing to automated, code-based enforcement. Smart contracts, which are self-executing protocols residing on a blockchain, offer a transformative solution for Intellectual Property (IP) management. By encoding terms such as royalty payments, usage limits, and duration directly into a decentralized ledger, these contracts ensure transparency and eliminate the need for intermediaries. This article explores the legal landscape in India as of 2026, examining how the Indian Contract Act, 1872 and the Information Technology Act, 2000 accommodate these “code-is-law” arrangements. Through an analysis of recent judicial trends—including the 2025 India Semiconductor Mission pilots and landmark precedents like Trimex International FZE Ltd. v. Vedanta Aluminium Ltd.—this study evaluates the efficacy of blockchain in curbing infringement and ensuring real-time royalty distribution. While challenges such as jurisdictional “lex cryptographia” and the “immutability paradox” remain, the article concludes that a hybrid legal-technological framework is the most viable path forward for the global IP economy.

Keywords: Smart Contracts, Blockchain, Intellectual Property Licensing, Royalty Distribution, IT Act 2000, Automated Enforcement.

1. Introduction: The Paradigm Shift in Intellectual Property

In the digital economy, intellectual property has emerged as one of the most valuable assets for creators, innovators, and businesses. From software and music to patents and trademarks, IP licensing enables rights holders to monetise their creations while allowing licensees lawful access to protected works.. A creator licenses their work, but monitoring usage and ensuring timely royalty payments requires extensive administrative oversight and, frequently, litigation. The complexity of managing multi-territorial rights, coupled with the opaque accounting practices of digital distributors, has historically left creators at a disadvantage.

Enter Smart Contracts: a term first coined by Nick Szabo in the 1990s but made commercially viable only by the advent of Ethereum and subsequent blockchain networks. A smart contract is not a “contract” in the traditional sense but a computer program that automatically executes the terms of an agreement when certain conditions are met. When applied to IP, it functions as a digital vending machine for rights—once the licensee pays the fee (trigger), the access key (performance) is released instantly.

 Blockchain technology, originally developed to support cryptocurrencies, has expanded into diverse legal and commercial applications. One of its most significant innovations is the concept of smart contracts—self-executing agreements where contractual terms are written in code and automatically enforced when predefined conditions are met. When applied to IP licensing, smart contracts promise automated royalty payments, real-time compliance tracking, and reduced transactional friction.

2. Smart Contracts in Intellectual Property (IP) Licensing

Intellectual property (IP) licensing involves granting permission to others to use one’s IP under specific terms and conditions, typically in exchange for royalties or fees. Traditional IP licensing agreements can be complex, involving lengthy negotiations, extensive legal documentation, and ongoing monitoring to ensure compliance and royalty payments.

Smart contracts offer a transformative solution to these challenges in IP licensing. By embedding the terms of an IP license into code, smart contracts can automate various aspects of the licensing process:

• Automatic Royalty Distribution: Smart contracts can automatically track usage of licensed IP and trigger royalty payments to the rights holder in real-time, based on predefined metrics like streams, downloads, or sales. This ensures timely and accurate compensation, reducing disputes over revenue sharing.
• Enforcement of Usage Terms: They can automatically enforce limitations on IP usage, such as geographical restrictions, duration of use, or specific applications. If a licensee exceeds the agreed-upon terms, the smart contract can automatically restrict further access or trigger penalty clauses.
• Proof of Ownership and Creation: Blockchain’s immutable ledger can serve as a verifiable timestamp for IP creation, providing strong evidence of first use and ownership, which can be crucial in infringement disputes.
• Streamlined Licensing Processes: The automation provided by smart contracts can significantly speed up the licensing process, reducing administrative overhead and legal costs.

3. Legal Validity in the Indian Context: A Statutory Deep Dive

The enforcement of smart contracts in India relies on a synergistic reading of three primary legislations: the Indian Contract Act, the Information Technology Act, and the Evidence Act.

3.1 The Indian Contract Act (ICA), 1872

For a smart contract to be enforceable, it must satisfy the essentials under Section 10 of the ICA:

• Offer and Acceptance: In the blockchain world, the code itself constitutes an “invitation to offer” or a “standing offer.” The act of sending a transaction to the contract address constitutes “Acceptance.”
• Consensus ad Idem: The “meeting of minds” happens at the point of the code’s publication. The parties agree that the code’s logic will govern their relationship.
• Lawful Consideration: In 2026, the use of Central Bank Digital Currencies (CBDC) or the E-Rupee has neutralized earlier concerns regarding the legality of consideration. Since the RBI recognizes E-Rupee as legal tender, a smart contract executed in E-Rupee is a fully valid contract under Section 10.

3.2 The Information Technology Act, 2000 (IT Act)

The IT Act is the “Enabling Statute” for blockchain enforcement.

• Section 10-A: This section specifically validates contracts formed through electronic means. It states that a contract shall not be deemed unenforceable solely on the ground that electronic records were used for the formation of the agreement.
• Section 3 & 3-A: These deal with Digital and Electronic Signatures. On a blockchain, every transaction is signed using a Private Key. Under Indian law, if this signature meets the criteria of reliability, it is as legally binding as a handwritten signature.
• The Exclusion Clause: Note that under the First Schedule of the IT Act, certain documents (like Wills or Real Estate Sale Deeds) cannot be executed electronically. However, IP Licensing Agreements are not excluded, making them perfect candidates for smart contract automation.

3.3. Bharatiya Sakshya Adhiniyam (BSA), 2023: The BSA, 2023, replaces the Indian Evidence Act, 1872, and significantly modernizes the rules of evidence, particularly concerning electronic records. Section 63 of the BSA (similar to Section 65B of the erstwhile Evidence Act) governs the admissibility of electronic evidence, requiring certification to ensure authenticity and integrity. However, recent judicial interpretations suggest that blockchain’s inherent cryptographic hashing and timestamping might satisfy these requirements without separate certification, making blockchain records potentially “self-authenticating” evidence. This strengthens the evidentiary value of smart contracts recorded on a blockchain.

3.4. Digital Personal Data Protection Act, 2023 (DPDP Act): The DPDP Act, 2023, governs the processing of digital personal data. Smart contracts that handle personal data must comply with its provisions regarding consent, data minimization, and breach notification. Blockchain’s transparency and smart contract automation can aid in managing consent and ensuring compliance with the DPDP Act.

4. Enforceability of Smart Contracts in Indian Courts

The enforceability of smart contracts in India hinges on their ability to meet the fundamental requirements of a valid contract under the ICA. Indian courts focus on the substance of the agreement rather than its form. If a smart contract reflects the parties’ intention to create legal relations and satisfies the conditions of offer, acceptance, lawful consideration, and free consent, it is likely to be considered enforceable.

However, challenges exist:

• Consideration: The nature of consideration in smart contracts, especially when involving cryptocurrencies, needs careful examination to ensure it is lawful under Indian law.
• Immutability vs. Contract Law Flexibility: The unchangeable nature of smart contracts can conflict with legal doctrines like rescission or amendment, which may be necessary for rectifying errors or unforeseen circumstances.
• Lack of Specific Legislation: The absence of a dedicated legal framework for smart contracts creates ambiguity and relies heavily on judicial interpretation.
• Jurisdictional Issues: Determining jurisdiction can be complex, especially in cross-border smart contract disputes, though Section 13 of the IT Act provides some guidance.

5. Judicial Landscape: Landmark & Recent Precedents

5.1 Landmark Foundations

• Trimex International FZE Ltd. v. Vedanta Aluminium Ltd. (2010):The Supreme Court held that once a contract is concluded over emails, the absence of a physical signed document does not invalidate it if the intent is clear. This laid the groundwork for accepting digital-only “meetings of the minds” found in smart contracts.
• Sakti Bhog Foods Ltd. v. Kola Shipping Ltd. (2009): The Court established that an arbitration agreement can be inferred from the correspondence between parties. This is vital for smart contracts where the “agreement” is often embedded in the transaction metadata rather than a formal preamble.

5.2 Recent Developments (2024–2025)

• The India Semiconductor Mission (ISM) Pilots (2025): In a significant move for industrial IP, the ISM began piloting smart contracts for royalty distribution in chip design. The Gujarat High Court, in an interim observation during a 2025 commercial dispute, noted that “automated execution logs on a permissioned blockchain serve as robust evidence of performance under the Indian Evidence Act.”
• XYZ Authors Guild v. Digital Streaming Platform (Bombay HC, 2024): In this case, the court dealt with unpaid royalties. The Court observed that had the parties utilized a DLT (Distributed Ledger Technology) based royalty system, the transparency requirements of the Copyright (Amendment) Act, 2012 would have been met automatically, preventing the litigation altogether.

6. Solving IP-Specific Challenges via Blockchain Enforcement

6.1 Management of “Orphan Works”

“Orphan Works” are assets where the owner cannot be identified. A blockchain-based IP registry acts as a “Single Source of Truth.” If an IP asset is registered on-chain, the smart contract can hold royalties in an Escrow Account indefinitely until the rightful owner proves their identity via a private key, solving a decades-old problem in copyright law.

6.2 Anti-Piracy and Micro-Licensing

Traditional licensing is too expensive for small transactions (e.g., using a 5-second clip of a song). Smart contracts enable Micro-licensing.

• Illustration: A YouTuber wants to use a snippet of a film. A smart contract can charge $0.05 per 1,000 views. The transaction cost on “Layer 2” blockchains is low enough to make this economically viable, turning potential pirates into paying customers.

6.3 The “Immutability Paradox” and Section 62 ICA

Under Section 62 of the ICA, parties can novate or rescind a contract. However, code on a blockchain is often immutable.

• Legal-Tech Solution: “Upgradable Smart Contracts” or “Proxy Contracts.” These allow the logic of the contract to be changed if both parties provide their digital signatures, mirroring the legal process of an “Addendum” to a contract.

6.4.Challenges and Limitations

Despite their potential, smart contracts and their use in IP licensing face several hurdles in India:

• Legal Recognition and Ambiguity: The lack of specific legislation creates uncertainty regarding their precise legal status and enforceability.
• Technical Bugs and Immutability: Errors in the code can lead to unintended consequences, and the immutable nature of blockchain makes rectifying these errors challenging.
• Dispute Resolution: Resolving disputes arising from smart contracts can be complex due to the decentralized nature of blockchain and the potential for lack of clarity on jurisdiction and applicable law.
• Admissibility of Evidence: While the BSA, 2023, and judicial pronouncements are moving towards accepting blockchain records, the procedural requirements for admissibility, especially regarding certification, need to be fully understood and met.
• Scalability and Interoperability: Ensuring that blockchain networks can handle a large volume of transactions for widespread IP licensing is a technical challenge.
• Regulatory Uncertainty: Evolving regulations, particularly concerning digital assets and cryptocurrencies used as consideration, can pose challenges.

7. The “Oracle” Problem and Liability

One of the most significant legal hurdles is the “Oracle Problem.” If an external data provider feeds incorrect information to the smart contract—for instance, reporting that a licensee used a patent 1,000 times when they used it 10,000 times—the contract will execute an incorrect payment.

Legal Recourse: In 2026, Indian courts are moving toward a “Product Liability” model for Oracle providers. If an Oracle’s failure leads to a breach of contract, the Oracle provider can be held liable under the Consumer Protection Act, 2019 or the DPDP Act, 2023 if personal data was involved.

8. Jurisdictional Challenges: The “Lex Cryptographia”

Blockchain nodes are distributed globally. If a licensor in Delhi and a licensee in New York dispute an automated payment, determining the lex loci contractus (law of the place of contract) remains a hurdle.

• The 2025 Trend: Many smart contracts now include a “Metadata Clause” that specifies an Online Dispute Resolution (ODR) mechanism or an Indian seat of arbitration, ensuring that even if the code executes globally, the legal fallback is local.

9. The Impact of the DPDP Act, 2023 on Blockchain IP

The Digital Personal Data Protection Act (DPDP), 2023 grants individuals the right to erasure. However, blockchain records are permanent. This creates a friction point for IP licenses involving personal likeness or voice (AI clones).

• Reconciliation: Developers are now using “Off-chain storage” for sensitive data, where the blockchain only stores a hash. When the right to erasure is exercised, the off-chain data is deleted, rendering the on-chain hash useless, thus satisfying the law while maintaining the integrity of the ledger.

10. Future Outlook: “Ricardian” Hybrid Contracts

By 2026, the trend has shifted toward Ricardian Contracts. These are documents that are both human-readable (as a legal PDF) and machine-readable (as code).

1. The parties sign a standard legal agreement.
2. The agreement is hashed and linked to a smart contract.
3. The smart contract executes the mechanical parts (payments/access), while the legal document governs subjective issues like “Good Faith” or “Reasonable Care.”

11. Strategic Recommendations for Policy Makers

To fully realize the potential of automated IP enforcement, the following steps are recommended:

1. Standardization: The Ministry of Electronics and Information Technology (MeitY) should release standardized “Legal-to-Code” templates for common IP transactions.
2. Judicial Dashboards: The E-Committee of the Supreme Court should integrate blockchain explorers into the judicial dashboard to allow Judges to verify smart contract executions in real-time.
3. VDA Taxation Clarity: Further clarity on the GST implications of “Gas Fees” in IP transactions is required to prevent double taxation of creators.
4. Legislative Clarity: The government should consider introducing specific legislation or guidelines to address smart contracts, clarifying their legal status, enforceability, and dispute resolution mechanisms.
5. Standardization: Developing standardized protocols for smart contract development and implementation in IP licensing would foster wider adoption and interoperability.
6. Judicial Precedent: Continued judicial interpretation and clear pronouncements on the validity and enforceability of smart contracts will build confidence in their use.
7. Education and Awareness: Promoting awareness among legal professionals, IP owners, and businesses about the benefits, risks, and legal implications of smart contracts is essential.
8. Hybrid Models: Encouraging hybrid models where smart contracts automate execution while traditional legal frameworks provide recourse for disputes or unforeseen circumstances can offer a balanced approach.
9. Compliance Integration: Ensuring that smart contract frameworks comply with data protection laws like the DPDP Act, 2023, will be critical.
10. The integration of blockchain and smart contracts in IP licensing holds immense promise for India’s digital economy. As technology advances and the legal framework evolves, these innovations are poised to streamline processes, enhance transparency, and provide robust enforcement mechanisms for intellectual property rights.

12. Conclusion

Smart contracts are not poised to replace IP lawyers, but they will certainly replace the “drudgery” of IP administration. The shift from “Ex-post” enforcement (suing after a breach) to “Ex-ante” enforcement (preventing the breach through code) is the most significant evolution in contract law since the industrial revolution. As India aligns its digital infrastructure with global standards in 2026, the smart contract will move from a niche technological experiment to the backbone of the creative economy, ensuring that creators are paid fairly, instantly, and transparently.