comakery / dynamic-royalty-license

STATUS: EARLY DRAFT - A license to maximize open innovation and collaborative peer production through royalty sharing tokens.

The Dynamic Royalty License

A Smart Contract Compatible Solution for Open Innovation and Peer Production

By @noahthorp

Co-founder at Citizen Code, [email protected]

Here is the early operating agreement draft for a lightweight legal entity to support an open innovation business model. It is intended to solve structural challenges faced by incubators, freelancer collaborators, investors, and open innovation contributors. It strives to be both innovative and legally compliant.

Legal

For maximum usability, these legal documents are hereby licensed under the Creative Commons CC0 public domain dedication: http://creativecommons.org/publicdomain/zero/1.0

The text in this README is licensed as a Creative Commons CC-BY 4.0 license. You may adapt and distribute it with attribution to the contributors listed in the Attribution section. https://creativecommons.org/licenses/by/4.0/

Feedback

Opening a Github issue is a great way to give us feedback on your desires and concerns. We will be integrating this feedback into future revisions or variations of the contract. If Github issues are not your style you can send an email to [email protected].

How It Works

The Open Innovation Business Model

• Core contributors accept contributions in exchange for royalty tokens
• Operations companies (e.g. web hosts, software distributors, manufacturers) pay royalties for use of the IP to token holders

Open Innovation Business Model Benefits

• Open Source contributors benefit financially from their contributions (massive for creators)
• Low cost, light weight organizations come into existence using contract law rather than state filings
• Optimized for compatibility with smart contracts to automate payment, distribution of royalties, licensing, and legal compliance
• Open source code can be adapted to specific use cases
• Open contribution leads to more ingenious solutions and bug detection
• Open contribution model aligns the incentives of a wider range of contributors and beneficiaries which reduces competition
• Core contributors create project continuity
• Royalty distribution model means free services remain free for those who don’t charge (i.e. commons)

The Dynamic Organization engages in a limited set of actions

• manages distribution of royalty tokens in exchange for Contributions
• holds the IP
• manages a table of royalty tokens

The Dynamic Org never needs to deal directly with fiat currency and so no fiat bank account is needed. It only deals in the royalty tokens that it creates. Royalties can be distributed directly to royalty token holders via a smart contract using Bitcoin, Ethereum, or other payment software.

Contributions are filtered by a core team. The governance agreement defines how decision making authority and budgets are delegated to core members. It also defines iterative agreement amendment to adapt to the unknown.

The license dynamically allocates tokens backed by the value of royalty revenue. This is done without the necessity of debt, investment, or legal filings (looking into this). This provides resilience to entrepreneurs as well as those without access to capital in the developing world, collapsed economies, and recessions. These tokens can be issued and tracked transparently on a blockchain with a tool like Swarmbot.

Contributors Earn Royalty Tokens For Contributions

Investors Receive Royalty Tokens By Supporting Contributors

Royalty Token Holders Receive Royalties From Revenues

Royalty Tokens Can Be Traded as a Complimentary Currency

Backed by the value of the IP and the IP Royalty stream.

Example

Using open source software as an example, here's how royalties are distributed. Individuals or companies pay a royalty fee for revenue made by hosting, selling, or distributing licensed software. Open source contributors, product managers, designers, and marketers receive a percentage of royalties in proportion to the work they do. This work is tracked through the distribution of tokens on a ledger managed by the organization. The tokens are brought into existence by the contract in the repository.

Background

Research by Swarm.fund on implementing Distributed Collaborative Organizations (DCOs) by using lightweight unincorporated associations as a basis for token issuance indicates a promising direction. Simply signing an agreement specified in the license brings an unincorporated association into existence without the requirement of filing paperwork with the government. The jurisdiction the association is formed in is of particular concern and is the subject of further investigation regarding limitation of liability, the holding of assets, and tax ramifications.

Although the license is targeted to be created simply by people signing an agreement (ie unincorporated assocation), the license should be suitable for conversion into an LLC operating agreement. This allows the agreement to function as a founders agreement if a different legal structure is required.

Ideally open source contributors would be free to trade tokens for money if they choose. This potentially enables compatibility with new SEC crowd funding rules that go into effect on January 29th, 2016. Relatedly, investors who want to further the development of software can pay contributors to make contributions in exchange for a portion of the contribution tokens that contributors earn. Although it does not bypass accredited investor rules, this avoids the need to pay money directly to the organization. Cash for royalty token negotiations can occur at the edge of the organization which may avoid the necessity of the organization opening a bank account.

The first version of the license is intended to be suitable for software development with just git repository tracking. However automated services can also track dynamic issuance such as Citizen Code's SwarmBot and Enspiral's CoBudget.

If you are committed to using this approach for your product, investment, or service offering let [email protected] know! Your early enthusiasm encourages us to continue iterating.

Attribution

Many thanks (and no blame) for pioneering and helping develop the concepts explored here.

Attribution goes to:

• Noah Thorp (Citizen Code)
• Jesse Posner
• Joel Dietz (Swarm)
• Derek Razo (Enspiral)
• Tony Lai (LawGives)
• Chelsea Robinson (Enspiral)
• Matthew Schutte
• Primavera De Fillipi
• Christopher Allen
• Alexis Gonzales-Black
• Harlan Wood
• Matthew Dieters
• Art Brock
• Gunther Sonnenfeld
• Andrew Markell
• Digital Catapult
• Citizen Code.

DISCLAIMER

This is an experimental license. This should not be construed as legal advice.

dynamic-royalty-license's Issues

Support multiple contribution valuation protocols

Valuing work is a complex topic and may require some variations. The agreement should be flexible enough to change and accommodate multiple protocols.

Improve governance structure based on swarm DCO model

Thanks to @fractastical (Joel) for this comment.

There was a lot of work done on Distributed Collaborative Organizations that should be integrated into the governance model by:

• Joel Dietz, Swarm
• Greg Xethalis, Katten
• Primavera de Filippi, Harvard / LOVE
• Jim Hazard, Common Accord

Here's a link to the Swarm DCO license:
https://swarm.gitbooks.io/dco-book/content/dco-model-template.html

What jursidiction should the license be governed in?

Is it advantageous to select a jurisdiction based on limited liability, associations rights to hold assets, etc?

What is open about this?

re:

The Open Innovation Business Model
Core contributors accept contributions in exchange for royalty tokens
Operations companies (e.g. web hosts, software distributors, manufacturers) pay royalties for use of the IP to token holders

What is open about that? Haven't you just re-invented fairly standard proprietary IP royal practices but called them open?

Awards need clarification

Raised by @jesseposner

The "Base Award" needs to be clarified, but I'm not sure what is meant by "Minor Open Contribution" and "Open Contribution." I'm assuming "Core Contributor hourly rate" applies to contributions by core contributors.

Clause to allow switching royalty distribution mechanisms

It's possible that a blockchain will fail or that a new technology will emerge with superior properties. If that occurs the license should allow transference of the royalty token table.

This one may and should make folks nervous as it's where trust in the human legal system and trust in the math of the blockchain may intersect.

Limitation of liability

What are the best options for limiting liability?

Risk of broken links between license and governance documents.

Can we reduce the risk of broken references between docs by merging the license and governance agreement? Or is it better to keep them separate with URL references between them?

Clarify Royalty Revenue scoping

Royalties should be applicable to revenue derived from the use of the licensed software.

• It shouldn't apply to all of an organizations gross revenue (that would be unusable)
• It shouldn't be easily dodgable by charging for a related service and offering swarmbot for free

Need a separate governance agreement

May be draw on:

• https://github.com/citizencode/self-organization-constitution
• Citizen Code's internal constitution (currently private)
• Swarm DCO license

Must have:

• method for delegating budgets to individuals
• empowerment for individuals to make operational decisions
• audit trail and advice requirement for decision makers
• role for prioritizing certain features / issues / tasks
• allowance for autonomous open contributions outside of prioritized tasks

IP Agreement for contributors

Should include

• a contributor license agreement
• maintain rights to the IP they contribute in other contexts similar to the Twitter innovators patent agreement?

Support forking

The agreement should support repository forking. This is intimately tied with the question of contribution valuation.

One interesting feature would be to tie the coins to a repository date and version. Forks would only distribute royalties for tokens issued prior to the date of the last repository commit.

However, new contributions would need to be valued in a way that would honor previous commits.

Founders agreement rules for conversion into an LLC, C Corp, Coop, or Non-Profit

In some cases this may be a temporary agreement. This case should be covered in the agreement or at least thought out.

License should be applicable to writing and designs

The license should be compatible with copyrightable aspects of written work, clothing, photographs, video, and graphic design. Generally things that can be represented digitally in a repository.

Streamlined taxation needed

It should be clear that the individual receiving the royalties is repsonsible for their own taxes. Also, we don't want the royalty payer to be burdened with a 1099 form.

License the the agreement liberally for reuse

CC0 license?

Crowd funding compatible license

Can one license support this or does there need to be one for equity and the other for royalties?

Should be able to specify a Communication Address other than email

Should have a generic Communication Address variable. Email will not be primary communication medium in many use cases.