NFTs and IP Law: An Overview for Buyers and Sellers

“While the sale of NFTs wouldn’t appear to threaten the trademark rights of an IP owner, more and more individuals and entities dabbling in digital assets are seeking trademark registration in an effort to protect their brands in the digital world.”

https://depositphotos.com/467853192/stock-photo-wooden-block-nft-non-fungible.htmlBlockchain technology has brought the world a collection of cutting-edge investment opportunities, non-fungible tokens (NFTs) among them. And with the advent of these unique digital assets, comes an entirely novel product segment subject to intellectual property law.

For months now, the media has covered stories about NFTs selling for obscene prices. But behind these headlines—and given the onslaught of NFTs that continue to flood the market—are questions regarding trademark and copyright issues raised by these non-interchangeable units of data.

Not Your Father’s Trademark

While blockchain technology brings trademark considerations into the 21st century, at the end of the day, a trademark is a trademark regardless of its application. Nonetheless, trademark protection and infringement issues associated with NFTs have many observers scratching their heads.

To understand the intersection of trademarks and NFTs, it’s important to understand how these digital assets work. At its core, an NFT is metadata about an asset that’s stored on a blockchain—for the uninitiated, a digitally distributed, decentralized and shared ledger that facilitates the process of recording transactions across a network. Unlike traditional assets, like an original Picasso, a LeBron James rookie card (which not too long ago sold for $5.2 million), or even a piece of real property, buyers of NFTs are essentially purchasing non-physical certificates of authenticity in code form that can never be changed and which represent tangible assets.

An infamous example is the first ever tweet sent by Twitter founder Jack Dorsey. That message, “Just setting up my twttr,” published back in March 2006, can be viewed, free of charge, by anyone on the planet with internet access. But with the advent of blockchain technology, actual ownership of those five words—at least, digital ownership—became a real possibility. In fact, a few lines of code representing Dorsey’s message (along with its own blockchain-based digital signature that serves to verify the NFTs authenticity and ownership) was purchased just about a year ago for 1,630.58 ether, a cryptocurrency (like Bitcoin) that, at the time of the transaction, was worth $2.9 million.

Here’s the rub; when a digital asset, like Dorsey’s tweet, is purchased, the owner of the NFT doesn’t obtain any IP rights in and to the underlying asset, absent an agreement (licensing or otherwise) to the contrary. What this means is that any trademarks tied to an NFT remain in control of the trademark holder (presumably, the creator or relevant brand).

While the sale of NFTs wouldn’t appear to threaten the trademark rights of an IP owner, more and more individuals and entities dabbling in digital assets are seeking trademark registration in an effort to protect their brands in the digital world. Nike, the ubiquitous footwear and apparel company, has done just that by filing for trademarks with the intent to make and sell virtual Nike-branded sneakers and apparel. While this may seem far-fetched to some, the Oregon-based company has actually secured a patent for CryptoKicks, which tokenizes exclusive shoe designs. As explained in the patent, when a customer purchases a pair of CryptoKicks, which are actual shoes that can be sported around town, the buyer will also receive a digital asset unique to the shoe that comes with it. This NFT can move from buyer to buyer, which is a big deal given the thriving resale sneaker market and is central to NFT investment.

Copyright Law Matters Too

Copyright law is another topic that should be flashing brightly on the radar screens of anyone dipping a toe in the NFT waters. Indeed, parties to an NFT transaction must understand the importance of obtaining appropriate copyrights prior to consummating a purchase or sale. To be clear, NFT creators have to tread lightly when leveraging the work of others. More specifically, permission must be obtained from the owner of a copyright before a third-party creation is incorporated into an NFT, especially one positioned for sale. The failure to do so could subject the originator of an NFT to legal action and financial exposure in the form of copyright infringement litigation. This is particularly true in the absence of a defense premised on the doctrine of fair use.

Since copyright protection includes copying, performing, distributing, adapting or modifying the work and displaying or performing it in public, anyone creating an NFT should nail down the legal right to use and sell any and all of its embedded elements. Those that have purchased NFTs must be mindful as well. Harking back to Dorsey’s “just setting up my twttr” missive, the lucky buyer who forked over millions in crypto form is limited in his use of the digital asset by virtue of copyright law. To wit, he can’t use Twitter’s logo—which can be seen prominently within the tweet—for branding purposes because his acquisition of the NFT doesn’t serve to transfer ownership of the logo or grant the right to use it for profit.

Of course, brands and IP owners can license their copyrighted (and trademarked) works for use in NFTs by way of licensing agreements—agreements that can set forth critical provisions, including those having to do with minting parameters, the number of NFTs that can be created, and royalty payments, to name a few.

A Word to the Wise

For anyone interested in the NFT game, IP-related considerations should always be top of mind. This includes early registration of trademarks and copyrights by brands and IP owners looking to protect IP that may find its way onto the blockchain.

Image Source: Deposit Photos
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One comment so far.

  • [Avatar for Pro Say]
    Pro Say
    March 12, 2022 08:53 pm

    “cutting-edge investment opportunities”

    Tulip mania is alive and well.

    Thriving in fact.

    Your well taken advice . . . serves to further cement the clear and present danger posed by NFTs.

    Why risk not only losing your “investment,” but — potentially far worse — being dragged into court over IP breaches?

    Why indeed.