Trademark and copyright considerations for NFTs

May 2, 2022-NFTs have received a lot of hype today, but many people don’t know what they are or how they work.

NFTs, or non-fungible tokens, are digital assets based on blockchain technology, similar to cryptocurrencies such as Bitcoin, Matic, Dogecoin and Ethereum. Unlike cryptocurrencies, NFTs are unique. They are replaceable or non-replaceable. They consist of separate, distinct units, “tokens,” whose unique software code links them to the underlying asset. The software code is called a “smart contract” and details the details associated with a particular NFT. Smart contracts include intellectual property rights associated with that NFT.

Once they are created, the NFT is permanently etched into the blockchain’s public ledger and is visible to everyone. Today, most NFTs are built on the Ethereum blockchain, one of the largest blockchain systems in the world.

NFTs are primarily used to verify ownership of digital products. An easy way to understand an NFT is to think of it as an immutable certificate of authenticity of a digital product. For example, if someone buys digital art, the NFT works to verify and verify the ownership and authenticity of the artwork. In the “real world”, the closest analogy is an autographed original painting certified by an artist’s signature or a certificate of authenticity issued by a trusted source.

In addition to the world of digital art used for art verification and validation, NFTs are becoming more common in many applications and other industries. For example, high-end fashion houses are entering the NFT market, some selling only “digital fashion”, while others also sell physical versions of digital items. Another industry, Events and Tickets, is an industry full of counterfeiting and fraud, using NFTs to combat black markets, scalpers and ticket fraud.

One of the most frequently asked questions from clients is whether they also get the associated copyright when they buy an NFT. The answer is: This is not always the case. It’s important to understand what’s included in smart contracts that grant buyers rights to digital assets. Similar to the purchase of physical paintings in the above analogy, the purchaser has the right to display and resell the work, but copyright ownership is not automatically transferred.

Unless the author assigns the copyright to the purchaser, the artist owns the copyright. In other words, the buyer currently owns the NFT, but the buyer does not necessarily have the right to sell a copy of the artwork associated with the NFT or display an image of the artwork on a T-shirt, hat, etc. I don’t have it.

Therefore, even if the purchaser purchases an NFT based on a copyrighted work, it may be necessary to obtain permission from the copyright owner for certain activities. Copyright law grants the author of a work of art the right to copy, make derivative works, distribute copies, perform publicly, and publicly display the work. In that respect, the author retains copyright even if the original or copy of the work is sold.

NFTs rarely transfer ownership of intellectual property, but NFT sellers do so for certain limited purposes (assuming they own the copyright of the underlying digital assets). It is common to license the rights to the buyer. Of course, NFT sellers can also sell their intellectual property rights to buyers. However, unless a smart contract or other sales document obtains a license or assigns such rights to the buyer, they remain with the seller.

NFTs also offer interesting and novel questions about trademarks. Unlike copyrights that protect the original literary, musical, and artistic work, a trademark is an intellectual property right consisting of words, phrases, symbols, or designs that identify a product or service. Examples of well-known trademarks include “Apple,” “Nike,” and “Amazon.”

Today, many brands are leveraging blockchain technology to create customer authentication systems. Luxury luxury brands that issue product serial numbers use NFTs to provide product certification. NFTs provide brands with the ability to certify their own products and identify counterfeit products, which is an important quality control issue for trademark owners.

Many companies are also trying to release NFT packages that include brand licenses, creating new revenue streams and increasing brand awareness. For example, musicians are increasingly licensing their trademarks in connection with the release of exclusive digital content for their fans.

As the use of trademarks expands and the NFT market grows, litigation will also occur. In an ongoing proceeding, Nike, Inc. sued a company called StockX LLC, alleging that a Detroit-based online sneaker retailer infringed the Nike trademark by creating an NFT that used it without permission. Did. Nike claims that StockX sells its assets at a high price to naive consumers who believe or are likely to believe that their digital assets are approved by Nike.

In response, StockX claimed that the NFT was not a “virtual product” or “digital sneaker.” According to StockX, each NFT is “effectively a’key’for accessing billing tickets or underlying storage items. That is, a specific StockX-certified physical item that the buyer can leave in StockX’s temperature-controlled, high-security vault. Own. At that point, the NFT will be removed from the customer’s digital portfolio and permanently removed from distribution.

One of the issues to be solved is whether traditional trademark principles such as First Sale Doctrine protect sellers such as StockX, or whether NFTs are new and separate products that seek to utilize the trademark owner’s mark. How is it?

In another proceeding, luxury luxury brand Hermès sued Mason Rothschild, the man behind the “Meta Birkin” NFT collection, which claims to infringe the famous “Birkin” trademark. I did. Rothschild has posted a disclaimer on his website that he is not affiliated with Hermes, but he refused to stop selling digital assets. Rothschild argued, in part, under the first amendment that he had the right to produce and sell art depicting branded products and to identify the depiction of a Birkin bag as “meta-Birkin.” A context in which art is available (via the “Metaverse”) and implies a commentary on the artwork for the Birkin bag and fashion industry.

It is always difficult for the law to keep up with the expansion and development of new technologies and innovations. There is no difference in NFT. As NFTs grow, so does the need for protection. While NFTs offer many opportunities for businesses, it is imperative that NFT sellers clearly indicate in their smart contracts what is and is not permitted with respect to intellectual property rights. In this way, both NFT sellers and buyers can protect themselves and maximize the monetization of these assets.

The expressed opinion is that of the author. These do not reflect the views of Reuters News, which under the principle of trust, is committed to integrity, independence and freedom from prejudice. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.