NFTs: protecting your brand
NFTs are the latest widely misunderstood trend to take over our already complicated world. With significant regulatory and compliance risks associated with NFT and blockchain activities, it is critical that businesses and IP owners properly arm themselves against such activities and transactions that can negatively impact the value of their brand and IP and take precautions to thwart potential litigation.
To fully understand the scope of artillery necessary for such protection, it is important to first understand the cause and nature of the potential threat.
Blockchains, smart contracts, and NFTs
A blockchain is a type of database that stores information in “blocks” of data that are linked together. When a blockchain is “decentralised” like Bitcoin, it operates in a peer-to-peer setting, meaning no single person is in total control.
As a result, the entire history or “ledger” of a decentralised blockchain is always accessible and, therefore, resistant to modification because each subsequent block confirms all the blocks and transactions that preceded it. Digital “crypto” currencies like Ethereum and Bitcoin transact on blockchains. In addition, some blockchains also allow “smart contracts”—a digital contract based in computer code—to be executed on the blockchain.
Bitcoins are fungible—meaning you can trade it for another Bitcoin and the two are indistinguishable digital assets. NFTs, on the other hand, are non-fungible tokens—unique, non-transferable digital assets on a blockchain.
NFTs can represent a one of a kind “original,” such as a unique work of art or could represent one of a certain number of copies in a limited series. NFTs can represent almost anything real or intangible—music, art, videos, collectibles, or even real estate. Each NFT has only one owner and a particular value.
Key issues that could lead to litigation
The basic rules for NFTs are the same as they are with tangible assets. If you steal something in real life, you are liable for theft. If you use someone’s trademark or copyright without permission, you are essentially stealing rights that you do not hold and are liable for infringement.
The largest issue that arises with respect to NFTs is the misunderstanding of the scope of rights granted to an NFT purchaser. Most people automatically assume that if they purchase something they acquire the right to display, perform, commercialise, and pretty much do whatever they want with it. That is simply not the case.
The purchase of an NFT does not automatically grant the purchaser IP rights in or to the NFT. The bottom line is that an NFT is not the actual thing you purchased, it is merely proof that you purchased it.
Brand owners should review the scope of their existing trademarks to determine if additional trademarks are needed to cover digital assets, crypto-assets, and virtual goods authenticated by NFTs.
The only way a purchaser of an NFT receives the IP is if the creator specifically grants them the rights, which is typically done through a license agreement contained in a smart contract. So if an IP holder sells an NFT containing their trademark and the NFT purchaser turns around and uses, reproduces, displays, or sells the mark, such actions would infringe on the IP holder’s rights and be grounds for a trademark infringement lawsuit.
Despite the difficulties in wrapping one’s mind around only acquiring mere proof of a purchase, the same tried and true trademark standards and tests applicable to real, tangible objects you can purchase and do with as you please also apply to NFTs.
The ultimate test for infringement comes down to a single question: is there consumer confusion? In other words, is the creator of the NFT minting an NFT that would confuse a consumer as to who owns the rights to the underlying trademark or copyright? For example, if I mint an NFT that contains an image of a French press and bears the logo “Bodum” on it, would a consumer believe that the NFT was actually created by and/or affiliated with Bodum, the widely-known French press manufacturer? There’s a large chance they would. If Bodum has not granted me a license to use its trademark in my NFTs, then I could be liable to Bodum for trademark infringement.
How to mitigate NFT-related risks
With the expanse of NFTs covering the globe and NFT-related lawsuits on the rise, Businesses and IP owners face emerging threats from anonymous opponents.
It is important that Businesses and IP owners immediately protect their brands and IP by filing trademark applications for blockchain-related goods or services they provide, including NFT and cryptocurrency services. Timing is critical, the earlier a brand/IP owner registers their IP, the better they will be able to monitor and control the use of their IP on the blockchain.
It can be difficult to enforce IP rights against a buyer once an NFT is sold due to the pseudo-anonymous nature of NFT ownership and the immutable nature of blockchain transactions. And although an NFT is typically associated with a digital wallet address, the identity of the wallet owner may be difficult to discern without sophisticated computer forensics.
Trademarks protect brands by ensuring that no other person can use the same or similar name or logo. An NFT trademark is a trademark that represents digital media, virtual goods, digital collectibles, and other crypto-assets that can be bought, sold, exchanged, and transacted using blockchain technology.
For example, a clothing brand could trademark its name for digital assets and collectibles sold as NFTs, downloadable digital media (such as digital assets, digital tokens and NFTs, and digital collectibles), and the provision of an online marketplace and registry for buyers and sellers of digital assets, digital tokens and NFTs, and digital collectibles.
Trademarking an NFT prevents others from using the same or similar name or logo for their NFT. So by trademarking an NFT, a brand ensures that it remains distinct and prevents other individuals and entities from using its name and logo. The best way for a business/IP holder to protect NFTs they create is to trademark the name and logo they use to brand the NFT. Namely, Mattel Inc. filed a trademark application for its HOT WHEELS NFT GARAGE trademark, which will enable it to sell in-game items such as skins, avatars, and powers, thereby authenticating those digital assets with NFTs using their brand.
To secure the most trademark protection for an NFT, brand owners should review the scope of their existing trademarks to determine if additional trademarks are needed to cover digital assets, crypto-assets, and virtual goods authenticated by NFTs. To the extent additional trademarks are needed, brand owners should quickly file trademark applications covering those assets to ensure their protection.
When it comes to novel blockchain uses, including NFTs, businesses and IP holders have to be vigilant in monitoring and policing their brands and IP. Theft is rampant, and numerous artists and creators have already experienced theft of their work by individuals who have copied and sold their work as NFTs without their knowledge or consent.
One way businesses can police their brands and IP is to watch NFT platforms by setting up watch notices that extend to key marketplaces to identify unauthorised uses of their IP. Legal counsel who specialise in IP and understand the NFT space can assist businesses in monitoring (and stopping) unauthorised use of their IP and may have access to monitoring services that are provided to law firms at discounted rates.
In addition, some NFT platforms provide an avenue for trademark and DMCA-style takedown notices. Platforms that automatically transfer the IP rights in underlying works are starting to be developed. One example is Opulous, which created “S-NFTs”, orSEC-compliant NFTs that transfer copyrights in the underlying works and allow the artists to share revenue streams with fans.
Businesses should also take action where appropriate when it comes to NFT minters that do not have authorisation to mint NFTs linked to their IP and NFT marketplaces where infringing NFTs are available for sale, including issuing takedown notices and requesting details of prolific unauthorised minters so direct action can be taken. Businesses should also take action with respect to NFT purchasers if they fail to act in accordance with their smart contract (or any other contract) and/or are otherwise infringing on the business’ rights, which may give rise to a breach of contract and/or IP infringement claims.
Finally, and likely the easiest and least costly method of protection is training staff that that unlicensed use of the business’s IP—whether through NFTs or otherwise—is not permitted.
While blockchain and NFTs present new and exciting ways for businesses to reach broader audiences and expand branding on a global scale, they also present unprecedented challenges to IP rights, including significant regulatory and compliance risks, that require additional methods of policing and protection.
Rola Daaboul is special counsel at Akerman LLPs. They can be contacted at: rola.daaboul@akerman.com.
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