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Distributed digital ledger technologies such as blockchain have taken the world by storm in recent years and while cryptocurrencies such as Bitcoin have enjoyed much attention, other applications of blockchain technologies such as non-fungible tokens (NFTs) are gaining popularity.
Unlike fungible tokens such as cryptocurrencies, which may be interchangeable with each other, NFTs are unique digitally stored cryptographic assets, the subject of which may vary from real world to digital assets including art, music and even wine.
In an African first, a South African auction house launched an NFT auction of rare collections and bottles of wine. Each of these NFTs maintain their digital nature but the smart contracts also allow the successful bidders to own the specific bottles of wine which can be drawn or traded at any time.
The non-fungible nature of NFTs makes them suitable for representing the chain of title of assets and even presents a unique opportunity to represent the chain of title of intellectual property rights (IPRs), as well as licencing thereof, digitally in an immutable fashion.
For artists and creators, NFTs are an opportunity to circumvent traditional channels of monetising their work by selling NFTs in borderless, online marketplaces which are often more lucrative. Africa has always been adept in adopting new technologies and NFTs are no different.
Both Nigeria and Kenya have experienced rapid growth of their NFT economies with local artists taking advantage of the opportunity to monetise their creations on a global platform, despite the anti-cryptocurrency sentiments of their respective Central Banks.
Given that NFT marketplaces are largely unregulated, brands and artists naturally face an IP infringement risk in the minting of NFTs. While there has been no decided case law, trademark infringement proceedings appear to be a viable strategy in dealing with unlicensed/unauthorised use. Liability may largely depend on whether or not the trademark is registered for NFTs/digital assets based on blockchain technology or similar goods or services.
Arguably, based on principles of trademark dilution, infringement proceedings may also be based on a well-known trademark registered for dissimilar goods/services if the unauthorised use of the mark, through an NFT, would negatively impact the distinctiveness, commercial value, or even the advertising value of the well-known trademark.
“Copyright infringement is likely to be as prevalent as trademark infringement proceedings in the NFT sphere.”
From a copyright perspective, direct infringement of a copyright work can occur when it is reproduced or adapted into an NFT without owner authorisation. Copyright infringement is likely to be as prevalent as trademark infringement proceedings in the NFT sphere, given that artistic and literary works most typically underlie NFTs.
Though there is also no case law to reference, in South Africa, like many other African countries, registered designs may also be considered for protecting NFTs, including their underlying assets, in certain circumstances, provided that they are novel and original.
Protecting new technology
In the case of patents, software is not patentable, as such, in many African countries. Patents for actual NFTs may not always be possible but novel and inventive uses of NFTs, or methods of their minting, may be. Nike recently obtained a patent (US 10,505,726) for its “CryptoKicks” technology where buyers of its physical shoes receive NFTs linked to their real-world shoes. These NFTs confirm authenticity of the shoes and the chain of title thereof, starting with Nike.
Purchasers and creators of NFTs should remain wary of issues surrounding IP in the underlying asset of the NFT. Ownership of the IP subsisting in any underlying asset will not transfer to the purchaser unless specifically provided for in the smart contract or any further concluded contract between the seller (who must have the right to transfer title) and the purchaser. Alternatively, specific IPRs may be licensed to the purchaser.
The waters remain as untested in Africa, as they are globally, insofar as the enforcement and protection of IP rights in this space are concerned. Notwithstanding, as disruptive technologies such as NFTs become more mainstream, it is important for IPR holders to review their IP portfolios critically to ensure that they are adequately protected in both the real-world and the digital realm.
Vishen Pillay is a partner at Adams & Adams. He can be contacted at: firstname.lastname@example.org
Darshan Moodley is an associate at Adams & Adams. He can be contacted at: email@example.com
Kareema Shaik is a partner at Adams & Adams. She can be contacted at: firstname.lastname@example.org
Adams & Adams, NFTs, blockchain, technology, cryptocurrency, bitcoin, IPRs, IP infringement, distinctiveness, software, patents