AIPPI: The metaverse, NFTs, blockchain

Moves are being made to control the wild west of NFTs | Ongoing issues over resale royalties and IP protections.

In 2021, trading of NFTs increased to $77 billion and in March of that year, a single work by Beeple sold for $69.3 million.

But what are people really buying? And is this just a bubble, or are NFTs here to stay?

These revelations and questions kicked off a panel session on the metaverse, NFTs and IP at this year’s  International Association for the Protection of Intellectual Property (AIPPI) World Congress.

A wild ride

During the session, moderated by Brian Gray of Brian W Gray Law, the past 18 months were described as “a really wild ride with the explosion of NFTs” by Sarah Conley Odenkirk, partner at Cowan DeBaets Abrahams & Sheppard.

But she warned that not everyone who has invested money in NFTs has been successful, and that there has been “little concern for IP protection”.

“Last year, I would have likened the landscape to a Vegas casino where everyone's hearing the dinging of the machines and seeing the lights flashing, and assuming that everybody in the space is making a lot of money,” she cautioned.

“Many people have invested a lot and have not done well. So it's really important to understand what was happening. There was initially a huge content grab…without any regard for the underlying rights.”

This year, however, she explained that the downturn of the wider crypto market has brought “a little more sanity to the marketplace and a great deal more awareness of the pitfalls”, prompting people to do a little bit more due diligence.

She explained that despite the initial “frenzied cash and content grab”, the key issues of contracts, IP securities, and anti-money laundering regulations are now finally being addressed by brands and the legal sector.

“We're seeing some moves within this space to bring some control to the Wild West”, she said. This will be in the form of protocols that will emerge over the coming months and years, which will be “crucial” to secure a long-term future for NFTs, predicted Odenkirk.

The creator’s view

Colombia’s first female crypto artist, 27-year-old Fira (known as Soy Fira), presented the point of view of the NFT creator.

“I entered this world because I understood the phrase that 'art reflects what happens in society',” she explained, using the examples of artistic works throughout the ages, including the Middle Ages and the Renaissance.

She cited the pandemic as being another game-changer for society: “Before the pandemic, technology was just a tool for human beings. After the pandemic hit, that technology [enabled] human beings to survive,” she reflected, adding that such technology had a huge impact on the development of new forms of artistic expression.

“When you make art with technology, you get digital art. When you mix digital art with blockchain technology, you’ve got NFTs,” she said, adding that this innovation was an “awesome one” for creators.

But while Fira has shot to global success in the NFT world, her lack of legal protection— common among many creators—was noted as problematic.

Resale royalties

One specific concern for Odenkirk is automatic resale royalties, which is now becoming standard for the sale of NFTs—especially in the art world, she said.

But while artists have long lobbied for resale royalties, NFTs are a “somewhat less than perfect mechanism” for them, warned Odenkirk.

The session explored how including a resale royalty for secondary market transactions, particularly in the art, gaming and publishing sectors, is particularly relevant to user-generated content, fanfiction, and  NFT derivatives.

Although this presents exciting possibilities for building and engaging audiences, there is a “huge caveat”, warned Odenkirk.

“The coding that governs resale royalties is not included in your standard ‘smart contract’: it's a separate contract that's layered on top of the base smart contract, onto which the NFTs are deployed.”

That means, she explained, that when you transact business on one platform, and then you move your NFT to another, the new one does not recognise the resale royalty as part of the contract. “Literally, they become lost in translation,” she said.

No proof

And while NFTs are often touted as providing proof of provenance or authenticity, this approach can also prove problematic.

“From my standpoint, they cannot do either reliably,” said Odenkirk. “Real provenance requires actual information as to ownership—pseudonymous lists don't do that. Authenticity cannot be guaranteed by blockchain.”

She noted that there are a lot of projects that are trying to develop systems for both, adding that she has “faith in the fantastic engineers and developers that are working in this space”.

“Until this environment has evolved quite a bit further, off-chain contracts are still going to be needed to integrate into this process, so that we can actually deal with the rights issues,” she forecast.

The “true potential for the application of blockchain technology in many different marketplaces” is still unfolding, added Odenkirk.

“On the one hand, we have the opportunity to be part of establishing new standards and protocols. On the other, everyone around us is still to a large degree building the plane while it's taking flight.”

“Lawyers have a tremendous opportunity to be involved in the development of meaningful standards and protocols,” she concluded.

Real-world IP issues

Another panel session on ‘Real-world IP issues’ in the metaverse yesterday, Monday September 13, also addressed questions relating to the use and licensing of IP in the metaverse, including a discussion of how IP is protected and enforced.

Panellists included Valentina Niess, counsel at Noerr ; Janna Smith, associate general counsel at Meta; and Brian Vogelsang, product leader at  Qualcomm.

Smith discussed identity, interoperability, portability and ownership in the metaverse, using the example of virtual assets such as avatars in cross-platform use.

“These are very important issues,” she said. “It's going to require an understanding of self expression versus the rights of brands and what it means to own something in a virtual space.”

While the session considered consumer use, Vogelsang explained that the reach of the metaverse extends far beyond entertainment.

Virtual reality, he said, is being used for medical purposes such as surgical training and rehabilitation purposes. “So the metaverse is not just play, but also about how this technology can improve our lives and perform some good.”

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