NFTs and Intellectual Property Protection

NFT is a unique digital file. It can be an image, GIF, audio or video file or other files (such as video game tokens, for example) minted as a unique copy on the blockchain. It can then be displayed, collected and traded, making it a digital asset.

 

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The most common type of NFT is a piece of code that is written into a blockchain, usually Ethereum (although other blockchains can create their own versions of NFTs). NFTs have verified ownership and authenticity.

As you can own and guarantee their authenticity, NFTs become a good you can sell. NFTs sales have exceeded $2 billion in the first quarter of 2021, compared to a total of $250 million in 2020.

NFTs transactions are similar to digital cryptocurrencies on the blockchain. They have unique identification codes, and you can track the resale of NFTs down the chain.

Being a unique digital representation of a good, NFTs do more than prove ownership and enable resale, they guarantee scarcity.

Until recently, anything purely digital could be duplicated. NFTs do not stop the copying, but minting something as an NFT allows you to create “original” copies that you own.

 

The NFT space

Originality and scarcity are essential in the world of art. Digital art is not new. However, it previously did not have value because it was so easily copied and provenance was almost impossible to establish.

NFTs have changed that. If you still feel that a digital work is not necessarily an asset, consider this: An artist known as Beeple sold his digital collage on Christie’s for more than $69 million.

Christie’s was the first major auction house to offer a digital work with a unique NFT and accept cryptocurrency.

Beeple delivered the artwork to the buyer, together with an encrypted NFT uniquely identified on the blockchain. Nyan Cat is another example of NFTs. At the end of 2021, the average price of one Nyan Cat (Official) NFT was $3k.

NFTs are expanding beyond the world of art, and they often represent things that you have not thought of as a product before: The NBA’s Top Shot offers fans to “collect and trade officially licensed NBA and WNBA NFTs” that show video clips from basketball games.

An NFT representing footage of LeBron James dunking sold for more than $200,000 on NBA Top Shot although it is still available for everyone to watch online.  Another example is Jack Dorsey’s first tweet (which says “just setting up my twttr”) sold as an NFT.

It seems like we are going to see many new ideas and uses in the near future.

The public interest in NFTs has also resulted in commercial auction platforms dedicated to NFTs, such as Auctionity and OpenSea.

According to the platform, “OpenSea is the world’s first and largest NFT marketplace.” There, users can set up wallets, buy and sell NFTs and create a collection.

 

 

Monetization of IP

NFTs can offer a new revenue stream for asset owners.

Smart contracts can be embedded in an NFT and automatically execute certain actions under certain circumstances, such as royalty payment for every resale of NFT.

The royalties are normally paid as a percentage of the resale price.

 

NFTs and brands

The new NFT space creates exciting new opportunities.

Nike, for example, has filed for U.S. trademarks to sell branded sneakers in a virtual world. NFT creators and brands can use it in various ways to create new revenue streams, strengthen their brand, build trust and loyalty.

Misuse of a business’s or brand owner’s intellectual property rights through the minting of unauthorized NFTs is inevitable.

Owners and brands should be vigilant about counterfeiting, theft, and other IP infringements.

NFTs and IP challenges

We know IP infringements can arise from NFTs but this is a new territory. With time we expect to see how IP claims develop and resolve.

Like other IP assets, copying, selling or publicly displaying works without authorization from the owner can constitute copyright infringement. Trademark infringements can arise from a work that causes consumer confusion regarding the source.

NFTs can also infringe design patents and violate other rights.

For example, using stock photos can create IP issues. The same applies to creating an NFT that is a video that shows a brand logo or presents music if the owners of the respective trademarks and copyrights did not give their consent.

NFTs also have IP challenges that are specific to issues such as their creation, display, sale and storage.

 

NFTs and Intellectual Property Protection
NFTs and Intellectual Property Protection

 

NFTs copyright infringements

We talked about copyrighted works traded as NFTs, such as works of art.

The two main types of infringements that may arise are an infringement of the reproduction right and infringement of the communication right.

But this is not all. It also has to do with what you get when you buy an NFT. When you buy an NFT of a work of art, what you buy is not the work itself.

In fact, an NFT is the metadata that ties it to the original file, not the actual image, video, audio file, etc. You own the keys that were used to mint the NFT, and this is what can be transferred.

One can also argue that metadata creating a digital file in relation to a copyrighted work is not a reproduction of the work.

As for the communication right, it may be argued that minting of an NFT that includes a digital copy of the work constitutes a communication to a new public not envisaged by the copyright holder, whereas minting an NFT linked to an underlying copyrighted asset is legally a different act.

The rights you trade are not always the same and can change based on the platform and even the NFT. Although a seller may offer an NFT that includes a transfer of copyright ownership, this is not usually the case.

You can buy an NFT and still not have the right to use it for commercial purposes, or you may not even purchase the right to display it without permission.

 

NFTs trademark infringements

Trademark infringement may arise where an unauthorized party mints an NFT linked to an asset without the owner’s permission and advertises or sells the NFT using the owner’s registered trademarks.

In case the trademark covers NFTs or similar goods, it may easier to prove trademark infringement.

But even if he does not, you can argue that the use of the same or similar mark, even if the goods are not similar, unfairly uses the owner’s reputation.

Again, many questions are still unanswered, and there is no one trademark protection strategy for NFTs, NFT marketplaces and virtual world exhibiting NFTs.

With the increased use of NFTs, there are more filings for NFTs trademarks.

For example, in 2021 e.l.f. Cosmetics, Inc. filed an application for trademark registration at the U.S. Patent and Trademark Office (USPTO).

They seek to register “Crypto Cosmetics” in International Classes 9 in connection with NFTs used “to represent a collectible item and featuring collectible images, audio, videos, and digital art”.

It also filed for Class 42, including NFTs “used with blockchain technology…” What they did is take e.l.f products, dip them in digital gold and make it a collection of NFTs. Fans can now own “animated representations of their favorite e.l.f. products.”

 

 

NFT and counterfeits

NFTs perform like a guarantee of a digital work’s authenticity.

But can they be counterfeits? Go online and you can find DIY NFT tutorials and minting tools. This means virtually anyone can turn a file into an NFT, claim ownership, and write it into the blockchain.

Remember, all data is written by the minter, and the question is whether the IP claim he made is necessarily true.

Scammers can use this to make money off of your IP and goodwill. There have already been cases of copyright infringement, marketplaces displaying infringing listings, and even works in the public domain.

Artists already see their art tokenized without their permission, such as the curious case of a fake Banksy sold for $300K.

Since the artist claimed he was not involved with NFT, the collector believed he was scammed. Then it was reported that the scammer suddenly decided to refund the funds. Whether it was a publicity stunt or not, NFT scams are real.

The way to deal with this issue may be starting at the platform level and using existing takedown tools.

 

Wiser Market Online Brand Protection

 

Always Wiser: online brand protection

NFTs are exploding. They have creators, platforms, brands and the public interested in these new digital assets.

Like other assets, they face intellectual property challenges.

Online brand protection services can help you detect and eliminate IP infringements, often on the marketplace and platform level.

Wiser Market is your partner in combatting online abuse. We provide an all-around solution to protect your assets online and stay one step ahead of the latest trends and threats.

At Wiser Market, we believe in a proactive online protection strategy. Our superb brand protection services, from detection through analyzing to enforcing takedown actions, result in over a 90% success rate.

 

 

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FAQ

What’s an NFT?

NFT stands for Non-Fungible Token.  “Non-fungible” generally means that it is unique and cannot be replaced or exchanged with another identical one. A token is a blockchain-based digital unit of value with a unique ID that is recorded on a digital ledger.

NFTs are a digital asset that can prove ownership and authenticity of unique digital files. An NFT can be one-of-a-kind or one copy of many. Either way, the blockchain keeps track of ownership.

What can NFTs contain?

NFTs can contain anything digital, including animated GIFs, memes, music, artwork, photos, videos, tweets, video game skins and more. You can buy, sell and keep track of the resale using blockchain.

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