NFT Trademarks and Licensing

The non-fungible token (NFT) industry is booming, with a value of more than $40 billion in 2021, according to Bloomberg.

As we explained in this blog,

An NFT is a type of cryptocurrency asset wherein each item, or token, is unique. It is not easily exchangeable for another value or item. An NFT is also a digital certificate of ownership for any designated digital asset. It is like a smart contract written by assembling parts of open-source code found in platforms such as GitHub. The written code is then permanently published into a token on a blockchain.

An NFT is not itself a form of intellectual property (IP), and it doesn’t convey intellectual property rights. It’s more akin to a receipt for something held in a digital vault.

As The Verge reports,

Proof of work acts as a sort of security system for cryptocurrencies like Ethereum and bitcoin since there’s no third party, like a bank, that oversees transactions. To keep financial records secure, the system forces people to solve complex puzzles using energy-guzzling machines. Solving the puzzles lets users, or “miners,” add a new “block” of verified transactions to a decentralized ledger called the blockchain. The miner then gets new tokens or transaction fees as a reward. The process is incredibly energy inefficient on purpose. The idea is that using up inordinate amounts of electricity — and probably paying a lot for it — makes it less profitable for someone to muck up the ledger. As a result, Ethereum uses about as much electricity as the entire country of Libya. …

When someone makes, buys, or sells an NFT using Ethereum, they’re responsible for some of the emissions generated by those miners.

In any case, a whole eco-system of products, markets, services, and legal issues are growing up around NFTs.

For NFT owners, one measure of protection is to register the trademarks for the works depicted in the NFTs.

A trademark can be “any word, phrase, symbol, design, or a combination of these things” that identifies and distinguishes the source of the product or service. In the case of an NFT, the source is known as the “NFT minter.”

NFT minters such as the Bored Ape Yacht Club (BAYC) have registered their trademarks and logos with the US Patent and Trademark Office (USPTO).

When similar NFT collections PHAYC and Phunky Ape Yacht Club (PAYC) were released, they were barred from OpenSea, the largest NFT marketplace, for violating its rules against IP infringement.

It’s important to be aware that unauthorized NFTs based on third-party trademarks or other forms of IP are highly problematic and can be the subject of claims for IP infringement.

Intellectual property owners, including fashion brands such as Nike, Under Armour, and Ralph Lauren, have entered the NFT market via licensing deals. These deals make clear that when a buyer acquires a brand-related NFT, they’re not acquiring the IP in the artwork the NFT is based on.

For example, when Nike did a deal with RTFKT, which creates virtual sneakers, RTFKT retained “all right, title and interest in the RTFKT-Owned Content and all copyright or other intellectual property rights in any RTFKT-Owned Content” and granted only

a limited, personal, non-exclusive, non-sublicensable, worldwide license under any copyright owned by RTFKT in any RTFKT-Owned Content to: (a) copy and modify the RTFKT-Owned Content (as modified, “Modified Content”) for non-commercial, personal use; and (b) display and perform the RTFKT-Owned Content and Modified Content for non- commercial, personal use.