Trademark Law and NFTs: The IP Implications of Emerging Technology
The U.S. Patent and Trademark Office (USPTO) and the U.S. Copyright Office (USCO) recently conducted a study to consider intellectual property (IP) law and policy issues associated with non-fungible tokens (NFTs). This study, in response to a directive from the U.S. Senate’s Subcommittee on Intellectual Property to consult with the private sector, aimed to explore this emerging technology and its implications for IP rights.
To assist in this effort, the two offices hosted public roundtables focused on trademarks and NFTs, patents and NFTs, and copyright and NFTs. The trademarks-focused portion of this series featured panelists from technological, creative, and academic sectors, as well as trademark owners and practitioners and industry representatives. Angela Kalsi, an officer in Greensfelder’s Intellectual Property group, shared her knowledge on the potential NFTs bring to the IP field and how the USPTO can better protect and enforce IP in the context of NFTs.
What Are NFTs?
An NFT is a digital asset based on blockchain technology. NFTs are unique in that they are not interchangeable or replaceable. Instead, they are composed of cryptographically unique software code linking them to underlying assets. The code can include a “smart contract” that spells out the details associated with the particular NFT and can include the intellectual property rights associated with it.
NFTs are generally used to verify ownership of digital goods. Put more simply, they act as certificates of authenticity. For example, if someone purchases a piece of digital art, the NFT acts to validate its ownership and authenticity. It is important to note, as many have misunderstood, that NFTs represent an artwork but are different from the underlying work itself. This means that the buyer owns a representation of the work that has been “tokenized” in the form of an NFT but does not own the underlying IP to the work unless the seller has specifically granted it.
Why NFTs Matter
In 1975, the S&P 500 was represented by 17 percent of intangible assets such as patents, trademarks, and copyrights. As we enter the Web3 era, that number has grown to 90 percent. Technologists agree that in this creators’ economy, intellectual property protection needs to be better, faster, cheaper, and easier, and NFTs are one solution.
NFTs establish ownership over an object that can otherwise be easily reproduced. Digital artwork, for instance, can be easily duplicated simply by downloading a copy. Time-stamping smart contracts record the date and time a document was digitally signed and provide proof of the document's creation. In this way, NFTs make ownership traceable and clear and make it harder for fraudsters to claim false rights over intellectual property. The technology can be applied to real-world assets as well, with some companies already using NFTs to track goods in a supply chain to ensure quality and provenance from production to point of sale. The panelists at the recent trademarks panel said they hoped this technology will make the buying, selling, and trading of assets more efficient and lower the risk of fraud, helping businesses move assets and data more easily across decentralized platforms and opening new growth potential for creators. In the IP world, this technology could even lead to a future in which traditional signifiers of IP ownership, such as trademark registration certificates, are issued as NFTs.
Challenges of NFTs
Not all of the panelists were so optimistic. Many had questions relating to challenges that have left businesses feeling uncertain about the ability to protect their brands within the NFT space. Trademark practitioners encouraged the USPTO to work with international communities to harmonize registration classifications and asked whether Class 9 is the appropriate place for a digital token. Also noted was the need for the USPTO to clarify how specimens of use should be handled by brand owners filing to protect their rights in this technology. Others asked about protections for rights owners who do not want to go into the digital space but feel they have a brand that can be infringed in that space. For instance, will a standard fashion application in Class 25 be enforceable against a junior mark in Class 9, and will the USPTO flag it in its 2(d) examination? The recent decision in Hermès International, et al. v. Mason Rothschild, made clear that digital versions of real-life products can infringe their real-life counterparts, and the USPTO’s examination practices must stay ahead of the issue.
Trade dress was also considered an emerging issue in the metaverse. For instance, can there be protection in a product configuration for a product that is completely virtual? Also explored was the practice of some NFT creators to give away full commercial rights to exploit the IP in the NFT purchased. If holders of similar NFTs choose to monetize those artworks to brand their own businesses, would that not run the risk of trademark confusion if two NFT holders have similar businesses, and would that not ultimately lead to dilution of the underlying brand?
The potential of NFT technology holds much to be excited about, but it comes with new challenges. The USPTO and USCO are commendably taking a first step in exploring these issues.
If you have questions about NFTs, please reach out to one of the attorneys in our Intellectual Property practice group.
Greensfelder attorney Angela Kalsi contributed to this post.