What Brands Need to Know About NFTs, the Metaverse, and Related Intellectual Property Rights
Non-fungible tokens/NFTs are unique digital assets that are stored on a blockchain or in a digital ledger. As its name suggests, being “non-fungible”, it cannot be duplicated and is not interchangeable. Each NFT has unique properties that are stored in the metadata of the token, which makes it limited in that, in some cases, only has one copy and therefore derives its value from its rarity. The ownership history, i.e. the authenticity and origin of an NFT, can be verified on the blockchain via a platform like Ethereum from “smart contracts” which are software codes that authenticate ownership and regulate their transferability. Unlike fungible tokens like silver, NFTs cannot be split into smaller denominations.
NFTs that represent property in the digital world can consist of anything from digital assets like works of art, collectibles like stamps, coins, bags, shoes, clothes, from gems, gaming items, real estate, social media posts, top game clips, photos, trademarks, domain names and even complex financial instruments to various other things available in the physical world.
The slow rise of NFTs
It is understood that the first NFT was created as early as 2014 called Quantum by Kevin McCoy and Anil Dash. However, NFTs only gained popularity in 2020; the very popular CryptoPunks created by Larva Labs in 2017 could be claimed for free. Its popularity only exploded in 2021 when the cheapest CryptoPunks were worth US$350,000. In May 2021, a collection of 9 Punks was sold at Christie’s for the colossal sum of $16.9 million. Sotheby’s sold a rare Punk alien for $11.8M in June 2021. Interestingly, financial giant VISA purchased a CryptoPunk in August 2021 for the exorbitant price of US$150,000 to complement its in-store collection .
CryptoPunks are now considered the holy grail for any NFT collector.
Interestingly, these punks can be seen as profile pictures on social media platforms just like other billion dollar NFTs Bored Apes – aka (Bored Ape Yacht Club)
NFT, metaverse and mode
NFTs are gaining popularity as Metaverse gears; luxury fashion brands are experimenting with and launching digital consumer assets for avatars in the metaverse. Consumers are riding the wave of buying fashion NFTs for their avatars and dressing up with digital assets and accessories from the metaverse.
In 2021, Burberry partnered with Mythical Games to launch the NFT collection in the Blankos Block Party multiplayer board game featuring digital vinyl toys known as Blankos. Each of these NFTs comes with proof of ownership and authenticity verified by Burberry. The brand also plans to release its own NFT accessories in the game, including jetpacks, armbands, and pool shoes.
Similarly, Dolce & Gabbana launched its own physical and metaphysical collection of NFTs called Collezione Genesi³ on the Polygon blockchain. It features museum-quality objects that are entirely handcrafted through High Fashion (women), Upper Sartoria (men) and Upper Gioielleria (fine jewelry).
Gucci offered new NFT products, including its one-of-a-kind sneakers. To keep up with the trend, Nike acquired RTKFT Studios – a footwear company that makes NFTs and virtual sneakers for the Metaverse.
Louis Vuitton, which designed skins for the League of Legends game, joined the NFT movement with the launch of its game “Louis: The Game”. The game offers 30 built-in NFTs which were designed by famous NFT artist Beeple. These NFTs can only be found and collected by playing the game.
Intellectual property rights and NFT
The principle of intellectual property (IP) rights is exclusivity and monopolistic rights, whether trademarks, copyrights or patents. With NFTs being minted for almost everything from art collectibles to shoes, clothing, bags, and real estate, it becomes imperative for owners to understand and protect their intellectual property rights in this space.
As NFTs can be hit by anyone, the possibility of trademark misuse and/or intellectual property rights infringement is significant. We have seen many big brands protect their marks in relevant classes through trademark registration. Some examples of brands that have applied for protection are Nike, Crocs, Ralph Lauren, Gap, Mcdonald’s and NYSE.
According to Finbold, in 2021, 1,263 NFT-based trademark applications were filed with the United States Patent and Trademark Office (USPTO), representing a 421-fold increase in NFT-based trademark applications. NFTs filed from three filings in 2020. In 2021, the highest trademark filing was recorded in December at 407 filings. According to the data, almost 15 applications are filed per day in 2022.
What IP issues to anticipate?
As the NFT market is largely an unregulated industry, the enforcement of intellectual property rights is a gray area.
The very authenticity of an NFT can be questioned if it is not minted or created by the true owner. For example, each NFT can be verified on the blockchain via a smart contract. Problems may arise if this information is not correct and NFTs were created or created by anyone else who does not have permission to create such NFTs leading to unauthorized NFTs.
Additionally, with many virtual worlds such as Cryptoboxets, Decentraland, Roblox, Sandbox, Sims, Somnium Space, SuperWorld, and Zepeto, issues related to misuse of intellectual property rights and licenses may arise. Proper due diligence should be carried out before venturing into the virtual world depending on the terms and conditions and policies in place.
In fact, there have been instances of unauthorized minting of NFTs by third parties leading to intellectual property issues. Eg. Luxury brand Hermès sues Mason Rothschild, a digital artist, for counterfeiting its Berkin bags [Hermès International, et al. v. [1:22-cv-00384 (SDNY)]. The brand sued Mason Rothschild for minting and selling NFTs of its Birkin bags which Mason Rothschild referred to as “MetaBirkin”. Hermès indicated confusion over the original source.
Similarly, Nike, which filed a trademark application for virtual goods, sued StockX, an online retail marketplace, for infringing its trademark in the virtual space for selling Nike sneakers as NFTs. . According to the lawsuit, Nike argues that “Without Nike’s permission or endorsement, StockX “strikes” NFTs that prominently use Nike’s trademarks, marketing them NFT using Nike’s goodwill and selling these NFTs at heavily inflated prices to unsuspecting consumers who believe or are likely to believe that these “digital investable assets” (as StockX calls them) are, in fact, licensed by Nike when they are not.”
Both are pending judgment and we have yet to see how the courts protect the intellectual property rights of brands in the virtual space.
Similarly, copyright issues can arise as the very authenticity of NFTs can be called into question if the initial entry into the blockchain is false or contains errors. Other issues may arise, such as unauthorized exploitation of copyright, publicity rights, and moral rights involving NFT content.
However, whether copyright in an NFT will be transferred/assigned to a purchaser and/or to what extent copyright or intellectual property rights in a work will be transferred may be covered by contract. intelligent. In the absence of an explicit assignment term in the smart contract, the buyer will have limited rights.
Additional ways to protect NFT IPs in the metaverse
Platforms such as OpenSea and Mintable adhere to strict guidelines to remove NFTs involved in trademark infringement. The basic requirements for a DMCA takedown notice are: indication of the intellectual property infringed and where the infringing material appears, a properly signed takedown notice, contact information, and a good faith belief that counterfeit material is not permitted.
Metaverse and NFTs – Promising frontiers for brands
Brands can leverage the metaverse in several ways. We are already seeing big brand owners stepping forward and protecting their intellectual property rights in the metaverse and having virtual goods in the metaverse. Interestingly, many brand owners have joined Roblox, an online gaming platform and game creation system, which has a huge consumer base of nearly 202 million where they sell virtual products to consumer avatars. .
Gucci has teamed up with Roblox to sell virtual sneakers for US$12.99 a pair in this virtual world. The prices for these rose quickly, and Gucci made headlines by selling a digital wallet in the Roblox virtual world for 350,000 Robux, which equates to around US$4,200. The physical version of the same handbag could be purchased at a Gucci store for around US$3,500. This shows the untapped consumer base and selling power of brand owners in the metaverse.
In addition, there is also the possibility of licensing products. According to the organization Licensing International, it represents the last major licensing market open to the industry and could represent up to 40% increase in licensing volume in the near future.. There is a huge licensing market for brand owners with unlimited consumers and growing sales.
The metaverse and NFTs space are uncharted territory that is constantly evolving and currently there is no precedent to fall back on. The future of NFTs and intellectual property laws will depend on how courts interpret these spaces.