Among the digital items and crypto collectibles that users can bid on and/or buy directly on non-fungible token (“NFT”) marketplaces like Opensea and Rarible, there is a wide range of crypto domain names. If you search for “Chanel” or “Hermès” on OpenSea, for example, you will find NFTs linked to domains bearing the famous names of the brands to be offered. Chanel.eth is currently priced at 300 ETH ($924,794), while hermes.eth can be purchased for 250 ETH ($788,435.00). The same goes for estates branded as Gucci, Prada, Dior, Balenciaga, Rolex and other similar brands, as well as companies ranging from sportswear titan Nike to Italian automaker Ferrari.
Ethereum Name Service (“ENS”) domains (i.e. those ending in .eth) represent unique addresses on the Ethereum blockchain, which can be used to easily receive any type of cryptocurrency and/or or token, including NFTs, to a crypto wallet. These ENS domains and other decentralized domains do not operate entirely differently from their .com counterparts in that, like the traditional DNS system, they act as human-readable names for less simple addresses.
There are, however, some distinctions between DNS and crypto domains – from where addresses point (usually to crypto wallets for crypto domains, but also websites that reside on a decentralized internet) to how governance is managed. Unlike DNS domains, for example, blockchain-based web domains are not governed by the Internet Corporation for Assigned Names and Numbers (“ICANN”) and therefore not subject to its procedures, such as the Uniform Dispute Resolution Policy. domain name disputes. and the uniform rapid suspension system.
This means that if blockchain-based domains offer users benefits, such as an easy-to-use alternative to a long alphanumeric crypto wallet address (think: 0xb15166d10aebc6bb4868668eff1b3acd95da920c) and increased security since they are created with smart contracts hosted on the blockchain, there are a few potential downsides. On the one hand, trademark holders are not able to use ICANN’s procedures regarding bad faith registrations or contrary uses of these domain names. At the same time, “blockchain-based naming systems often have no central authority that can provide redress to aggrieved brand owners,” according to Dan Bernard and Monica Riva Talley of Sterne Kessler, and “the anonymity provided by blockchains generally means that squatters cannot be identified in order to take legal action in any forum”.
A gold rush and potential damage
The highly decentralized nature of blockchain-based domains “makes them attractive to a new breed of squatters and digital land grabbers — not least because they can be nearly impossible to police for trademark infringement,” Bernard noted. and Talley. Unsurprisingly, “one of the so-called ‘next big things’ ‘in this space’ goes back to one of the ‘old big things’ from the dot-com boom gold rush two decades ago”, according to Bloomberg Markets Editor Michael Regan. . In other words, domain name squatting… but not in Web2 for .com domains but in Web3 for those with suffixes like .eth, .crypto, .coin, .dao, .nft, .sol, etc. .
The blockchain domain rush – which saw 85,000 new .eth domains registered in March, bringing the total number of .eth domains alone to 825,000 – raises questions and poses risks for brands though known and other trademark owners, whose names are being brought home.
The potential for harm deserves attention, because if a trademark is used in a crypto domain name without the authorization of the trademark owner, “there is a significant risk that the owner of the domain name may claim to offer the crypto wallet of brand and/or enter into financial transactions or smart contracts, purportedly on behalf of the brand,” according to MMX General Counsel Sheri Falcon. This is particularly notable in light of the growing number of brands beginning to adopt the cryptography as a form of payment for their goods/services (Off-White is the latest), and many more are expected to follow suit (think “apple.eth” for buying an iPhone with cryptocurrency in the future – or perhaps, the future online store for Apple products, speculates Matthew Cutler of Harness IP.)
Such harm is compounded by the fact that while some blockchain domain naming companies, such as Unstoppable Domains, have implemented waiver periods for domains associated with “well-known entities, products or individuals” in an attempt to To avoid squatting, there does not appear to be a mechanism to challenge unauthorized use of a trademarked domain with these blockchain domain registrars. (Unstoppable Domains, for its part, states in its terms that users must “not violate or infringe the rights of UD, our users, or others, including privacy, publicity, intellectual property, or other proprietary rights”, but lacks wording on trademark infringement remedy.)
In this context, trademark holders looking to take action on blockchain-based domains will have to look elsewhere.
Barriers and Opportunities
In addition to barriers to initiating litigation to prevent unauthorized use of blockchain domain names when the identity of the owner cannot be verified, which “presents challenges in determining party, jurisdiction, and place” in an action, Andrea Calvaruso of Kelley Drye, Matthew Luzadder, Constantine Koutsoubas and Kerianne Losier stated in a recent memo that the Lanham Act’s Anti-Cybersquatting Consumer Protection Act, which “provides in rem jurisdiction over the domain names themselves in certain circumstances where there is no personal jurisdiction over the defendant owning the domain name,” may not be helpful. Such jurisdiction “is possible only in the judicial districts where the registrar or other domain name registry or authority that issued the domain name is located”, and often it is not in the USA
With all of this in mind, the most viable approach right now is one that targets selling domains as NFTs on marketplace sites. Takedown actions are offered by sites like OpenSea and are already being used by a number of luxury brands to stop the sale of allegedly infringing crypto domains. At the same time, trademark holders are generally recommended to consider acquiring their own blockchain domains – from .eth to .nft – as a way to not only potentially prevent squatting, but also to reserve them for possible future use, which seems increasingly likely for brands at all levels. (Just this week, Axel Dumas, the executive chairman of Hermès, told shareholders that the stalwart luxury brand’s management was “curious and interested in” the Metaverse as a potential communications tool.)
THE BOTTOM LINE: Blockchain-based domains “present both opportunities and risks” for brands, according to Bernard and Talley, and therefore, companies should treat these “new unregulated spaces as free markets that must be monitored for opportunities and dealt with proactively”.
This article was originally published exclusively for TFL subscribers. Sign up today to get access to all our content first.