What are the copyright and trademark implications of NFTs?
NFTs and IP rights have certainly been a hot topic since the beginning of the year.
In January 2022, Hermès and Nike filed complaints in the US against the unauthorised use of their trademarks on NFT collections of digital bags and trainers.
In the same period, an anonymous NFT group purchased a 3-million-dollar art book of Jodorowsky’s Dune with the intention of converting the book into NFTs, selling them and adapting the story of Dune into an animated series without taking into account the copyright protection of the Dune story.
These recent examples demonstrate how intellectual property is often overlooked when it comes to NFTs.
Let’s go through the IP pitfalls you should be aware of when dealing with NFTs, but first let’s examine what NFT stands for.
What are NFTs?
NFTs stand for “Non-fungible tokens” (non-fungible meaning non-interchangeable, a thing that cannot be directly exchanged for something else of equal value). They are digital assets that represent real-world objects like drawings, music, videos, clothes, handbags etc. They can be minted (created) from any work and are bought and sold online, frequently with cryptocurrency.
But why are people willing to spend millions on a digital item that anyone can view/listen to for free? Because an NFT allows the buyer to own the original item. NFTs are guaranteed to be unique and each contains built-in authentication, which serves as proof of ownership.
Consequently, the nature of an NFT is comparable to that of a certificate of guarantee or a "receipt of ownership". This certificate confers an economic value and attractiveness to the digital medium of a work, because of its non-interchangeable character.
In other words, NFTs are like physical collector’s items, only digital.
IP Pitfalls of NFTs
1. Buyers beware: the sale/purchase of an NFT does not automatically entail the transfer of the underlying copyright of the work
Copyright protects an immaterial literary or artistic work which must be distinguished from its material or digital support (like a CD, a book, a digital file etc.).
In the case of NFTs, 3 intangible assets must be considered:
- the intellectual work protected by copyright;
- the digital support of the work; and
- the NFT.
As a general principle, the purchaser of a material object (i.e., a painting) or a digital support that incorporates a work of art does not necessarily have copyright on that work and therefore does not acquire the right to reproduce, adapt or copy the work in question. In other words, the copyright remains with the original author unless the rights are contractually transferred to the buyer.
As a consequence, the transfer of an NFT does not automatically entail the transfer of the copyright on the work. Usually when an NFT is sold, what is exchanged is not the work itself nor its support, but the associated unique token.
An NFT seller (that is also the owner of the copyright on the work) can, of course, also transfer the copyright to the buyer. However, said transfer must be contractually stipulated in writing.
If you intend to buy or sell NFTs, it is crucial to adapt your contracts in order to answer, if applicable, the following two questions:
- Does the sale of the NFT also include the transfer of the copyright?
- If yes, what are the modes of exploitation allowed by the transfer of copyright? Is the buyer allowed to create and sell NFTs derived from the work of art?
Now that any work can be associated with NFTs, we recommend addressing this issue in your contract drafting process in order to avoid any dispute on the matter later on.
2. IP owners beware: possible misuse of your intellectual property rights
Artists have recently been subject to individuals / legal entities selling their works as NFTs without their permission.
Anyone is indeed able to mint an NFT from a work, even if he or she does not own any rights to the specific work.
Although this practice would seem to be a clear case of copyright infringement, it is not that simple. Indeed, the NFT is neither the original work or a copy of the work, it is merely a token, a “receipt of ownership” so there is per se no unauthorised reproduction, copy or sale.
However, there might be copyright infringement if:
- The process of minting an NFT involves making a copy of the underlying work without the consent of the copyright holder;
- An image is used as an illustration of the NFT without the necessary permission;
- The minter of the NFT first creates a digital file of a copyrighted work without any permission;
- The metadata does not contain the correct information about the author of the work (violation of the moral rights of the author)
Trademarks are often reproduced in NFTs and mainly without the trademark owner’s consent.
Such unauthorised use raises obviously question in terms of possible trademark infringement.
Under the Benelux Convention for Intellectual Property, a registered trademark (that is not well known) gives to its holder the exclusive right to prohibit third parties from using an identical or similar sign for similar or identical goods and/or services.
In other words, there will be a trademark infringement if a third party uses the trademark without any consent and if the infringed trademark is registered for classes linked to the metaverse, virtual world, digital art, digital tokens or collectibles.
However, given that NFTs are quite recent, many companies have not yet registered their trademarks for classes associated with the metaverse, digital art and NFT. As a consequence, a literal interpretation of trademark law would mean that there is no trademark infringement because the goods and/or services are different. There is, for the moment, no case law in this respect and courts may take a different approach.
In any case, the question of similarity of goods does not arise for well-known trademarks. Indeed, owners of well-known trademarks can take action against similar signs for both similar goods and/or services and for non-similar goods and/or services.
In order to protect your trademarks in the online world, we recommend to file (or re-file) trademark applications encompassing goods and services associated with the metaverse, online world, digital art and NFT.
As a trademark owner, you can also monitor NFT marketplaces and take action where appropriate (against, for example, minters who do not have authorisation to mint an NFT, marketplaces where NFTs are available for sale, etc.) and train staff to recognise the unlicensed use of IP in NFTs.
Lydian can assist your company in re-filing your trademarks and advise you on steps to take against trademark and copyright infringement.
If you are interested in learning more about NFTs, join us on 23 June 2022 on the occasion of the BRAFA ART FAIR in Brussels. Our IP team will give a seminar on NFTs. This fair is one of the world’s oldest and most prestigious art fairs, famous for the high-quality fine art, antiques, modern and contemporary art and design it offers. It is really worth a visit.
Who knows how this fair will evolve in the future and whether or not it will offer NFTs. Would you be willing to bet a bitcoin on this?