People don't understand NFTs, Meta verse, and crypto today the same way they didn't understand online shopping in 1995.

~ Anuj Jasani

Suddenly, everyone’s talking about NFTs! NFTs are a big topic in various areas, and some of the most famous NFTs, like “BORED APE”, “DOGE”, “CRYPTO PUNK”, etc., were sold in millions. But what about the effects of NFTs on intellectual property, though?

Let’s learn the basics first…

 

INTRODUCTION

NFTs are the first digital Veblen goods [1] in the world. Non-Fungible Tokens (NFTs) are one-of-a-kind digital certificates built on a block chain and used to represent digital assets online. The term “non-fungible” means that these tokens cannot be exchanged, and as a result, each NFT has unique data. Simply put, an NFT develops a digital certificate based on a block chain to indicate ownership of digital goods on the Internet (games, paintings, music records, tweets, etc.). The fact that these tokens are used to just represent digital assets like artwork, videos, photos, and music and are not the assets themselves is a defining feature of them. The most accurate comparison to draw an analogy from is that this idea is similar to a title deed that certifies ownership of a piece of property. An NFT’s capacity to demonstrate the legitimacy and ownership of the asset or digital artwork it represents is what gives it its commercial value. Each NFT is required to have a single owner, and the information on transaction history is kept in an immutable, publicly verifiable digital ledger. Like any other speculative asset in the real world, the value of a non-fungible token is governed by the laws of supply and demand.

 

HOW DOES WEB 3.0 INTRODUCE A NEW ART FORM?

NFTs are the first digital Veblen goods [1] in the world. Non-Fungible Tokens (NFTs) are one-of-a-kind digital certificates built on a block chain and used to represent digital assets online. The term “non-fungible” means that these tokens cannot be exchanged, and as a result, each NFT has unique data. Simply put, an NFT develops a digital certificate based on a block chain to indicate ownership of digital goods on the Internet (games, paintings, music records, tweets, etc.). The fact that these tokens are used to just represent digital assets like artwork, videos, photos, and music and are not the assets themselves is a defining feature of them. The most accurate comparison to draw an analogy from is that this idea is similar to a title deed that certifies ownership of a piece of property. An NFT’s capacity to demonstrate the legitimacy and ownership of the asset or digital artwork it represents is what gives it its commercial value. Each NFT is required to have a single owner, and the information on transaction history is kept in an immutable, publicly verifiable digital ledger. Like any other speculative asset in the real world, the value of a non-fungible token is governed by the laws of supply and demand.

 

LEGAL ISSUES ASSOCIATED WITH NFTs

A number of legal repercussions, such as taxation aspects, money laundering, concept of royalties, data protection regulations etc., surround NFTs, but the biggest of them all is that there exist absolutely no intellectual property rights pertaining to the same and that it is a gray area. Through this article, we will try to dwell more on the IPR aspect of NFTs while simultaneously answering the position of law on NFTs.

 

WHAT IP CONCERNS DOES IT RAISE?

A number of legal repercussions, such as taxation aspects, money laundering, concept of royalties, data protection regulations etc., surround NFTs, but the biggest of them all is that there exist absolutely no intellectual property rights pertaining to the same and that it is a gray area. Through this article, we will try to dwell more on the IPR aspect of NFTs while simultaneously answering the position of law on NFTs.

 

RECENT UPDATE ON NFT REVOLUTION

On February 3, 2022, Nike filed a lawsuit against online sneaker retailer StockX in New York Federal Court for allegedly selling Nike shoe images illegally. This is the most recent instance involving non-fungible tokens. Nike claims that StockX’s NFTs violate its trademarks and could lead to consumer confusion. In addition to a halt to its sales, its case demanded specific monetary damages. Although these instances have not yet reached Indian courts, multinational firms have been exploiting different NFT inventors all around the world for violating their intellectual property rights. [5]
There is currently a significant increase in NFT creators due to the increase in investors on the platform. NFTs are now being produced using anything and everything that is currently available. Who would have guessed that a tweet with the subject line “Just putting up my twttr” [6] could become a digital asset that could be owned, coined as a token, and purchased for 1,630.58 ethereum (crypto value), which was about $2.9 million about a year ago? Concern concerning the protection of the intellectual property rights linked to a specific digital asset has increased with the growth of NFT mints. The two types of IP protection that face a lot of concerns over the NFT’s purchase and sale are trademarks and copyrights.

 

LAW POSITION ON NFTS

1.Trademarks and NFTs

To understand it from a layman’s perspective, the essential use of trademarks is to provide the trademark holder with the exclusive right to prohibit third parties from using similar or identical marks in relation to similar or identical goods or services.
Hermès, a French luxury brand, recently became the first major company to file a lawsuit about the use of trademarks in the metaverse when it accused an artist of creating NFT of imitation handbags. Hermès first issued a cease and desist letter to the developer, accusing him of being a digital speculator looking to become rich quick. After not receiving a response from the designer, Hermès filed a lawsuit charging trademark infringement with his MetaBirkins NFTs—virtual recreations of the renowned Hermès handbag. The company is requesting damages as well as a restraining order against the inventor’s NFTs, the erasure of all previously produced samples, and the transfer of the project’s domain name to Hermès. [7]
We currently see a number of tokens produced by third parties that are either identical to or similar to an existing or well-established brand, which ultimately results in the infringement of the holder’s trademark. This is due to the lack of regulatory legislation with respect to NFTs. Since NFTs are a relatively new development, many businesses have chosen not to protect their marks in classes related to virtual goods or services, the metaverse, or digital commodities. This ultimately gives the minters a defense that the goods or services of adoption of the NFTs are distinct from one another and do not constitute trademark infringement. The alternative strategy now used by trademark owners is that they pursue legal action against identical marks for both similar and dissimilar goods and services and claim trademark infringement on the sole basis that they are well-known marks.

 

2. Copyright & NFTs

A person’s exclusive right to reproduce and distribute a creative work in any medium, including literary, artistic, educational, and musical, is granted by a copyright, a type of intellectual property. According to Section 17 of the Copyright Act of 1957, the author acquires exclusive ownership of the work of art as soon as it is created.
When someone buys an NFT, they only receive a cryptographically signed receipt proving they are the rightful owner of that specific copy of the NFT. Here, two misunderstandings must be clarified: first, the buyer receives merely ownership of the purchased work and not the original copyright that belongs to the author; and second, the buyer receives no property right to every copy of the purchased work.

 

3. NFTs and patents

Put in simple words, Patent is an exclusive right granted to the creator for an invention of his own. NFTs have a few existing patents, and more are certainly in the process. For instance, Nike was granted a patent for “generating cryptographic digital assets for footwear,” which would help purchasers of shoes ensure that their purchase is authentic while also storing a digital collectible version of their shoe in their wallet. In general, more block chain-related patents are being issued. [8]

 

CONCLUSION:

Do NFTs have a future
A decade ago, you’d have scoffed at the idea of a wedding in virtual space. The first wedding ever held in Asia on the metaverse, where guests interacted through avatars, took place recently between a couple from Chennai. Even the late bride’s father was present! Not only that. Additionally, the pair introduced non-fungible tokens (NFTs) with images of themselves and the wedding invitation. “We launched 10 unique NFTs of around $25-150 which were resold for $1,000-2,000. The response was huge,” says Dinesh Kshatriyan, the groom, who is a project associate at IIT Madras. [9]

 

From the days when only celebrities produced and sold NFTs for millions, they have come a long way. “NFTs are slowly but surely becoming a part of our everyday lives. Not only are NFTs a great business opportunity, they are also a new way for people to enjoy themselves while making money. That’s why NFTs are here to stay,” says Toshendra Sharma, Founder and CEO, NFTically, a Polygon-backed NFT marketplace. [10]
Think of a world, in which the title to your home is an NFT. The deed would automatically log all modifications, eliminating the need for it to be generated again each time the house is sold. This would simplify closing. Additionally, it would be significantly more secure because no one would be able to change the NFT, making it impossible to fabricate house ownership.
This would not only apply to homes. Any setting where ownership needs to be tracked and confirmed would benefit from it. The NFT would offer a perfect record of the whole ownership history of an object, saving time spent looking for the paperwork to show that you purchased and possessed it.

 

They increase efficiency while adding a new layer of protection to digital transactions. Anyone engaging in a transaction can view the NFT’s evolution from conception to completion in real-time and can identify everyone else who participated in that evolution. It produces a system that is encrypted, easily distributable, and virtually impossible to attack.
Thus, all in all, it is safe to say that NFTs are here to stay and grow to its maximum potential within good time. NFTs will soon be unavoidable and that’s a good thing for whenever you need to brush up on your basics, this article will be right here to help you do so.

 

REFERENCES:

[1] A Veblen good is a good for which demand increases as the price increases because of its exclusive nature and appeal as a status symbol.
[2] Pre 9/11 internet was very different from post 9/11 internet
[3] What is AURA? The world’s first luxury block chain
https://www.uxsequence.io/learn/article/what-is-aura/
[4] Fair dealing is a limitation and exception to the exclusive right granted by copyright law to the author of a creative work.
https://www.mondaq.com/india/copyright/299252/fair-dealing-in-copyrights-is-the-indian-law-competent-enough-to-meet-the-current-challenges
[5] What is StockX and why is Nike suing them?
https://www.npr.org/2022/05/12/1098426367/stockx-nike-lawsuit-sneakers
[6] Twitter CEO Jack Dorsey’s First Tweet Sold for $2.9 Million as an NFT, 23 March, 2021
https://gadgets360.com/social-networking/news/twitter-first-tweet-nft-auction-sold-jack-dorsey-usd-2-9-million-just-setting-up-my-twttr-2396861
[7] NFTs and Birkin bags: A Hermès lawsuit tests the limits of trademark rights
https://www.brookings.edu/blog/techtank/2022/04/21/nfts-and-birkin-bags-a-hermes-lawsuit-tests-the-limits-of-trademark-rights/
[8] Nike now holds patent for blockchain-based sneakers called ‘CryptoKicks’
https://thenextweb.com/news/nike-blockchain-sneakers-cryptokick-patent
[9] https://www.wionews.com/photos/in-pics-inside-indias-first-metaverse-wedding-452001#first-of-its-kind-event-451988
[10] https://www.mygreatlearning.com/blog/what-is-nft/