As more businesses explore the emerging world of NFTs and virtual landscapes, our experts assess the risks and how to protect your intellectual property
The creation (minting), sale and use of non-fungible tokens (NFTs) raises many intellectual property (IP) issues which we have discussed in our previous posts in our IP in NFTs series. However, brand owners and product manufacturers must also be vigilant in monitoring virtual marketplaces to ensure third parties are not creating NFTs that infringe their own IP rights. This is especially true where the company is considering releasing or has released NFTs, because the public will begin to associate the brand with NFTs (which could include infringing NFTs). There are several strategies companies could adopt to minimise this risk.
Strategies for product and brand protection
Companies should become familiar with the NFT marketplaces and conduct periodic searches to see if any of their IP is being traded without their knowledge. Image matching technology, such as Google’s reverse image search, can also be used to check whether specific image files are present on unauthorised domains.
It is also important for companies to be clear and open about their involvement in the NFT space, including making it easy for the public to see how many legitimate NFTs have been sold by the company and where these are available for sale. The Ethereum Name Service (ENS) is a type of domain name that uses words as an identifier rather than the alphanumeric string of characters associated with cryptocurrency addresses. By releasing under an ENS, the creator of an NFT can draw a clear link between their identity and the NFTs being sold by them.
In terms of trade marks, companies may also consider filing new applications in additional Nice Classification classes to protect virtual products (such as classes 9, 35 or 41), to prevent third parties trying to obtain protection for the same goods or services in such classes. (Nice is a system for classifying goods and services for trade mark applications in the EU, consisting of 45 separate classes.) There remains an open question whether trade mark offices and IP courts may extend the definition of products in a specific class to also include the virtual version of the same physical item, creating a parallel between the real world and the virtual world. However, in the meantime, it is vital for industries to make a proper assessment of their trade mark portfolio in relation to the specific territorial coverage to be ready to protect themselves against infringements in the virtual digital world.
The European Union Intellectual Property Office (EUIPO) has recently issued guidance notes in relation to trade marks and NFTs entitled “Virtual goods, non-fungible tokens and the metaverse” clarifying the approach it is taking for applications containing terms relating to virtual goods and NFTs, which it says are increasing.
- Virtual goods: From a classification point of view the EUIPO says "virtual goods are proper to Class 9 because they are treated as digital content or images. However, the term "virtual goods" on its own lacks clarity and precision so must be further specified by stating the content to which the virtual goods relate (eg, downloadable virtual goods, namely, virtual clothing). The guidance confirms the 12th Edition of the Nice Classification will incorporate “the term downloadable digital files authenticated by non-fungible tokens in Class 9″.
- NFTs: The EUIPO also comments NFTs are treated as unique digital certificates registered in a blockchain, which authenticate digital items but are distinct from those digital items. The guidance states for the EUIPO, the term “non-fungible tokens on its own is not acceptable". The type of digital item authenticated by the NFT must be specified.
- Services: The EUIPO’s guidance says services relating to virtual goods and NFTs will be classified in line with the established principles of classification for services.
Finally, companies should develop a policy around what to do if infringing IP use is detected as part of any routine monitoring, including drafting template takedown letters which could be sent to NFT marketplaces if an unauthorised NFT release is found.
For commentary on the Hermès/Birkin handbag metaverse NFT dispute and the Nike v StockX litigation over NFTs, see our earlier blog post The IP in NFTs – IP issues when minting NFTS – IP ownership and infringement in the metaverse.
NFTs look poised to begin a new race towards influence in the metaverse with roles in marketing and brand image control, as well as product sales and development. The examples given in our series demonstrate, as well as understanding the limitations on the rights transferred when purchasing an NFT, a company minting NFTs must ensure it has IP rights covering the NFT metadata and underlying digital asset, and these do not infringe on the IP rights of third parties. Even for companies that do not want to release NFTs, other bad actors may do so by infringing upon their IP, and so vigilance and monitoring is required.
A briefing containing the first four posts in our IP and NFTs series is now available to download in PDF format.