NFT and IP law

Knowledgeable about NFTs and IP: Everything you need to know about NFTs and IP

Things like art, games, collectables and much more are being tokenized these days. Record prices for Non-fungible tokens (NFT) have created an NFT frenzy. This new distribution model enables creative Intellectual Property (IP) to be monetized. Since NFTs exhibit some unique characteristics, they require a different IP protection strategy. Because of some characteristics of NFTs, there are some new issues to consider when licensing IPs. 

Creators of NFTs need to be aware of potential infringement issues when using third party IP, and they should also consider IP protection for original creations. Many NFTs use third-party intellectual property without permission. Some NFTs have incorporated third-party IP into the content. In other cases, third-party IP has been the exclusive content. NFTs whose content is being used without permission by IP owners are taking note and ramping up their enforcement activities.

DC Comics is one of the most influential IP owners. As a result of an artist’s $1.85 million profit from selling non-factory licensed cartoon characters (e.g. Wonder Woman and others) for DC Comics, the company’s creative teams and freelancers are forbidden from the unlicensed creation of such characters. DC stated: As DC examines the twists of the NFT marketplace and works on a fair and reasonable solution for all parties, including fans and collectors, DC will not be selling any digital images of their intellectual property without their explicit consent. NFTs, whether rendered for DC’s publications or outside the scope of one’s contractual relationship with DC, are not allowed. The following IP owners can be affected by NFTs:

  • Brands that have trademarks, logos, and other brand identifiers that are famous in the consumer market;
  • A game company with a unique character or character art 
  • Publishers of books, movie and other IP that have unique characters. 
  • Physical or digital works created by artists; 
  • Other IP owners license their IP for a wide range of uses. At times, they license the general use of the work while reserving specific rights for specific uses.

However, historically, IP owners have rarely considered NFTs while making license deals. In addition, most IP owners have not considered NFTs in connection with their IP protection strategies. Licensed IP owners can make use of blockchain tech to benefit from an emerging and very lucrative market. By adopting strategic licensing for this channel, IPs can increase their profile, goodwill, and revenue. However, it is crucial also to protect your intellectual property and avoid any legal or financial liability that may arise from these opportunities. 

Intellectual property owners who grant licenses to use their IP to third parties must include NFTs in that license. If the work is not explicitly licensed for use in NFTs, the licensee may be wise to prohibit the creation of NFTs incorporating the licensed work expressly. When explicitly granting a license to an NFT, you must be clear as to what is being licensed and what is not. When licensing IP for use in an NFT, the license should be limited to that purpose, and other requirements should also be taken into consideration. All other rights are typically reserved to the owner of the IP. 

As IP protection strategies for “brands as brands” become more pushing when creating their own tokenized assets in this early stage of the NFT boom, employers would do well to consider rethinking their IP protection strategies. As a result, brand owners can be encouraged to register their trademarks so they can include NFTs in their trademark uses. Additionally, they may choose to associate a particular design or trade dress with their brand. Where appropriate, design patents should also be considered. Design patents are particularly valuable since profits from the sale and resale of NFTs can be significant. Unlike trademarks, trade dress, and copyright protection, the owner of a design patent can be entitled to all infringement profits, not just the portion attributable to the use of the design. 

While the potential for tokenized content is abundant, NFT creators should be cautious about infringing on third-party IP. The fact is that third-party IP rights, including trademarks, copyrights and design patents, can be asserted against NFT creators capable of possessing such rights even though they do not have a license or other legal rights to IP included in their NFTs.

non-fungible tokens

Consideration of intellectual property rights at an early stage can save time and money down the line.

Creators of tokenized content should pause before making unauthorized use of brands, logos, famous characters, pictures, videos, music, and other IP belonging to third parties. If a creator uses IP that belongs to another party in an NFT, they should consult with a lawyer. The fact that IP owners have not enforced their IP against creators in the blockchain space does not mean they will not do so in the future, mainly as more money flows into this space. Getting advice early can help save significant expense and hassle later.

Typically, an NFT is associated with a wallet address, but the identity of the wallet owner may be difficult to determine without sophisticated computer forensics. You need to enforce IP rights when a token that uses your IP is listed on an exchange but before the token is sold. In order to prevent unauthorized uses of your content, content owners should set up a watch service. Law firms specializing in intellectual property and understanding the space can help you monitor (and stop) unauthorized use of your intellectual property at discounted rates. If your content is protected by copyright, aggressive use of The Digital Millennium Copyright Act (DMCA) takedown notices could prevent the sale of the NFT in the first place.

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