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Should IP Owners mind the NFT Business?

Posted By Frank Crasson On In Legal Alerts & Articles | No Comments

Non-fungible tokens (NFTs) are digital assets registered on the blockchain that represent unique though intangible items such as, among others, pictures, videos or video game collectibles. These digital assets feature unique characteristics allowing them to somehow replicate the tangible attributes of physical goods like uniqueness, scarcity and proof of ownership.

In the virtual economy, NFTs raise questions in terms of IP management and infringement. From an IP perspective, NFTs must be considered separately from the digital content linked to it :

 

| NFTS & COPYRIGHTS

The digital content linked to the NFT may be protected by copyright if it is an original creation, namely if it results from free and creative choices reflecting the personality of its author. Copyright protection arises from the creation of the original work. No additional formality is required.

Things are quite simple when the NFT creator is also the creator of the underlying work. In this case, the NFT creator owns the NFT and the copyright on the underlying work.

Things become less straightforward when the NFT creator is taking over preexisting protected content in the process of creating the NFT. One may think, for instance, of the lawsuit brought by Miramax against Quentin Tarantino after the movie director announced he would sell NFTs of his hand-written script for “Pulp Fiction”, a screenplay on which Miramax claims to have acquired the copyright.

Under copyright law, the copyright owner has the exclusive rights to :

 

Without the copyright owner’s authorisation, copyright infringement is likely to occur if:

 

Under copyright exceptions, copying and making available original content are still permitted without the author’s authorisation. This is the case for purposes of quotation, criticism, review, caricature, parody or pastiche. Whether NFT owners may rely on these exceptions depends on a case-by-case assessment.

NFT creators and owners are also advised to beware of image rights of individuals appearing on images linked to an NFT. With their prior authorisation, the NFT’s creation and assignment could be subject to legal action leading to a prohibitory injunction and/or damages.

Last but not least, authors benefit under Belgian law from a so-called « resale right » which allows them to claim an additional remuneration upon resale of their original artworks under certain conditions. As a certificate of authenticity, the NFT may help authors to monitor the resale of their artworks and claim this remuneration, provided of course the resale right conditions are met.

| NFTS & TRADEMARKS

A. PHYSICAL GOODS vs. VIRTUAL GOODS

Brand owners may come across NFTs representing virtual goods bearing their registered trademark.

In a nutshell, a trademark is a sign registered for goods or services, which allows its owner to prevent third parties from using in the course of trade similar signs for similar goods or services.

Arguably, the offer for sale of a NFT linked to a virtual good can be perceived as a commercial communication.

From that perspective, there would be an unauthorised use of the earlier trademark in the course of trade if virtual goods bearing that trademark are offered for sale online. There is, however, no settled case law on this matter in the Benelux to this day.

To anticipate and circumvent this uneasy debate, brand owners are now considering to file trademark applications for virtual goods and services.

For the time being (see here [1]), the EUIPO considers that EU trademark applications for “virtual goods” or “NFTs” are not acceptable as such:

 

Reference can also be made to the similar guidance issued by the BOIP on the classification of “virtual goods” and “NFTs” with regard to Benelux trade mark applications (see here [2]).

Brands owners should be aware that the filing of a trademark for virtual goods and services entails the obligation to use the trademark for the designated goods and services in the territory covered by that mark within a period of five years following the registration of the trademark. Otherwise, the trademark could be revoked for lack of genuine use.

B. WELL-KNOWN MARKS AND ARTISTIC FREEDOM

The enlarged protection of well-known or reputed trademarks may help brand owners to fight unauthorized uses of their trademarks in NFTs.

For example, in the “Juve” case, the Court of Rome ordered an injunction against the use of the well-known “Juventus” trademark in relation to unauthorised creation and commercialisation of NFTs featuring one of Juve’s former players, in spite of the consent given by the latter to the use of his image in the NFTs at issue.

To successfully invoke the protection of reputed marks against NFT owners in the Benelux, brand owners would have to prove that :

 

In the “Dom Pérignon” case (see here [3]), the Benelux Court of Justice held that the notion of “due cause” is intended to strike a balance between the rights of the trademark owner and the interests of the user of the sign, in particular his artistic freedom, which is, however, subject to certain limitations and cannot in any case be intended to be prejudicial to the trademark or the trademark owner.

In the Benelux, there is no case law on the application of artistic freedom as “due cause” for the sale of an NFT linked to virtual goods bearing an earlier trademark. However, in the “Hermès” case, the NY District Court rejected Rothschild’s motion to dismiss Hermès complaint targeting its online collection of virtual Birkin Bags (“MetaBirkins”), on the ground that the use of this sign was likely to be misleading as to the bags origin, regardless of Rothschild’s alleged artistic freedom in making and displaying the virtual bags at issue. This seemingly restrictive view calls for caution from NFT creators in the Benelux.

Last but not least, brand owners have an additional argument against NFT owners in the Benelux, where a trademark use for purposes « other » than distinguishing goods or services may also be prohibited if it takes unfair advantage of or is detrimental to the distinctive character or the reputation of the trademark. This particular protection is, however, also subject to the “due cause” test referred to above.

| CONCLUSION

In an online environment, enforcing IP rights is a challenging task. To anticipate cases of virtual infringements, IP owners should include specific clauses in their licensing agreements with regard to the use of their IP in connection with NFTs. Likewise, NFT buyers should check the terms of their NFT purchase agreement, as they may contain important precision regarding the allowed uses of the NFT and the IP rights on the underlying work. Furthermore, IP owners should pay attention to the terms and conditions of NFT platforms, as such platforms may offer notice and takedown mechanisms worth trying before considering to litigate.

 

 

You can download a PDF version of this news release here [4].

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This newsletter is not a legal advice or a legal opinion. You should seek advice from a legal counsel of your choice before acting upon any of the information in this newsletter.