Intersection of NFT and IP – Developments to Watch

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Intersection of NFT and IP – Developments to Watch

As digital collectibles such as NFTs (non-fungible tokens) become more popular in our Web 4.0 era, more IP problems are inevitably created. For those new to this field, IP typically refers to patents, copyrights, trademarks, and trade secrets, but in the world of NFTs, copyright and trademark issues generally attract public attention.

In China, a case of first impression was handed down in Hangzhou, Zhejiang Province in April 2022, featuring a “chubby tiger” cartoon. In that case, BigVerse, an NFT coin and trading platform, was sued and found liable for copyright infringement on the grounds that it had created an NFT by using the plaintiff’s artwork without permission.

BigVerse received an order from its user to mint and distribute an NFT based on a cartoon artwork titled “A Chubby Tiger Taking Vaccination.” However, the platform did not verify whether the user was an authorized user of the artwork, even though the creator’s copyright mark was visible on the design.

The Hangzhou court ruled for the plaintiff, who was an exclusive licensee of the creator artist, based on the immutable nature of NFTs: Once minted, they cannot be easily removed. As such, the platform must undertake a greater burden to verify the ownership or legitimacy of the user before creating and distributing an NFT. The court considered that the platform was in effect operating as a network service instead of simply a content provider and should have introduced an IP review mechanism before minting the relevant NFT.

In the United States, there have been several notable NFT-related lawsuits in recent months:

Nike vs. StockX

In early 2022, Nike sued online reseller StockX for selling NFTs of shoes bearing Nike’s branding, after StockX launched its Vault collection of NFTs. StockX told potential buyers that they would be able to redeem the tokens for physical shoes “in the near future.” After filing the lawsuit, Nike managed to purchase physical shoes on StockX’s platform, which allegedly turned out to be fakes. Nike has now taken the case to a new level involving counterfeiting as Nike has deemed these physical shoes fakes.

It seems that if StockX only sells its Vault NFTs as a “claim ticket” for customers to use for actual shoes later, they might be able to get away with this practice. After all, NFTs are popular right now and if this is a way for StockX to generate more business, all the more power to them. Also their use of the NFTs will definitely lead to more sales for Nike. However, if their sale of the Vault NFTs generates much more revenue than just a claim ticket, it could be argued that their NFTs are garnering the goodwill of the famous Nike brand. Worse, if the physical shoes that Nike or other customers buy turn out to be counterfeit, it would not be surprising for StockX to lose its credibility, and all bets are off.

Hermès vs. Rothschild

Around December 2021, artist Mason Rothschild created digital images of fur-covered versions of Hermès luxury Birkin handbags. The artist named the images “MetaBirkins” and sold them as NFTs.

Hermès is a famous luxury designer of many fashion products, including its unique Birkin handbag. Hermès owns the trademark rights in the Hermès and Birkin brands, as well as trade dress rights in the Birkin design. Hermès accused Rothschild of ripping off the design of the French luxury brand’s iconic Birkin bag. Consumers posting on the artist’s MetaBirkins Instagram page expressed real confusion with the MetaBirkins collection. Similar confusion about the source of the MetaBirkins has been reported in the media.

Not surprisingly, Hermès sued Rothschild in January 2022, claiming that the artists’ MetaBirkins NFT collection infringes its trademarks of the famous Birkin bags. Hermès calls the artist “a digital speculator who wants to get rich quick.” Hermès sued for trademark infringement, trademark dilution and cybersquatting.

One main question is whether “MetaBirkins” is used as a trademark to indicate its source, or as artistic expression. Hermès claimed that the artist used the MetaBirkins mark in commerce to brand its products and generate publicity. The artist claimed that the digital version of fur-covered Birkin bags was a work of art. Also, the title of the artwork, “MetaBirkins,” was not used as a trademark for his products. As such, his use of the Hermès mark should be entitled to protection under the First Amendment, which must be balanced against one’s trademark rights in that Second Circuit. This case is now pending in federal district court in New York.

As an IP practitioner, the recent cases from China and the US point to an inevitable intersection, or collision, between IP rights and free speech rights as NFTs begin to take center stage. While free speech rights are fundamentally important to a society, the rights of IP owners must also be considered, as always. Any rights created by the adaptation of NFTs should preferably still be analyzed according to the existing IP legal framework. That is, what is not allowed under the existing IP laws should not become permissible simply because of the new NFT technology – at least not without due consideration and balancing. In any case, there is unlikely to be a bright line test for this clash, and it is expected to be a test of balance from both sides. Stay tuned!

P.S On June 9, 2022, two top members of the US Senate Intellectual Property Subcommittee requested that the US Patent and Trademark Office and the US Copyright Office team up and study NFTs and their impact on intellectual property rights.2

In a letter, the senators asked the two executive agencies to look into NFTs in light of their rapid global growth “since their relatively recent introduction.” As mentioned in the foregoing, NFTs are unique digital assets that are stored on a blockchain and represent ownership of an item.

The letter from the senators raises several questions, including whether there will be IP challenges with future applications of NFTs, how the transfer of an NFT affects the rights associated with that asset, how licensing rights and infringement work and what IP protections be given to an NFT creator. Again, this is an exciting time for IP and NFTs. Stay tight!

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