How the Existing IP Landscape Isn’t Built for Blockchain

The USPTO announced in late 2021 that it would no longer be issuing physical registration certificates as a matter of course, a move that serves as a further reminder that we are fast approaching a fully digital era. That trajectory is underscored by the current hype surrounding NFTs, blockchain, the metaverse, and crypto—each a key player in the uncharted future of intellectual property rights. So, what do they mean? And is the traditional IP landscape ready for their dominance?

What even is an NFT?

If you’ve been within shouting distance of anyone using a cell phone or computer, you’re probably aware of the term “NFT.” An NFT—short for “nonfungible token”—is, in its simplest sense, a digital certificate stating the particulars of someone’s ownership of a product. According to researchers, the sole purpose of an NFT is to record ownership of an asset, whether physical or digital. The “non-fungible” aspect of an NFT ensures each certificate is unique, irreplaceable, and indivisible in the marketplace.

Fungible currency, on the other hand, is more like a five-dollar bill: if you and I both have one, and we swap with each other, neither of us is worse off and no one (except maybe the government) knows the difference. And I can trade my bill for five singles without losing any value.

Before you run off with the idea that an NFT is akin to currency, it’s important to note that NFTs are not intended to have inherent value. Each NFT’s worth is tied to the asset it represents; if a Picasso sketch is worth $2 million, an NFT evidencing its ownership would sell for $2 million.

NFTs are stored electronically on a blockchain, which is best described as a ledger of transactions. Each transaction is coded into digital “blocks” strung together chronologically in a chain. Each chain is meant to provide a permanent record of digital transactions. In terms of NFTs, blockchain shows the origination of the NFT and each transfer of the NFT, providing the ultimate buyer an uninterrupted chain of title. Blockchain is also built to be decentralized among multiple servers, meaning one compromised server or group of servers won’t result in a lost or altered record.

One-Way Ticket to the Metaverse, Please

So, what is an NFT good for? Those researchers I mentioned above opine that NFTs’ true destiny lies in revolutionizing the collectibles market. In my previous Picasso example, an NFT on the blockchain allows an art collector to prove her uninterrupted ownership of the sketch from anywhere with an internet connection, without her fetching the physical asset from its climate-controlled storage unit in Scandinavia. NFTs can also be created for birth certificates and other priceless documents. Outside physical assets, NFTs have given gamers the ability to own one-of-a-kind weapons or characters, and sports fans can own their favorite players’ game-winning shots.  

But tech innovators have set their sights even higher, to a place called the “metaverse.” (If you’ve seen Ready Player One, you’re a step ahead on this journey.) Ideally, the metaverse will operate as a digital world that integrates gaming, social media, and online shopping into a self-sustained virtual reality. Mark Zuckerberg foresees virtual homes where owners can host parties, and it isn’t too farfetched to imagine a Microsoft-run virtual office. In such spaces, the aim is for people to use cryptocurrency to buy and trade digital assets—think virtual homes, cars, furniture, and clothes for avatars—with NFTs memorializing ownership and transfers.

If you aren’t quite ready to run into your mother-in-law’s avatar at a virtual Target, you’ll be happy to hear that these visions are still in their infancy. Instead, NFTs and blockchain are currently giving collectors a new avenue to acquiring and day-trading rare and singular items with uneditable provenance, without ever leaving their sofas.

What Rights Does My NFT Carry?

The intersection between NFTs and existing intellectual property law remains largely uncharted. In the trademark space, lawsuits between brand owners and NFT creators abound. In the past month, big brands Hermès and Nike filed infringement suits against NFT creators using their trademarks without permission. Hermès claims Mason Rothschild is illegally profiting off of its iconic Birkins by creating unauthorized NFTs of fur-covered versions of the bags. The NFTs, which Rothschild is marketing as MetaBirkins, are selling for between $17,000 and $3.13 million.

Nike’s fight is against sneaker reseller StockX, whose valuation reached nearly $4 billion last year. Like Hermès, Nike accuses StockX of using Nike’s trademarks—including Air Jordan, Dunk, JumpMan, and the Swoosh design—to sell NFTs tied to rare sneakers. StockX’s NFTs serve as digital proof of ownership of real sneakers stored in “climate-controlled, high-security vaults.”  

In response to the Hermès lawsuit, Rothschild likens his MetaBirkins to Andy Warhol’s renowned Campbell’s Soup Cans artwork. StockX has yet to respond to Nike’s claims.

The copyright sphere may as well be the wild west. Last year, musicians began selling ownership percentages in their songs and catalogs via NFTs, with purchasers gaining royalty rights to streaming revenues. To enforce these rights under existing copyright law, NFT buyers must ensure they are given the rights through a valid agreement with whoever owns the songs and catalogs. That’s because buying an NFT connected to a copyrighted asset doesn’t confer the copyright itself without an explicit stipulation allowing it. But this arrangement looks rare. Most NFT purchasers are likely gaining, at most, a license to display the NFT for resale.

Although NFTs have been around since 2014 and seem to embody true intellectual property, the IP world has been slow to catch up. With few examples of how rights are lawfully conferred to buyers, the trademark and copyright landscapes remain relatively bare. However, the speed at which NFTs are gaining popularity and profitability will force the government to move quickly. Only time will tell whether it will be able to keep up.

Associate Tayah Woodard works across every aspect of the clearance, prosecution, and litigation spectrum for trademark and copyright matters. Along with delivering at a high level for our clients, she champions more inclusive viewpoints in the legal space as well as a growing understanding of emerging technologies in the creative world.