NFT (Non-Fungible Token) was made the word of the year by Collin’s Dictionary in 2021 beating out popular phrases such as “double-vaxxed” and “hybrid-working”. As the name suggests, NFTs are a token that grants ownership to the user of the intrinsic items on the blockchain.
NFTs especially have become a hot topic among the public with many vehemently criticizing the monetization as well as the conversion of art pieces to mere tokens that can be accessed digitally. A mere tweet by Jack Dorsey was sold for a staggering price of $2.9 million and PAK’s The Merge is the priciest NFT sold with a whopping $91.8 million.
In the constantly evolving world of intellectual property rights, these tokens add new facets and unprecedented legal issues. There is no specific legislation in India as of yet pertaining to the implications of digital assets on IP laws and their relationship remains vague and ambiguous.
What are NFTs?
NFTs can be understood as digital assets that can be bought and sold virtually, with the transaction primarily taking place through cryptocurrencies. The first-ever NFT named “Quantum” was minted in 2014 however, there still exists a lacuna in the law pertaining to their regulations keeping in mind the implications emanating from the same.
Fungible means replaceable, therefore, unlike prominent cryptocurrencies like Bitcoin, Ethereum, etc. that are used for facilitating commercial transactions, they are easily distinguishable. NFTs are minted as opposed to being created on the Ethereum blockchain, which constitutes a decentralized peer-to-peer network of host computers.
A wide range of objects such as virtual real estate, GIFs (NyanCat being a prominent example), artworks, etc can be converted to NFTs. The buyer gets to own a specific digital product with a limitless supply. NFTs allow us to make a line of distinction between a copy and an original digital asset hence, transforming digitally accessible content into unique assets that can be easily verified, valued, and exchanged without any hassle.
NFT investors are primarily motivated to see the potential monetary gains of selling the tokens at a later date. On the contrary, many analysts have perceived NFT as a bubble that could burst at any given point in time.
What are Trademarks?
Historically, Indian craftsmen used to engrave their signatures on their art pieces before selling them which would serve as an identification mark for that artist’s work. A trademark can be easily understood as a distinct, recognizable design, expression, logo, colour, or even a melody affiliated with the products and services offered by a brand.
A prominent example would be the McDonald’s golden arches logo on the packaging and the popular “I’m Loving It” jingle that distinguishes itself from the products offered by other companies. Similarly, every company has some sort of a symbol to distinguish itself from its competitors and to prevent products from being counterfeited.
Do NFTs coincide with previously existing trademark protections?
The gist of intellectual property laws is to give proprietary rights to one and exclude ownership from others. In the digital landscape, NFTs can be bought by anyone since there is no limit to its supply and can easily be authenticated by any individual to ensure it is an original copy worth more than a mere downloadable copy available on the internet
As far as NFTs are concerned, artists no longer need to rent galleries to showcase and sell their work, as the digital platform has made it much easier to program smart contracts. With each sale, the artist would get a certain stipulated amount of money. This has been a prominent factor for more and more artists being attracted towards entering the NFT arena. The artists retain their IP rights over the product and the buyer only gains ownership of the work.
NFT has emerged as a new marketplace for trademark owners and could serve as an effective instrument in dealing with counterfeited products since all the transactions would be recorded on the blockchain and the product can be authenticated through the metadata file.
As we inch one step closer towards the metaverse, renowned brands such as Walmart have filed trademarks for selling products virtually. Meanwhile, Coca-Cola launched NFT collectibles last year. However, various legal disputes have arisen on whether NFTs can be created and capitalized upon without seeking prior permission from the trademark owners.
Ongoing lawsuits against NFT creators
The following lawsuits highlight the issue emanating from an overlap between NFTs and the trademark owners.
Hermès International v Mason Rothschild
Hermès, a French luxury brand, recently became the first well-known company to file a lawsuit over the infringement and dilution of their trademarks in the metaverse against the creator of the MetaBirkins NFT. The NFT constitutes a recreated Hermès handbag. A cease-and-desist letter was sent to the creator on the charges of being a digital speculator and profiting off the company’s products. The firm has sued for an injunction against the NFTs, transferring the project website name to Hermès, destroying minted samples produced previously, along with damages.
The counterfeit Hermès bags in the Metaverse.
However, Hermès having trademarked its leather goods particularly their handbags, the NFTs created would not fall within the purview of the leather goods. It has been further argued that the NFT is covered in fur and constitutes an artistic expression that does not mislead consumers, and would be protected by the First Amendment.
Miramax LLC v Tarantino
Another lawsuit has been filed against renowned director Quentin Tarantino for infringing the company’s trademarks as well as copyrights with his NFT collection and misleading consumers. The NFTs were derived from “Pulp Fiction” that he wrote and directed back in 1994.
The issue in this particular case is whether NFTs would fall within the purview of “pieces” of the screenplay that Tarantino has the right to publish. It could become a precedent for many to perceive that copyrighted works such as films could potentially be recreated and monetized via NFTs and other emerging technologies.
Nike v StockX
Nike has also filed a lawsuit against virtual resale platform StockX on similar charges of violating their trademark. The main dispute is the ambit of the Vault NFTs and whether they would be considered as digital receipts or as a separate product owing to their potential of getting resold multiple times.
Conclusion: The Way Ahead
Blockchain technology does provide an accessible and secure platform however, the authenticity of the seller cannot be ascertained. It becomes imperative to extend rights to prevent counterfeit products with the objective of protecting both the proprietor and the buyer.
Combined with the lack of legislations and precedents, the realm of NFTs has not been contemplated by the legislature and remains a grey area. There is a dire need for the courts to resolve the conundrum and settle the position of conventional IP rights vis-à-vis NFTs and the virtual space.
It is disputed whether a trademark owner would also have exclusive rights in the digital realm and subsequently, the enforcement of these rights. An optimal solution would be to give legal recognition to NFTs and incorporate them within the ambit of uses in the registered trademark applications. Failing to do so could lead to heavy losses for the brands.
Author: Ria Verma – a student of Symbiosis Law School (Noida) in case of any queries please contact/write back to us via email chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.
