Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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Intellectual Property and NFTs: What you need to know
Herbert Smith Freehills | Jul 25, 2022
Non-fungible tokens (NFTs) are one of the hottest intellectual property (IP) topics currently. NFTs can be used simply for marketing purposes or as a new form of asset to attract investment or as part of the transfer of products and services into the metaverse.
This new asset class has exploded across all sectors and raises some interesting challenges from an IP perspective. While NFTs have demonstrated themselves to be a powerful tool in the new digital era, they remain poorly understood.
NFTs can refer to or contain valuable intellectual property rights, for example, digital artwork, branded goods, or logos. Ensuring intellectual property rights are protected and respected should be a paramount consideration in NFT projects.
Releasing NFTs can give rise to a number of IP-related issues, such as:
- Who has the right to create and release NFTs
- Does the NFT infringe third party rights
- What rights are transferred with the NFT (and on resale)
- How this rights transfer is achieved
See: UK Court recognizes NFTs as ‘private property’
Even if there is no intention to create and release NFTs, brands must be vigilant to protect their IP in the metaverse and new web3 economy. Any strategy could include monitoring of key marketplaces and platforms, defensive registration of domain names (including the new Ethereum Name Service) and trade marks in new digital classes, and developing policies to employ if infringement is detected.
The quintessential use case for NFTs, to date, has been the sale and trade of digital assets like art, design and digital fashion. NFTs create scarcity for a digital asset that otherwise, because of their digital nature, would be capable of infinite dissemination.
The ability of NFTs to provide provenance over digital assets has also transferred into the real-world, and it is now common to see NFTs that are associated with physical products. For example, brands can now sell an NFT which is redeemable for a physical product (such as fine wine or sneakers), which creates a convenient market for the trade of those goods. The NFT also functions as an anti-counterfeiting tool to disrupt unlawful activities and tackle infringing copying of goods.
Misconceptions around the transfer of rights
The same is true of NFTs: the NFT is just a ‘certificate of authenticity’ for the digital asset, it does not intrinsically transfer any IP rights to the digital asset itself to the purchaser of the NFT. This has parallels to fine art, where the acquisition of a painting does not give the purchaser any right to the underlying copyright in the painting itself (unless there is an agreement with the copyright holder that specifies otherwise, or in some cases where the painting is a commission).
See: NFT Boom Will Surely Lead to Questions Over Copyright, Control and Plagiarism
Accordingly, as the default case, the purchase of an NFT does not assign (transfer) copyright or other IP rights to the purchaser. This default position can be amended by contract in a number of ways:
- the ‘smart contract’ by which the NFT is minted may contain provisions related to IP rights.
- the creators of the NFT may attempt to define the IP rights in relation to the NFT, before or after the sale of the NFT.
- The smart contract that is currently most commonly used for NFTs on the Etherium blockchain is known as the ERC-721 standard, which does not contain any special rules in relation to IP. A different smart contract, known as EIP-721, specifies that “Copyright and related rights waived via CC0“, with the reference to CC0 meaning that ‘creative commons’ is intended to apply to the NFT and the underlying digital asset, and that IP rights are waived on minting.
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