What do Trademark Attorneys Need to Know About NFTs?
Moish Peltz | March 29, 2021
Moish E. Peltz, Esq is a Partner at Falcon Rappaport & Berkman PLLC where he chairs the firm’s Intellectual Property Practice Group. Moish focuses his practice on intellectual property and business law and aims to help companies grow their businesses and brands. Moish also supports FRB’s Commercial Litigation and Emerging Technology Practice Groups. Moish’s practice encompasses both transactional and business litigation matters. His practice also focuses on U.S. and worldwide trademark prosecution and enforcement, including litigation before the Trademark Trial and Appeal Board (TTAB).
Introduction
Trademark attorneys accustomed to working with clients on the cutting edge should be getting prepared to handle questions regarding blockchain, cryptocurrencies, and NFTs. NFTs, or “Non-Fungible Tokens” are digital files with a unique identity that is verified on a blockchain. The simplest way to conceive of an NFT is as a digital collector’s item, like a baseball card or comic book. However, NFTs also have the potential to be so much more. For that reason, trademark attorneys will increasingly need to “speak” crypto to keep up with their clients.
Overview of Blockchain, Cryptocurrency and NFTs
A blockchain is a type of distributed database that stores information in ‘blocks’ of data that are linked together. A decentralized blockchain, like Bitcoin’s, is run in such a way that no single person is in total control, and the blockchain operates in a peer-to-peer setting. This allows the entire history of the blockchain, or the “ledger,” to always be accessible. This also makes the ledger resistant to modification, because each subsequent block in the blockchain confirms all preceding blocks and transactions.
The blockchain allows digital currencies like Bitcoin and Ethereum to transact on top of it. The permanent record of the blockchain prevents double spending of cryptocurrency without the need for a centralized banking system.
In addition to cryptocurrencies, some blockchains also allow ‘smart contracts’ – a type of computer code – to be executed on the blockchain. This enables computer applications to ‘run’ on a public blockchain, instead of a private computer. In turn, this allows the creation of both fungible and non-fungible tokens (NFTs), as well as other potential uses not relevant to this discussion.
“Fungible” tokens are very similar to Bitcoin or other cryptocurrencies, except that they run on top of another blockchain. Fungible tokens may be unique, but are interchangeable. Think of them like a dollar bill. If someone owes another person one dollar, they can pay with any dollar bill, or any four quarters. The dollar bill has a unique serial number, but the dollar is “fungible” — any equivalent amount of currency will settle the debt.
Unlike ‘fungible’ tokens, NFTs are ‘Non-fungible’ because each NFT is somewhat unique (at least in theory). NFTs can represent a one-of-one “original,” such as a unique work of art. NFTs can also represent one of a fixed number of copies in a limited series. In fact, NFTs can represent almost any real or intangible property, including artwork, music, videos, collectibles, trading cards, video game virtual items, or even a debt or real estate. In sum, an NFT is the digital version of a certificate of authenticity, embodied in the blockchain.
NFTs can be bought or sold in auctions, or in marketplaces based upon the principles of supply and demand. Released in 2017, CryptoPunks are considered one of the earliest examples of NFTs on the Ethereum blockchain, with many of them originally being given away for free (and now selling for millions of dollars). Lately, NFT marketplaces (such as OpenSea, Rarible, or NBA Top Shot) have exploded with activity, with millions of dollars being paid for single digital collectibles. Even the esteemed auction house Christie’s has gotten on board with the sale of Beeple’s EVERYDAYS: THE FIRST 5000 DAYS for an astounding $69 million.
You may have difficulty understanding the technology, but in the meantime, NFTs are here, and trademark attorneys should be prepared to start receiving questions from their clients about NFTs and other blockchain-related technologies.
Trademark Applications for NFTs and other Blockchain Technologies
Trademark attorneys should be prepared to submit trademark applications for blockchain-related goods or services, including NFT and cryptocurrency services. Already, there are more than 1,400 registered trademarks including ‘cryptocurrency’ or ‘crypto.’ There have been at least 230 trademark applications including the word “Bitcoin” and at least 23 trademark applications including the word “Ethereum.”
For example, even though Ethereum is open source computer software (licensed pursuant to the MIT License), the Ethereum Foundation (Stiftung Ethereum) has obtained U.S. Registration Number 5,917,275, for ETHEREUM , which includes the services of “Computer application software for blockchain-based platforms” in Class 9 and “Cryptocurrency services, namely, providing a digital currency or digital token for use by members of an on-line community via a global computer network” in Class 36. The Ethereum Foundation naturally states in its terms of use that its trademarks may not be used “without the prior written permission of the Foundation.”
Given that there are nearly 9,000 distinct cryptocurrencies (according to CoinMarketCap), an ever increasing number of them will likely seek trademark protection. Additionally, there are trademark registrations for centralized exchanges, including U.S. Reg. No. 4,567,878 for COINBASE in Class 36 for “digital currency exchange transaction services”; and U.S. Reg. No. 5,995,890 for HUOBI GLOBAL in Class 42 for “Platform as a service (PaaS) services, featuring computer software platforms for the exchange of cryptocurrency.”) There are also “decentralized” exchanges, such as UNISWAP, which has registered U.S. Reg. No. 6,177,986 for “Online trading and exchange for cryptocurrency, digital currency, virtual currency, blockchain enabled currency, and related assets.” There are also trademarks for cryptocurrency “wallets,” for example, METAMASK for services including “… Computer software that provides a user interface for managing digital identities and for signing blockchain transactions … ” in Class 9. See U.S. Reg. No. 5,507,510.
Lately, the trend of blockchain-related filings has extended to NFTs, where for example, Opensea, which calls itself “The largest NFT marketplace” received trademark registrations in Class 35 for services including “providing an online marketplace for buyers and sellers of crypto collectibles” and in Class 42 for services including “creation of online retail stores for others in the nature of web-based service that allows users to create hosted crypto collectible and blockchain-based non-fungible token stores.” See U.S. Reg. Nos. 5,797,815, 5,797,816. NBA Properties, Inc. even applied for registration of NBA TOP SHOT for “Downloadable virtual goods, namely, computer programs for the creation and trade of digital collectibles using blockchain-based software technology and smart contracts, featuring players, games, records, statistics, information, photos, images, game footage, highlights, and experiences in the field of basketball.” See U.S. Application No. 88/550,320.
As larger and more sophisticated companies enter the cryptocurrency space, they will have a greater need to protect their brands by seeking trademark protections for the blockchain- and cryptocurrency-related services they offer. Given the potential instant availability of these services on a global scale, enterprising trademark attorneys will increasingly have the opportunity to represent these companies and help them navigate these emerging uses in an international and competitive landscape. Trademark attorneys and monitoring services will have to be mindful as potential rivals (many anonymized and foreign-based) inch on to their client’s digital turf.
Licensing Considerations
Attorneys that represent IP owners need to help their clients think through potential opportunities and risks associated with licensed use of their IP on the blockchain, including NFTs. Since NFTs are a relatively recent phenomenon, few IP owners will likely have considered NFTs within existing licenses, leaving open questions as to whether IP rights subject to those existing licenses can be used within the NFT ecosystem.
Going forward, attorneys that represent brands and IP owners will need to consider whether they will allow their IP to be used for NFT uses, and if so, what guardrails will go along with that grant. Licensing arrangements should consider the method by which an NFT including licensed IP will be created (or ‘minted’). Selecting the right NFT platform will be critical for alignment with relevant IP protections. Licensors may also wish to control how many NFTs will be able to be created (in order to protect some sense of value that may come from it being a limited edition). Licensors will also need to decide how royalty payments will be administered, including accounting for the potential for royalties upon the resale of the work, one of the technological advances allowed for by NFTs. Other more traditional licensing clauses will need to be considered in a new light, such as the contours of a marketing campaign, the form of attribution, and even dispute resolution.
Policing Brands on the Blockchain
Just as in any other area, trademark attorneys will need to be mindful of monitoring their clients’ brands and IP in the context of novel blockchain uses, including NFTs. For example, after DC Comics discovered that one of their freelance artists sold an NFT featuring Wonder Woman for nearly $2 million dollars without their authorization, they immediately sent out a letter to all of their freelancers stating that such sales are not permitted without authorization (while also stating that they were working on developing an NFT platform of their own). Other artists have already reported finding that their art has been copied and sold as NFTs without their knowledge or consent.
As always, early registration of IP, including trademarks, copyright, and patent protection may allow brands and IP owners to better control and monitor uses of their IP on the blockchain. Some NFT platforms appear to provide an avenue for trademark and DMCA-style takedown notices. While others may not yet have appropriate avenues to make formal IP complaints or may be non-responsive. Trademark attorneys already well know the difficulties of international enforcement, and those obstacles are only made greater on the blockchain where potential infringing actions might also be decentralized and pseudonymous.
NFT and Blockchain Risks
Attorneys that represent brands and IP owners must become aware of not only the opportunities, but also potential risks inherent in the marketplace. As with any other marketing or advertising campaign, things can go wrong, which may negatively impact the value of a brand or IP, especially on the blockchain where transactions may largely be irreversible. Attorneys should also be mindful of the fact that (in the absence of further guidance), there is significant regulatory and compliance risk associated with these activities. For that reason, it is important to think through possible consequences and downside risks that come hand-in-hand with a client’s involvement in this new and exciting technology.
Conclusion
Blockchain and NFTs present exciting new opportunities for IP attorneys to work with their clients to engage new audiences and grow their brands on a global scale. There is also a steep learning curve, with uncertain and indeterminate consequences. In the meantime, IP attorneys should strive to keep up with new developments in the blockchain and NFT space, which have only just begun.