NFT: Key Trademark Considerations in the US, EU and UK | Jones Day

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Short

The situation: The current non-fungible token (“NFT”) market presents exciting new opportunities as well as important considerations for brand owners, including when digital creators craft NFTs that copy “real-world” trademarks. In this second of two Jones Days Comments exploring the interplay of intellectual property with NFTs, the focus is on brands.

The result: Brand owners, sellers, and potential buyers should be aware of the potential brand and trademark risks associated with the current NFT market, and owners may also consider collaborating with NFT creators to assert control or enhance their brands. .

Look forward: Current trademark law in the US, EU and UK will have to be tested in court to determine how existing laws will apply in this new context.

NFTs are verifiable cryptographic tokens, which can act as a form of digital receipt. NFTs can also be used to prove authenticity, ownership, and provenance of real-world tangible items, such as artwork and real estate, or digital files that include an image, GIF, or tweet. . Some brand owners have recently seen their brands and products used in this digital environment, including in NFTs created by third parties, which were then made available for commercial sale.

While some trademark owners are pursuing lawsuits to enforce these unauthorized uses of their marks, others are finding creative solutions through innovative business deals, including collaborations with digital artists, to assert control or enhance their marks. in this emerging market. In particular, trademark owners may encounter practical difficulties in terms of identifying trademark infringement and then taking enforcement action, given the growing number of NFT marketplaces. Furthermore, the creation, sale and trading of NFTs are often not regulated by local laws, and the transaction is recorded on a decentralized public database which will not normally identify participants other than by the address of the portfolio, which makes monitoring and enforcement exercises even more complex. for rights holders.

KEY BRAND CONSIDERATIONS

As explained in our related article Remark on NFT copyright issuesbuying an NFT is buying an authentication of ownership of an asset as a digital file, but this does do not necessarily transfer ownership of the underlying asset itself. NFTs come in many different forms (and ownership terms vary), but the rest of this article focuses on the most common current use case, where a purchaser of NFTs will acquire a license allowing non-use rights. materials and a digitally authenticated certificate that verifies ownership of the digital file.

Unauthorized branded NFTs

Unauthorized NFTs that use trademarks are subject to trademark infringement claims under US, EU and UK laws if there is commercial use of a similar or identical trademark. As for copyright (see Related Remark), the use of a mark in the form of an NFT presents new challenges for the courts.

Hermes c. MetaBirkins. In December 2021, Hermès, which owns the rights to the famous “Birkin” handbag design, filed a lawsuit against digital designer Mason Rothschild, claiming he violated Hermès’ trademark rights by creating and by selling NFTs for so-called “MetaBirkins”. “—digital handbags in the same shape as Birkins but depicted in faux fur and garish colors, creating an overall impression quite different from the real Hermès Birkins.

Given that other luxury brands such as Louis Vuitton, Gucci and Balenciaga have recently started experimenting with virtual offers, including NFTs, and the first MetaBirkin sold for a whopping $40,000, it is not fanciful for Hermès to claim that consumers are likely to be confused as to the source of the MetaBirkins. Hermès also argued that the MetaBirkins improperly took advantage of the reputation of the famous Birkin brand, thereby further infringing its trademark rights.

To the extent that other artists seek to create NFTs featuring works inspired by or imitating luxury fashion brands, litigation remains likely. However, not all rights holders choose this route. Some instead turn the violation into an opportunity. For example, following NFT artist Trevor Andrew’s initially unauthorized use of Gucci’s famous “double G” monogram, the luxury fashion house is now collaborating with the artist on future exhibitions, illustrating an opportunity potential (and solution) for companies to retain control of their intellectual property. real estate in the digital space, via innovative commercial arrangements.

Unfair competition and deception

There are also broader issues to consider for both trademark owners and creators of NFTs. Creating an NFT of an underlying copyrighted or trademarked work without the prior consent or knowledge of the owner of the work may result in reputational damage, misrepresentation, or exploitation of the goodwill of the owner in the brand work. In this way, NFTs could be a vector for anti-competitive or imitation behavior, which brand owners will have to take into account.

PRACTICAL IMPLICATIONS OF THE APPLICATION

There is no simple solution to deal with unauthorized NFTs. In Hermes c. MetaBirkins, the NFT marketplace they were originally listed on, OpenSea, removed the MetaBirkins from its platform. However, the creator of NFT simply continued to sell them on a different marketplace, Rarible.

Given the growing number of NFT marketplaces, the continuous monitoring of unauthorized use places an immense burden on trademark rights holders. Furthermore, the creation, sale and trading of NFTs are often not regulated by local laws, and the transaction is recorded on a decentralized public database which will not normally identify participants other than by the address of the portfolio, which makes monitoring and enforcement exercises even more complex. for rights holders.

To ease the burden and increase the likelihood of enforcement success, rights holders interested in entering the NFT market should proactively enhance their trademark protection by promptly filing new trademark applications including coverage of NFTs (and potentially other forms of digital assets) in key jurisdictions.

CONCLUSION

While some commentators wonder if the current NFT boom can last, it is likely that NFTs will continue to present unique IP issues and opportunities in the near term. Nike, for example, has started using NFTs as a method of verification against counterfeit shoes, while other multinationals seek to monetize their brand in the form of NFTs. Other global companies are exploring whether NFTs can be used to provide traceability and supply chain assurance to customers.

As the online business of buying and selling NFTs progresses and the digital asset space evolves, it will be interesting to see how courts apply existing and longstanding principles of intellectual property law to the new NFT support.

Three takeaways

  1. NFTs create new opportunities for brands in terms of multi-channel revenue streams, increased brand visibility among younger audiences, and the ability to control the terms of any negotiation through smart contracts. However, trademark owners should also be aware of the risks of trademark infringement in the NFT market and proactively update trademark filings to cover NFTs and potentially other forms of digital assets.
  2. Courts should not deviate from well-established trademark principles when applying trademark law to the NFT context, but these principles will need to be tested against this new form of digital asset.
  3. Brand owners should actively monitor and consider enforcing their rights in the NFT space.
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