IP and NFTs: Where are we? – Trademark

Famed director Quentin Tarantino and production company Miramax settled their Non-Fungible Tokens (“NFTs”) infringement lawsuit before the US District Court for the Central District of California could consider the merits of the claims, leaving us with far more questions than answers when it concerns the development of intellectual property rights around this trendy new technology.

In fact, the directors of the US Patent and Trademark Office and the US Copyright Office are conducting a joint study to resolve the various interests at play, after promising sens. Thom Tillis and Patrick Leahy that they will deliver findings by June 2023. Meanwhile, several other federal district courts are grappling with how to apportion value in the context of digital marketplace transfers.

Here’s what you need to know about where things stand:

The problem lies in the fact that NFTs have not found their place within the 232-year-old (albeit evolving) framework of the US Copyright Act. It’s also not clear whether — or how — NFTs could trigger liability under the 76-year-old federal Lanham Act, which governs trademark infringement and unfair competition.

NFTs are units of data stored on a blockchain that indicate ownership of (supposedly) unique digital media items. They are sold and/or traded in connection with “smart contracts” that govern the conditions for transfer. But NFTs are separate and distinct from the digital items they are intended to authenticate, making it extremely difficult to assign ownership rights to the various intellectual property rights derived from the sale of each NFT.

In this context, the joint federal agency study is intended to address a number of key questions, including:

• Acquisition of rights: Who owns what if the NFT creator is a different person or entity than the creator of the underlying asset?




• Transfers of rights: How does the transfer of an NFT affect IP rights in the associated asset?




• Licensing of rights: How should IP rights in the associated asset be licensed in an NFT context?




• Infringement of rights: What is the correct infringement analysis where an NFT is linked to an asset covered by third-party IP? Or where the NFT creator also owns the IP in the underlying asset, and the asset is infringed by a third party?




• Remedies: Are current statutory protections sufficient to protect rights holders in NFT marketplaces?

Several lawsuits alleging various copyright, trademark, unfair competition and breach of contract related to NFTs have been filed in New York and Los Angeles over the past year and a half, but have either settled or are still pending humble beginnings, leaving us with a lack of case law on the questions:

May 2021: French luxury brand Hermès sues artist Mason Rothschild for trademark infringement based on Rothschild’s sale of NFTs related to digital images he had created of handbags he called “MetaBirkins”. Rothschild lost its motion to dismiss and is seeking certification of a preliminary injunction.
Hermes Int’l et al. v. RothschildCase No. 1:22-cv-00384, US District Court for the Southern District of New York.

June 2021: Roc-A-Fella Records sues its co-founder Damon Dash, alleging that Dash’s attempt to stamp Jay-Z’s album “Reasonable Doubt” as an NFT constituted illegal conversion of the copyright to the album owned by Roc-A-Fella . The court granted a temporary restraining order against Dash, and the parties subsequently settled. Roc-A-Fella Records, Inc. v. DashCase No. 1:21-cv-05411, US District Court for the Southern District of New York.

November 2021: Miramax sues Tarantino based on Tarantino’s sale of NFTs for a collection of digital images of portions of the original handwritten version of the script for Pulp Fiction, which implies both copyright and trademark rights. In this case, beyond pure IP issues, the parties disagree on the interpretation of Tarantino’s original contract with Miramax, in which he reserved all rights for print publication of the screenplay (including in digital form). On 8 September 2022, the parties submitted a notice of settlement. Miramax, LLC v. TarantinoCase No. 2:21-cv-08979, US District Court for the Central District of California.

January 2022: Rapper Lil Yachty (real name: Miles Parks McCollum) sues NFT seller Opulous for trademark infringement based on Opulous using his name and likeness as part of a “Lil Yachty NFT Collection” promotional approach to his new music . The defendant was unsuccessful in challenging personal jurisdiction and recently filed its answer to the complaint. Miles Parks McCollum v. Opulous et al.Case No. 2:22-cv-00587, US District Court for the Central District of California.

February 2022: Nike sues online retailer StockX for trademark infringement based on StockX’s sale of limited-edition Nike sneaker NFTs that include images of the sneaker. The case is in the discovery phase. Nike, Inc. v. StockX LLCCase No. 1:22-cv-00983, US District Court for the Southern District of New York.

June 2022: Yuga Labs, the company behind the famous NFT collection known as “Bored Ape Yacht Club”, sues artist Ryder Ripps for trademark infringement. According to Yuga Labs, Ripps used Yuga Labs’ trademarks to entice consumers to buy their own NFTs. Ripps recently filed a motion to strike or, alternatively, to dismiss, which itself was struck down by the court. Yuga Labs, Inc. v. RippsCase No. 2:22-cv-04355, US District Court for the Central District of California.

The only meaty legal opinion to come out of any of the above cases so far has been Judge Jed. S. Rakoff’s May 18, 2022 order denying Mason Rothschild’s motion to dismiss Hermès’ trademark claim. While the order does not resolve any of Hermes’ merits claims, it provides a first glimpse of how courts may treat trademark claims involving NFTs going forward.

In his motion, Rothschild argued that he was using “MetaBirkins” as a title for an artistic work as opposed to a source-identifying trademark. Therefore, it constituted free speech protected under the First Amendment according to the Second Circuit’s main case Rogers v. Grimaldi875 F.2d 994 (2d Cir. 1989). Rogers held that use of a trademark in connection with a work of art does not constitute infringement if the mark is “minimally artistically relevant” to the product and use of the mark is not “explicitly misleading” as to content, authorship, sponsorship or endorsement. 875 F.2d at 1005.

Key to Rothschild’s argument was the fact that although he sold each image with a unique NFT identifier, the NFTs were separate from the underlying work and labeled numerically as opposed to using the name “MetaBirkins.” So even if it was the NFTs themselves that fetched prices comparable to real luxury handbags, Hermès’ infringement claim would necessarily have to be about the unauthorized use of the mark for the underlying artwork. For Hermès, the artwork and NFT “merchandise” became intertwined, given Rothschild’s use of “MetaBirkins” to sell other products and operation of digital storefronts and marketing campaigns with the name.

Judge Rakoff rejected Rothschild’s motion based on the fact that Hermès had sufficiently alleged that the “MetaBirkin” label was explicitly misleading under the Ninth Circuit’s likelihood of confusion factor, and therefore could potentially survive a Rogers challenge. He refused to weigh in on the other Rogers factor, however: whether “MetaBirkin” qualified as artistically relevant. Hermes’ claim that Rothschild “entirely intended to associate the ‘MetaBirkins’ brand with the popularity and goodwill of Hermès’ Birkin brand, rather than intending an artistic association” was sufficient to defeat a motion to dismiss .

Judge Rakoff observed that the use of NFTs in connection with the underlying work should not automatically deprive the work of artistic significance. He agreed with Rothschild that the fact that the NFT’s status as a marketplace commodity itself should not necessarily be wrapped up in the value of the artwork it authenticates: “because NFTs are simply code that points to where a digital image is located and authenticates the image, using NFTs to authenticate an image and enable traceable resale and transfer does not make the image a commodity without First Amendment protection any more than selling numbered copies of physical paintings for the purpose of Rogers.”

Other courts, and perhaps even the USPTO and the Copyright Office, will likely look to Judge Rakoff’s initial guidance as a foundation for this newly developed area of ​​intellectual property going forward. Meanwhile, the lines remain blurred between creative freedom, artistic value, fair use, ownership, market competition and commercialism in the digital age – at least with respect to NFTs.

The content of this article is intended to provide a general guide to the subject. You should seek specialist advice about your specific circumstances.