Metaverse and NFTs provide enhanced intellectual property protection for brands

By: Christos Makridis

Intellectual property rights (IP) are an integral part of economic activity because they provide not only legal protection under the rule of law to inventors and creators, but also incentives for exclusive access to benefit from discovery. “U.S. IP-intensive industries accounted for 41% of domestic economic activity in 2019,” according to the US Patent and Trademark Office. Although the costs associated with fraud and piracy are difficult to quantify and detect, for the European Union (EU) counterfeit trade represents 6.8% of imports from non-EU countries, according to 2016 OECD data.

Non-fungible tokens (NFT), or digital assets used to authenticate ownership, combined with near-field communication (NFC), have the potential to reduce fraud and strengthen the protection of IP, since the sequence of activity of an asset can be traced on an immutable and public ledger, or a permissionless blockchain.

“While blockchain has been around since the 1990s, the availability of computing power was a limiting factor… but not anymore! Patent and trademark offices should look to blockchain as a way to register IP, especially as a way to stimulate entrepreneurship among startups and smaller organizations that don’t have the same resources to spend on the legal fees associated with patents and trademarks, said Michael Dorner, CEO in VariusSystems and president of the International Card Manufacturers Association.

“NFTs offer huge potential for IP licensors, licensees and regulators, mainly due to the transparency that blockchains provide. For example, if a person wants to license IP rights, an NFT-based system can give them the ability to secure a license simply by creating an NFT in accordance with that license, while completing the necessary paperwork. Given the fragmentation and black box that is today’s IP regime, this improvement in efficiency offers a promising solution,” said Jacob Robinson, host for the Law of Code podcast.

The legal landscape has established platform-agnostic precedent for intellectual property, meaning that innovations on the blockchain can be grafted into existing law. Nonetheless, without much, if any, case law yet to decide or enforce major cases involving IP on the blockchain. However, there is a growing recognition that fractures are common.

“The vast majority of NFT art projects … do not convey any actual ownership of the underlying content,” said Alex Thorn, head of research for Galaxy Digital, which involves a recently released report. “We reviewed the licenses for all the top NFT collections, and in all but one case, the issuers offer only a usage license to the NFT buyer, with varying levels of commercial rights ranging from permissive to very restrictive. In many cases, issuers less accommodating on this point, either directly or by omitting through their marketing content a widespread misconception that “you own the art,” according to the report.

Until IP can be clearly articulated to NFT holders and enforced, the decentralized vision of web3 is unlikely to scale. “Acquiring an NFT, or digital asset in the metaverse, often comes with commercial exploitation rights that allow the owner to use the image for commercial purposes, thus giving them IP ownership of the particular NFT they own. However, holders are generally not allowed to use the trademarks associated with this NFT, but that can lead to confusion, says Natalie Rebot, co-founder of the Moonlite Projector toy.

VeeFriends is an example of an NFT project that not only contains IP behind it, but also clearly communicates to the holders what they receive when purchasing an NFT. “What was innovative about VeeFriends is that it was born, created and established primarily by using NFT technology, building an audience and community of holders … it is still supported by copyright and trademarks, just like other notable and traditional IPs,” said Andy Krainak, president of VeeFriends. “VeeFriends is an IP company and we believe that experiencing the brand through events will be an important part of our DNA,” continued Krainak.

The original VeeFriends collection – born in 2021 and developed around characters imagined, drawn and created by Gary Vaynerchuk – contains 10,255 NFTs and the second iteration contained 55,555 lower-priced NFTs as of April 2022. Recently, the company’s chairman , Gary Vaynerchuk, Sivan Nadler and MyLinh Chau as Executive Vice Presidents to lead strategy and production for VeeFriends’ Experience and Events division with a mission to build custom events that deliver value to the VeeFriends community and partners through meaningful experiences – both in-person and virtually .

“We used NFT technology as a foundational layer for VeeFriends because of the inherent benefits and use cases that blockchain technology provides … establishing the provenance and legacy of ownership of VeeFriends’ NFTs, which are intended to unlock access and utility for holders/owners through events, digital and physical collectibles,” continued Krainak.

“Especially with the use of NFCs, NFTs offer significant protection for brands to prevent fraudulent activity and copying,” Dorner continued.

NFTs have the potential to track IP even better than conventional approaches because they tokenize ideas at their most granular level. Federal agencies that oversee patent and trademark applications have played an integral role in economic development over the years, but they remain centralized entities that can experience backlogs, labor shortages, among other challenges. In contrast, NFTs are published on the blockchain, meaning their contents are publicly displayed on a distributed, immutable digital ledger.