NFT Company seeks to use protection secrets | Seyfarth Shaw LLP
A non-fungible token (“NFT”) is a type of financial asset that consists of digital data stored in a blockchain. Ready as mud, right? The person or entity that owns NFT registers the ownership in the blockchain, which allows NFTs to be sold and traded. NFTs usually consist of digital files such as photos, videos and music. This can even be extended to internet viral memes, such as Disaster girls, which became an NFT worth $ 401,718.00. The market value of NFT is directly linked to the digital file it represents. And more critically, each NFT is uniquely identifiable, so in that way it is different from a cryptocurrency that is fungible.
As a result, NFTs and companies that market their sales and trade become more common in the market. And because of the unique aspects of the industry, including the technology that facilitates the sale and trade of NFTs, it is ripe for the protection of trade secrets under the law. On May 16, 2022, the NFT wallet company Banq, Inc. filed a lawsuit in the United States District Court for the District of Nevada, Case No. 22-cv-00773, against three former high-level executives – specifically, Chief Technology Officer and the Chief Product Officer – who, among other things, alleges violations of the Nevada Uniform Trade Secrets Act (“NUTSA”), which is in compliance with both other states that have passed the Uniform Trade Secrets Act, and the Defense Trade Secrets Act (“DTSA”). The complaint alleges that the leaders stole confidential, trade secret information before terminating employment with Banq, Inc. to launch two rival NFT platforms – Fortress NFT and Planet NFT (also called Defendants).
The lawsuit alleges that the defendants “stole not only Banq’s technology but also significant other valuables from Banqs, and used the meandering property to launch Defendants Fortress NFT and Planet NFT using Banq’s assets, employees, trade secrets and proprietary technology, and claimed everything this to be their own. “Even worse, the complaint alleges that the defendants engaged in fraudulent activity by trying to cover up their fraud, deleting electronic files and records in violation of the law on data fraud and misuse. Based on the complaint, the majority of the defendant’s dishonesty between August and December 2021.
The filing of this case, and its final outcome to be determined, is important for several reasons. First, as it is well established, trade secret owners must make reasonable efforts to protect the secrecy of their trade secrets – it is a proactive, not a reactive endeavor. Failure to do so may void the legitimacy of asserting trade secret status by promoting a claim for embezzlement. In the complaint in particular, Banq., Inc. states that “for information and belief” the former leaders signed confidentiality statements, and therefore obviously does not add any such agreements to their claim. Although this fact alone does not ring the death knell for the plaintiff’s allegations, it will be interesting to see how the plaintiff proves the facts to establish trade secret status under the statutory definition of a trade secret. Furthermore, as NFTs continue to evolve and join the competitive marketplace, the inherent technological nature of NFTs sales and trade will make it crucial for companies to ensure adequate safeguards regarding their trade secrets, which go far beyond just making employees sign confidentiality statements.
