One of the side effects of the global pandemic of a single medical topic is that most of us have somehow slept through the emergence of a new topic and the new global market.
The infamous virus has also managed to overshadow the fact that the non-fungible token market had a record turnover of a staggering $40 billion, with the most expensive NFT being a piece of digital art called “The Merge” bought for an impressive $91.8 million (yes it is an 8-digit number!). The sale of this digital, fragmented artwork created by an artist with the pseudonym Pak (author or group of authors unknown), has made Pak the highest paid living author in the world. What’s really confusing is that a digital record of, say, an image, which anyone can save for free with a right-click on the desktop and set as desktop wallpaper, was sold in units to 28,983 collectors, reaching the incredibly high price and leaving behind the masterpieces of the world’s greatest and most renowned painters and artists. What is the secret and what did collectors get for the sum of 91.8 million dollars?
Image credit: Pak/@muratpak/Twitter;
By now, most of us know the basic definition of an NFT, essentially a digital asset stored on a blockchain network where the owner information is entered, making each one unique.
So, the group of anonymous buyers of the most expensive NFT in history, “The Merge”, have purchased a unique immutable digital record inscribed in a blockchain that will forever have their names inscribed as the entity’s purchasers of that certificate, despite the fact that we can all freely and without fear of legal consequences copy the same digital image countless times to use on our smartphones or laptops.
In fact, we now often witness the conversion of famous artworks, videos, sports jerseys, various memorabilia or well-known brands into NFTs, without the authors or trademark owners themselves knowing that their artwork or their brand has become an NFT and that someone else is making money from it the.
So, what is the relationship between NFTs and IP in general? We will try to answer that question in this article, focusing specifically on the impact of NFTs on trademarks, while a more detailed exploration of how NFTs relate to copyright can be found in a separate article that forms part of this NFT -related series, titled NFTs and the Copyright Dilemma.
Is NFT a risk or a new opportunity for brand owners?
The answer to this question is not at all simple as it largely depends on the technology behind NFT (a blockchain) as well as the Smart Contracts that are an integral part of the creation of NFT. When concluding a Smart contract, the two contracting parties (the creator/seller of the NFT and the buyer of the NFT) define in advance how they want to regulate their relationship (for example, whether they transfer the copyright in its entirety or not), and these Provisions in the smart the contract is then transferred to the data code on the blockchain platform.
It is quite certain that in the rapidly growing emerging market, there are many cases of yet undetected infringements not only of copyright but also of trademark rights. Namely, many digital artists try to “free ride” on the well-known status or the good reputation of certain trademarks, thereby not only changing the values behind the chosen brand, but also misleading the public about NFT as a result of a collaboration between the artist and the trademark owner.
Now, what are the real legal options for a trademark holder in these cases given the specifics of the technology behind an NFT?
After all, the coin always has two sides, the good side and the less good side. Practice so far has shown that due to blockchain technology, once the offending NFT is created, it is extremely complicated (although theoretically possible) to remove it from the blockchain since it requires the simultaneous operation of thousands and thousands of computers and a lot of electricity . energy, so that it actually becomes economically unprofitable for everyone involved in the process.
This effectively means that a trademark infringement itself will forever remain written in the blockchain chain and remain unresolved. Namely, even if a trademark holder buys out the infringing NFT and becomes its holder, the information about the original source of the NFT cannot be changed in the blockchain.
However, on a positive note, trademark holders who believe there is trademark infringement can address the issue to the NFT Marketplace with a request to remove NFTs that do not have the consent or approval of the trademark holder. Nevertheless, this process would be improved if the NFT marketplace itself were to screen any potentially trademark-infringing NFTs by requesting proof of trademark owner consent from the creator of the NFT before enabling the sale. In this way, trademark infringement through NFT would be drastically reduced and much easier to control.
This is best illustrated in two high-profile cases that occurred this year. One case regarding the digital artwork “Guccighost” (Gucci vs Trevor Andrew) which started as an infringement of Gucci’s intellectual property rights but continued as a collaboration between the parties, and the other concerns the digital artwork “MetaBirkin” (Hermès vs Mason Rothschild) where Rothschild created and sold 100 NFTs linking to images of Hermès’ famous Birkin bag covered in faux fur and other designs, claiming that he has the right to create and sell art depicting Birking bags, which he intended as commentary on the fashion industry. The case is still ongoing.
On the other hand, many brand owners see NFTs as an innovative way to approach new and younger audiences. This trend is evident from the data of the USPTO, where in 2020 there were only 3 trademark applications related to NFTs, while in 2021 there were a total of 1421 applications, and this year approximately 15 new applications are submitted every day!
Among these new NFT trademark applications, the world’s biggest brands such as McDonalds, Nike, Walmart, L’Oreal, Gucci and Ralph Lauren are in the lead. By analyzing their applications, it is clear that they all apply for their well-known or recognized trademarks for virtual goods and services in classes 9, 35 and 41 (Nice Classification), thus achieving at least two goals: 1) further preservation of the Trademark from the so-called trademark trolls through extended registration and 2) express intention to participate in virtual sales of goods and services.
In this context, we should definitely mention, and even highlight, the trend coming from China, which takes the lead in the number of NFT-related trademark applications (16,000 / year), a good number of which most likely infringe both well-known and reputable trademarks , but also the “lesser-known” trademarks, making any future litigation against so many applications challenging, especially given that in China and the EU, trademarks are granted on the basis of the first application.
Conclusion
With current trademark laws, owners of well-known trademarks have some chance of preventing the use of their trademarks in the digital space because product similarity is not a requirement to prohibit the registration or use of a later mark. An honest trademark owner can suspend the corresponding virtual products if he can prove that the virtual goods take unfair advantage of a trademark’s reputation or damage its reputation. However, the owners of “normal” trademarks are in a difficult position. Consequently, the new NFT market may affect all trademark owners.
Considering that every day we offer more and more virtual goods and services on the new digital markets, it is obvious that there will be a proportional increase in trademark infringement. NFT is a future that has arrived and is increasingly becoming our present, and now is the time to start registering trademark rights for the alternate reality. Trademark protection for virtual goods and services will enable trademark owners to fight trademark infringement with confidence and more effectively enforce their rights.
The question is not whether NFTs will change the world. The question is, are we ready?
