As digital collectibles such as NFTs (non-fungible tokens) become more popular in our Web 4.0 era, more IP issues are inevitably created. For those new to this field, IP usually refers to patents, copyrights, trademarks, and trade secrets, but in the NFT world, copyright and trademark issues generally get the public’s attention.
In China, in April 2022, a first impression case was ruled in Hangzhou, Zhejiang Province, involving a “chubby tiger” cartoon. In that case, BigVerse, an NFT mining and trading platform, was sued and found liable for copyright infringement on the grounds that it created an NFT using the plaintiff’s artwork without permission.
BigVerse received an order from the user to mint and distribute an NFT based on a comic book artwork titled “A Chubby Tiger Taring Vaccination.” However, the platform did not verify whether the user was an authorized user of the artwork, even though the creator’s copyright marking was visible on the design.
The Hangzhou court ruled for the plaintiff, who was an exclusive licensee of the creator artist, on the grounds that due to the immutable nature of NFTs: Once imprinted, they cannot be easily removed. As such, the platform must assume a higher burden to verify the ownership or legitimacy of the user before creating and distributing an NFT. The court held that the platform effectively operated as a network service rather than just a content provider and should have put in place an IP review mechanism before triggering the relevant NFT.
In the US, there have been several notable NFT-related lawsuits in recent months:
Nike vs. StockX
In early 2022, Nike sued online retailer StockX for selling NFTs of Nike-branded shoes, after StockX launched its Vault collection of NFTs. StockX told potential buyers that they would be able to redeem tokens for physical shoes “in the near future.” After filing the lawsuit, Nike was able to purchase physical shoes on StockX’s platform, which allegedly turned out to be fakes. Nike has now raised the issue to a new level involving counterfeiting, as Nike considered these physical shoes to be counterfeit.
It appears that if StockX only sells their Vault NFTs as a “claim ticket” for customers to redeem for actual shoes later, they may be able to get away with this practice. After all, NFTs are popular now, and if this is a way for StockX to generate more business, then more power to them. Also, their use of the NFTs will definitely lead to more sales for Nike. However, if their sale of the Vault NFTs generates much more revenue than just a claim ticket, it could be argued that their NFTs are taking away the goodwill of the famous Nike brand. Even worse, if the physical shoes Nike or other customers buy turn out to be fake, it would not be surprising for StockX to lose its credibility and all bets are off.
Hermès against Rothschild
Around December 2021, artist Mason Rothschild created digital images of fur-covered versions of Hermès’ luxurious Birkin bags. The artist called the images “MetaBirkins” and sold them as NFTs.
Hermès is a well-known luxury designer of many fashion products, including its unique Birkin bag. Hermès owns the trademark rights to the Hermès and Birkin brands, as well as suit rights in the Birkin design. Hermès has accused Rothschild of ripping off the design of the French luxury brand’s iconic Birkin bag. Consumers posting on the artist’s MetaBirkins Instagram page had expressed actual confusion with the MetaBirkins collection. Similar confusion over the source of the MetaBirkins had been reported in the media.
Not surprisingly, Hermès sued Rothschild in January 2022, alleging that the artists’ MetaBirkins NFT collection infringed on the trademarks of the famous Birkin bags. Hermès called the artist “a digital speculator seeking to get rich quick.” Hermès sued for trademark infringement, trademark dilution and cybersquatting.
A main question is whether “MetaBirkins” is used as a trademark to indicate the source, or as artistic expression. Hermès alleged that the artist used the MetaBirkins mark in commerce to brand its products as well as generate publicity. The artist claimed that the digital version of fur-covered Birkin bags was a work of art. Also, the title of the artwork, “MetaBirkins,” was not used as a trademark for his products. As such, his use of the Hermès mark should be entitled to protection under the First Amendment, which must be balanced against one’s trademark rights in the Second Circuit. This case is now pending in federal district court in New York.
As an IP practitioner, the recent cases from China and the US seem to suggest an inevitable intersection, or collision, between IP rights and freedom of expression as NFTs take center stage. While freedom of expression is fundamentally important to a society, the rights of IP owners must also be considered, as always. Preferably, all rights created by adaptation of NFTs should still be analyzed according to the existing intellectual property rights framework. That is, what is not allowed under the existing IP laws should not be allowed just because of the new NFT technology – at least not without due consideration and balancing. Regardless, it is unlikely that there will be a bright line test for this collision and it is expected to be a test of balance from both sides. Watch!
PS On June 9, 2022, two top members of the US Senate Subcommittee on Intellectual Property Rights called for the US Patent and Trademark Office and the US Copyright Office to join forces and study NFTs and their impact on intellectual property rights.2
In a letter, the senators asked the two executive agencies to take a closer look at NFTs in light of their rapid global growth “since their relatively recent introduction.” As mentioned above, NFTs are unique digital assets that are stored on a blockchain and represent ownership of an item.
The senators’ letter asks several questions, including whether there will be IP challenges with future applications of NFTs, how transferring an NFT affects the rights associated with that asset, how licensing rights and infringement work, and what IP protection is afforded to an NFT creates. Again, this is an exciting time for IP and NFT. Stay!
