As NFTs merely represent a unique copy of the asset there is also the inevitable threat of the misuse of intellectual property rights.
Nike, Hermès and the English Premier League (‘EPL’) have something in common – they have all recently been involved in legal battles related to non-fungible tokens, or NFTs. If you’re not yet familiar with NFTs, they are essentially digital tokens that can be used to represent ownership of unique items, such as an image, audio clip, or GIF. These tokens can only have one official owner at a time, with ownership recorded on a digital ledger called the blockchain.
Crucially, an NFT is not the actual unique item, but proof that you bought it. The market for NFTs has exploded over the past year as total sales hit $23 billion in 2021, showing no signs of slowing. Record prices are continually being reached for NFTs related to different underlying assets. For example, Twitter’s CEO, Jack Dorsey, auctioned an NFT of his first-ever tweet, “just setting up my twttr”, for over US$2.9 million. A digital artwork meanwhile, entitled everydays, sold for $69 million in 2021, a new record. The NFT craze has sparked legal issues within the realm of intellectual property law however, relating both copyright and trademark infringement.
Despite the monetisation opportunities that NFTs present for a business, there is also the inevitable threat of the misuse of intellectual property rights. Trademark infringement, for example, may arise where an unauthorised party “mints” an NFT linked to an underlying asset, without the asset owner’s permission. The Company may then advertise and sell the NFT using the asset owner’s registered trade marks.
Recently, Nike issued proceedings against online collectibles marketplace StockX for trademark infringement, dilution, and unfair competition for the use of unauthorised, Nike branded NFT’s. The complaint asserted that the collectible marketplace is “minting” NFT’s that prominently use Nike’s trade marks. Nike are eager to protect their brand in the NFT space, as they themselves are getting in on the NFT sensation through their purchase of a digital art studio active in the metaverse.
This case follows the recent news of Hermès filing a lawsuit against digital designer, Mason Rothschild, for creating one hundred “MetaBirkin” NFTs, which resemble the iconic “Birkin” handbag. Hermès claim that the designs “rip off” Hermès’ Birkin trade mark by adding the generic prefix “meta.” The artist claims however, that he is not creating or selling fake Birkin bags, but instead is simply making artworks that depict imaginary, fur covered bags. Interesting?!
In the UK meanwhile, former Chelsea FC footballer John Terry has also landed himself in hot water due to NFT related issues. The EPL launched a legal intervention to remove the EPL trophy from the “Bored Kids Club” NFT artwork he had been promoting on Twitter. The trophy is protected by its trade mark and its use in any commercial venture requires a licensing agreement with the EPL. They allegedly wrote to Terry to make that point, before the trophies were removed. Other tweets featuring NFTs artworks of famous soccer players portrayed as cartoon apes beside the Premier League trophy and other footballing trophies have also been deleted.
Whilst “Bored Kids Club” and John Terry quickly relented, StockX and Mason Rothschild are defensive of their legal position and claim that the lawsuits lack merit. Whatever the rulings, they are sure to set a legal precedent in this relatively new territory of intellectual property law. The fundamental question is whether or not the business owns registered trade marks that cover NFTs or similar goods and services. If it does, then there may be a relatively straightforward case for trade mark infringement. However, if the trade mark is not registered in a class which covers goods and services similar to NFTs, the case may be relatively more complex. It may be possible, in certain circumstances, to argue that use of the same or similar mark for dissimilar goods takes unfair advantage of the reputation of the asset owner’s registered trade mark and therefore amounts to infringement. However, this is not guaranteed.
What is clear, despite the legalities, opportunists will attempt to use the goodwill of established brands’ to market and sell their own products for inflated prices, without permission. This is now becoming prevalent in the unregulated world of NFT’s, although the threat has existed in many different sectors for decades.
Brand owners must continualy strive to protect their rights, as not being fully protected could lead to confusion even in marginal, non-core markets. A brand’s goodwill is one of its key intellectual property assets and, as such, brand owners of all sizes must be extremely conscious of protecting their rights. Methods of enforcement include watching third party marketplaces for any potential infringements, and taking action where appropriate. This may include issuing take down notices and requesting details of prolific offenders, before undertaking litigation proceedings. Staff should also be trained internally to recognise that the unlicensed use of a brand’s intellectual property is not admitted under any circumstances. This may help create a corporate culture whereby employees are conscious of intellectual property law and constantly on the lookout for potential breaches.
Whilst issues relating to NFTs have not yet been tested in an English or Scottish court, organisations who are serious about brand protection will no doubt be keeping an eye on these legal decisions in the US. There are many issues still to navigate in this extremely fast-changing environment. Will intellectual property law keep up to date with the NFT market? Will the rulings set a precedent, allowing brands to more easily protect their intellectual property rights? Most importantly, will John Terry continue to sell NFTs depicting cartoon apes? Only time will tell.
 NFT Market Generated Over $23 Billion In Trading Volume In 2021, Forbes: https://www.forbes.com/sites/ninabambysheva/2021/12/23/nfts-generated-over-23-billion-in-trading-volume-in-2021/?sh=2c8f43f05f0a
Written by Struan McArthur, IP analyst.