In 2021, “NFT,” or “non-fungible token,” won the word of the year award from Collins Dictionary, beating out “crypto,” “hybrid working,” and “double-vaccinated.” We’ve all heard the acronym, but what does it mean, particularly in the context of traditional Intellectual Property (IP) rights like trademarks and copyrights?

How do NFTs work?

If something is fungible, it can be used interchangeably and is functionally identical to its equivalent. One €5 note from Germany is equivalent to five €1 coins from Spain because of this basic tenet of money.

Another illustration is pure gold, which can be exchanged for the same quantity of pure gold from a different source without incurring any profit or loss.

 The trackable ownership assignment changes each time a piece of property carries what the term “token” means in this context. NFTs resemble deeds or certificates of authenticity in that they are digital records that live in a blockchain rather than as tangible documents.

 A blockchain is a cryptographically linked collection of records (or blocks). They imply that a new record is added to the data ledger each time an asset is carried, referencing the previous record and influencing the subsequent form. The result is a secure transfer history resistant to fraud and intervention. You can only change a block in the chain by invalidating every block after it.

 On the Ethereum blockchain, a decentralised peer-to-peer network of host computers, most NFTs are “minted” or created. Notably, an NFT transaction has no impact on Intellectual Property (IP) rights, albeit the owner may choose to include the associated copyright in the sale of an NFT.

 All of this is to state that an NFT is a document that certifies the owner of a particular digital representation, typically a picture. However, it can create anything from tweets to the web’s source code. An NFT should not be mistaken for the underlying work it represents, and this is the most crucial detail.

Why now?

Although not a lockdown invention, it may not be a coincidence that the NFT market boomed while many individuals could not leave their houses. Rebecca Tushnet, a Harvard law professor, refers to Matt Levine’s “When she claims that “[i]n lockdown, people can’t do many of the activities they often do for fun, so of lighting money on fire, you can set money on fire on the blockchain.

 If you look at some of the most costly NFTs sold last year, it would seem that individuals in 2021 had plenty of time and cash to burn.

($28.9 million) “Human One”

($11.7 million) “Cryptopunk #7523”

 Although this kind of digital asset is beginning to gain value, its exact legal status and effects still need to be discovered.

The effect of NFTs on the law

Although the first NFT, “Quantum,” was released in May 2014, these products are still not explicitly controlled from a legal or intellectual property standpoint. Due to the lack of codification and pertinent case law, it is only possible to analyse the impact of NFTs by applying recognised legal principles to the fundamental features of NFT’s Trademarks.

 As previously stated, one of the most crucial factors is copyrights. The sale of an NFT does not grant the buyer the copyright to the work it represents because an NFT merely means the underlying work, not the actual work.

From a legal standpoint, this distinction is obvious. Despite this, Spice DAO, an NFT group, bought €2.66 million for an NFT portraying the book “Jodorowsky’s Dune” on January 15 of this year in the mistaken notion that doing so would give them the copyright to the represented book.

 On the other hand, the distinction between the underlying work and the minted NFT may become so thin as to be almost invisible in digital artworks designed to impress as NFTs.

Hermès makes use of NFT Creator.

Hermès, a high-end fashion brand, sued Mason Rothschild on January 14, 2022, in the Southern District Court of New York, alleging a variety of wrongdoings, including trademark infringement and dilution.

 Digital artist Mason Rothschild has produced “METABIRKINS” NFTs with the Hermès BIRKIN handbag pattern. Hermès claims that the defendant uses the METABIRKINS name without consent and violates its trademark rights while advertising and selling the NFTs on various online marketplaces.

 Seven grounds for action form the basis of the lawsuit:

• Infringement on a trademark (15 U.S. Code 1114)
• False origin designations, fraudulent statements, and false representations (15 U.S. Code 1125(a))
• Dilution of federal trademarks (15 U.S. Code 1125(c))
• Under the Anti-Cyber Squatting Consumer Protection Act (15 U.S. Code 1125(d)), cybersquatting
• Dilution and harm to a company’s reputation are a shout-out under New York General Business Law 360-1.
• trademark infringement under common law
• Under New York Common Law, theft and unfair competition are ugly.

In response to Hermès’ decision, Rothschild published a statement on Instagram on January 17, 2022. He wrote in it that “the First Amendment provides [him] the freedom to make and sell art that portrays Birkin bags, just as it allowed Andy Warhol the right to make and sell art that shows Campbell’s soup cans.”

The potential of the NFT trademarks

The continuing legal dispute between Miramax and director Quentin Tarantino about the legitimacy and origins of NFTs began in November 2021. The well-known director’s NFT collection based on “Pulp Fiction,” which he authored and filmed in 1994, allegedly infringes on Miramax’s copyrights and trademarks.

 While the NFTs in question face sharp price swings due to unfavourable press coverage and a lack of certainty regarding the courts’ rulings, it is doubtful that these cases would result in the collapse of the NFT market. One straightforward explanation is that more well-known companies are making their debuts in NFT: Taco Bell, Coca-Cola, and Nike are just a few examples. Because they are the sole owners of the IP rights about the underlying works, these corporations run a very low to zero risk of having their NFTs the target of legal proceedings.

 The rulings from the U.S. courts will undoubtedly be eagerly anticipated by IP professionals, legal analysts, and NFT traders since they will help define how NFTs interact with enduring IP rights like copyrights and trademarks. IP Docketers, for one, will be closely monitoring all upcoming developments.

 You may be confident that the IP experts at IP Docketers will give you all the benefits of their knowledge and experience to defend your IP rights, whether you want to speak with them before you mint your own NFT or think your IP rights have suffered.