[Metaverse Masterclass] IP and Non-Fungibility: The Intersection of Intellectual Property and NFTs

Overview of Crypto and NFTs

Like cryptocurrency, NFTs have taken the world by storm. Everything is being tokenized. NFTs, or “Non-Fungible Tokens” are digital files with a unique identity that is verified on the blockchain.

How to Create NFTs

The basics of blockchain and cryptocurrency are beyond the scope of this article, and conversational knowledge is assumed.

Copyright vs NFT Ownership

If you are an author of a work of art, who owns the copyright? At least from a US perspective, the default rule is that the author retains the copyright in their original creation. Although NFTs and other projects on the blockchain present numerous potential copyright minefields, there does not seem to be anything inherent about NFTs that would change this default rule as to copyright ownership.

  • Analysis of copyright ownership gets more complicated if there are multiple copyright authors for a single work. Joint works of authorship may have a slightly different analysis than what is discussed above. A good practice would be to ensure that you have the (written) consent of all co-authors in a work before creating an NFT utilizing that work.
  • This analysis also gets more complicated if the copyright holder is a company. As a general rule, a company should ensure that it has documented its ownership of any copyright which it will be turning into an NFT. This might be pursuant to an employment agreement, independent contractor agreement, work-for-hire agreement, or assignment agreement. Don’t assume that you own the creations of your employees or contractors without having it documented.
  • Does your work of art include, remix, or reference other works of art? Have you ensured that you have the right to do what you are planning to do when you create an NFT?
  • Does a digital first sale doctrine apply in the context of NFTs? Are there ways that you control the resale of works embodying your work by limitations built into the blockchain?

Trademarks and NFTs

How do trademarks fit with NFTs?

  • Would your brand benefit from authentication of your goods via an NFT?
  • If you are an artist or musician, are there real-world goods or services (for example, concert tickets, VIP experiences) that can be combined as an offering with the NFT? If so, does this present additional challenges?
  • Are there ways to monitor and enforce potential uses of your brand on the blockchain or as embodied in an NFT? Are these ways more efficient than brand monitoring current practices?
  • What do you do if someone creates an unauthorized NFT which includes your trademarked brand?

Patents and NFTs

NFT patents are already here, and more are surely on the horizon. For example, Nike has obtained a patent for “generating cryptographic digital assets for footwear,” which would allow a buyer of a shoe to ensure that their shoe is authentic, and also enjoy a digital collectible version of their shoe in their wallet (otherwise known as Cryptokicks). In general, blockchain patents continue to show accelerating growth.

Licensed Brands and NFTs

Artists or brands may choose to license their brands instead of creating NFTs themselves. For example, the National Basketball Association licensed the NBA brand and content to Dapper Labs to allow the creation of NBA Top Shot. NBA Top Shot is an application that allows users to trade, collect and showcase digital blockchain collectibles containing officially licensed NBA content, such as gameplay highlights. If you are a fan of the Miami Heat’s Tyler Herro and think he’s going to be the next NBA superstar, you can buy an NFT including a highlight of Herro as he “gets in the paint and nails the high-arcing floater over the outstretched arm of Anthony Davis during third quarter action of Game 4 of the NBA Finals.” Lowest asking price for a 1 of 43 edition? $22,500.

  • How will you protect your intellectual property in the context of an NFT licensing arrangement?
  • How will payments and royalties be handled?
  • How will disputes be resolved?

Enforcement against NFTs that have an Unauthorized Use

What do you do if someone has infringed your intellectual property in an NFT? The area of NFT copyright infringement, NFT trademark infringement, or NFT patent infringement is not fully developed, and the implications are unclear.

NFT Risks

Like any other cryptocurrency investment, the value of an NFT is uncertain and ultimately is only worth what someone else is willing to pay for it. The current environment is likely somewhat of a bubble. An initial time and money investment is required and transactions creating NFTs carry fees that may not be recouped if no one buys your NFT. NFTs (at least for now) do not generate cash flow and are only worth what someone else would pay for them. This amount, like the price of Bitcoin, could presumably drop by 90% in a period of weeks.

Conclusion

The maxim to live by in cryptocurrency is to “never risk anything that you are not prepared to lose.” Creators should abide by this same mindset when creating NFTs. NFTs present an exciting new opportunity to engage and find new fans in a new territory, and perhaps make some money in the process. As an artist or brand owner, you must be mindful that you are also putting your intellectual property at risk, with uncertain and undetermined consequences.

More Questions? Contact Us!

Falcon Rappaport & Berkman PLLC has the knowledge and experience necessary to guide you through intellectual property and cryptocurrency matters. To set up a meeting with one of our attorneys, please call (212) 203–3255 or submit a request through the contact form below.

Disclaimer

This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.

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