Decentralized Domains: Metaverse Land Grab


BakerHostetlerAs the metaverse continues to become a more established marketplace, and consumers become more familiar with non-fungible tokens (NFTs), NFT marketplaces, decentralized domains, bitcoin, crypto wallets and the blockchain, it is no surprise that intellectual property (IP) owners are starting to see an increase in unauthorized uses of their trademarks and copyrights.

There is a virtual land grab happening now. Some IP owners may be hesitant to take the jump, wondering how the metaverse is or will be relevant to their business; others are already investing in “goods” and services in the metaverse. And uses of cryptocurrency continue to expand (e.g., one can now buy a physical home with crypto). Many IP owners have discovered unauthorized use of their brands in the metaverse. NFTs are relevant far beyond retailers and artists. This post will focus on decentralized domain names and why trademark owners should understand what they are and perhaps even consider registering some for their brands. 

Decentralized domains are not traditional Internet domains that a user can type into a traditional Internet browser. Decentralized domains do not resolve to a traditional webpage; rather, decentralized domains are used as easy-to-remember shortcuts to crypto wallets, which typically have very lengthy alphanumeric designations. These domains can only be viewed using specialized browsers; for example, Unstoppable invites users to “Download the Unstoppable Browser to connect to the Decentralized Web Today.” 

The crypto wallet behind the domain can receive and send digital assets like cryptocurrencies and NFTs and store them in crypto wallets. Some popular services where one can register decentralized domains are Ethereum Name Service (for .eth domains) and Unstoppable Domains (for other top-level domains like .crypto and .nft). Domains may also be available for sale by their registrants on NFT marketplaces such as OpenSea.

There is an important distinction between traditional domains and decentralized domains. Traditional domains have a centralized dispute resolution mechanism, while the decentralized domains do not. ICANN is the managing body behind traditional domains and provides for a centralized dispute resolution mechanism – Uniform Domain-Name Dispute-Resolution Policy proceedings (UDRPs). But for decentralized domains, where there is no such centralized mechanism, what does a trademark owner do if an unauthorized third party registers a [brand].eth or [brand].crypto domain?  

There is no clear answer yet. Not every marketplace will accept takedown notices or remove allegedly infringing decentralized domains for sale. There is no decentralized domain registrar that can unilaterally transfer a domain from the infringer to the legitimate owner, as is done in a UDRP proceeding. And there are other challenges such as identifying the owner of the domain, as there is no WHOIS lookup service for decentralized domains. 

Of course, if there is nefarious use of the decentralized domain (e.g., to solicit crypto payments while holding itself out as a brand), then legal action would be warranted, likely requiring a deep dive to trace the activity back to the actual person behind it.   

This is why it may be advisable for trademark owners to register their brands as soon as possible. Squatting is already occurring, with resale prices in the six figures. Registration would be especially valuable if the IP owner plans to accept crypto payments or would like to preserve this option for the future.

Brand owners should also be monitoring NFT marketplaces for infringing uses of their brands. Such monitoring will identify already registered decentralized domains incorporating their brands available for sale. Such domains should be further monitored for any unwanted association with the brand and nefarious behavior harmful to consumers. There is no better time than now to join the virtual land grab!

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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