In Short
The Situation: The current non-fungible token ("NFT") market presents exciting new opportunities as well as important considerations for trademark owners, including where digital creators mint NFTs that copy "real-world" trademarked brands. In this second of two Jones Day Commentaries exploring the interaction of IP with NFTs, the focus is trademarks.
The Result: Trademark holders, sellers, and prospective buyers need to be aware of potential trademark and brand risks associated with the current NFT market, and owners may also wish to consider whether to collaborate with NFT creators to assert control over or enhance their brands.
Looking Ahead: The current U.S., EU, and UK law relating to trademarks will need to be tested in court to establish how existing laws will apply in this new context.
NFTs are verifiable cryptographic tokens, which can act as a form of digital receipt. NFTs can also be used to evidence the authenticity, ownership, and provenance of real-world tangible items, such as artwork and real property, or digital files including an image, GIF, or tweet. Some trademark holders have recently seen their brands and products used in this digital environment, including in third party-created NFTs, which have then been made available for commercial sale.
While some trademark holders are pursuing litigation to enforce against such unauthorized uses of their brands, others are finding creative solutions via innovative commercial arrangements, including collaborations with digital artists, to assert control over or enhance their brands in this fledgling market. In particular, trademark holders can experience practical difficulties in terms of identifying brand infringement and then taking enforcement action, given the escalating number of NFT marketplaces. In addition, the creation, sale, and trading of NFTs is often unregulated under local laws, and the transaction is recorded on a public decentralized database that normally will not identify the participants other than by wallet address, making tracking and enforcement exercises even more complex for rights holders.
KEY BRAND CONSIDERATIONS
As explained in our related Commentary on NFT copyright issues, to purchase an NFT is to buy an authentication of ownership of an asset as a digital file, but it does not necessarily transfer ownership of the underlying asset itself. NFTs come in different forms (and the terms of ownership will vary), but the remainder of this piece focuses on the most common, current use case, where an NFT purchaser will acquire a license permitting noncommercial usage rights and a digitally authenticated certificate that verifies ownership of the digital file.
Unauthorized Branded NFTs
Unauthorized NFTs that make use of brands are susceptible to trademark infringement claims under U.S., EU, and UK law if there is commercial use of a similar or identical mark. As with copyright (see related Commentary), the use of a trademark in the form of an NFT presents new challenges for the courts to consider.
Hermès v. MetaBirkins. In December 2021, Hermès, which owns the rights in the famous "Birkin" handbag design, filed a lawsuit against digital designer Mason Rothschild, claiming that he was infringing Hermès' trademark rights by creating, and selling NFTs for, so-called "MetaBirkins"—digital handbags in the same shape as Birkins but depicted in fake fur and lurid colors, thereby creating quite a different overall impression from the real-life Hermès Birkins.
Given that other luxury brands such as Louis Vuitton, Gucci, and Balenciaga have recently begun experimenting with virtual offerings, including NFTs, and that the first MetaBirkin sold for a whopping $40,000, it is not fanciful for Hermès to argue that consumers are likely to be confused as to the source of the MetaBirkins. Hermès has also argued that the MetaBirkins take unfair advantage of the reputation of the famous Birkin brand, thereby further infringing its trademark rights.
To the extent that other artists seek to create NFTs featuring work inspired by, or imitating, luxury fashion brands, litigation remains likely. However, not all rights owners are opting for this route. Some are instead turning infringement into opportunity. For instance, following NFT artist Trevor Andrew's initially unauthorized use of Gucci's famous "double G" monogram, the luxury fashion house is now collaborating with the artist on future exhibitions, illustrating a potential opportunity (and solution) for businesses to retain control over their intellectual property in the digital space, via innovative commercial arrangements.
Unfair Competition and Passing Off
There are also broader issues to consider for both trademark holders and NFT creators. Creating an NFT of an underlying copyrighted or trademarked work without the prior consent or knowledge of the work's owner can lead to reputational damage, misrepresentation, or taking advantage of the owner's goodwill in the branded work. In this way, NFTs could be a vector for anticompetitive or copycat behavior, which brand owners will need to consider.
PRACTICAL IMPLICATIONS OF ENFORCEMENT
There is no simple solution for addressing unauthorized NFTs. In Hermès v. MetaBirkins, the NFT marketplace that they were initially listed on, OpenSea, removed the MetaBirkins from its platform. However, the NFT creator simply went on to sell them on a different marketplace, Rarible.
Given the increasing number of NFT marketplaces, it is an immense burden on trademark rights holders to continuously monitor unauthorized use. In addition, the creation, sale, and trading of NFTs is often unregulated under local laws, and the transaction is recorded on a public decentralized database that normally will not identify the participants other than by wallet address, making tracking and enforcement exercises even more complex for rights holders.
To lessen the burden and increase chances of successful enforcement, rights owners interested in entering the NFT marketplace should proactively enhance their brand protection by filing new trademark applications that include coverage for NFTs (and potentially other forms of digital assets) in key jurisdictions without delay.
CONCLUSION
While some commentators question whether the current NFT boom can last, it is likely that NFTs will continue to present unique intellectual property issues and opportunities in the short term. Nike, for instance, has started to use NFTs as a verification method against counterfeit shoes, while other multinational corporations are looking to monetize their brand in the form of NFTs. Other global companies are looking at whether NFTs can be used to provide supply chain traceability and assurance to customers.
As the online enterprise of buying and selling NFTs progresses and the digital asset space evolves, it will be interesting to see how the courts apply existing and long-standing principles of intellectual property law to the new medium of NFTs.
Three Key Takeaways
- NFTs create new opportunities for brands in terms of multichannel revenue sources, increased brand visibility with a younger audience, and ability to control terms of any trading via smart contracts. However, trademark holders should equally be aware of the risks of brand infringement in the NFT market and proactively update trademark filings to cover NFTs and potentially other forms of digital asset.
- Courts are not expected to deviate from well-established trademark principles when applying trademark law to the NFT context, but those principles will require testing against this new form of digital asset.
- Trademark owners should actively monitor and consider enforcing their rights in the NFT space.
