Government study:
How does IP law relate
To an NFT?

The US Patent and Trademark Office (USPTO) and the Copyright Office have published the results of their joint study on non-fungible tokens (NFTs) and intellectual property (IP).

The Report was created in response to a June 2022 request from Senators Patrick Leahy (D-VT) and Thom Tillis (R-N.C.) to undertake a study

to examine current and future applications of non-fungible tokens (“NFTs”); how intellectual property laws apply to NFTs and assets associated with NFTs; intellectual property-related challenges arising from the use of NFTs; and potential ways to use NFTs to secure and manage intellectual property rights.

The resulting Study was based on feedback from interested stakeholders (including creators, brand owners, innovators, entrepreneurs, technologists, academics, industry associations, and intellectual property practitioners) and members of the public.

The Report defined NFTs as follows:

The term ‘NFT’” refers to: (i) a unique cryptographic token, (ii) the ownership of which is recorded to a blockchain (or another type of digital distributed ledger system), (iii) that provides the owner rights in or access to one or more assets or entitlements.

As the Report noted,

…some artists saw promise in the potential to use NFTs to obtain royalty payments on downstream sales, and to incorporate various licensing terms within NFTs, while others expressed concerns about forms of copyright infringement associated with NFTs. Many trademark owners saw opportunities to use NFTs to enhance brands and reach new consumers, while others described significant trademark infringement and enforcement challenges. Some commenters also noted the potential to use NFTs to manage and license patent rights, while others offered differing opinions about whether designs associated with NFTs can meet the requirements for design patent protection.

According to Forbes, the global NFT market cap is over $70 billion.

As Cryptotimes explains,

NFTs became popular in 2017 when CryptoKitties launched on Ethereum, the second-biggest blockchain. Four years later, the NFT market reached its peak, with several art prices selling for millions of dollars. For instance, Digital artist Pak sold his “Merge” NFT for $91 million, while Beeple traded “The First 5000 Days” NFT for $69.3 million.

However, the market has seen a massive decline since 2021. According to Cryptotimes, “Several collections are worthless today.”

With respect to copyright law, the Offices found:

• To the extent that an NFT is associated with a copyrightable work, the creation, storage, marketing, or transfer of that NFT may implicate copyright owners’ exclusive rights. Some features of NFTs—such as typically pseudonymous ownership and decentralized storage—can raise challenges to enforcing a copyright, but these are not new problems in the online space, and some commenters reported they have had success using existing laws.
• Proposals to use NFTs to replace or supplement copyright recordkeeping did not demonstrate added value. As a replacement for current recordation practices, the immutability of blockchain technology leaves NFTs vulnerable to perpetuating inaccurate records.
• NFTs may offer opportunities for U.S. artists to obtain remuneration from downstream resales of their works. As U.S. copyright law does not expressly provide for such renumeration, these opportunities depend on the code underlying the NFTs and the rules of the platforms on which they’re sold rather than any statutory entitlement.

With respect to trademark law, the Offices found:

• NFT technology and blockchain networks present new opportunities for trademark owners to build their brands, reach new consumers with interactive products and services, document the provenance of products, and manage trademark rights. However, some features of these technologies also pose challenges for trademark owners, including the fact that records stored on blockchain networks are theoretically immutable, which can complicate efforts to remove inaccurate or fraudulent records.
• Trademark infringement is prevalent on NFT marketplaces, and trademark enforcement efforts are complicated by the decentralized and anonymous nature of NFT platforms, and the decentralized nature of the blockchain networks on which NFTs are stored. While some NFT platforms have developed protocols to help trademark owners enforce their rights, there is no central authority that requires all platforms to do so, nor is there a cross-platform mechanism to settle trademark-related disputes involving blockchain-based domain names.
• Nevertheless, most commenters disfavored new, NFT-specific laws to address trademark infringement both because NFT technology is still evolving rapidly and because many federal court cases involving these issues are still pending and will likely provide answers regarding whether existing trademark laws are sufficient.

With respect to patents, the Offices found:

• While blockchain technology and NFTs can play a role in supporting management, transfer, and licensing of patent rights, commenters’ concerns regarding the difficulty of identifying bad actors on NFT platforms and of correcting inaccurate or fraudulent information stored on blockchain networks also apply in the context of patent rights.

In short, there’s not a lot to get excited about in the Report.

Just like the haiku above, we like to keep our posts short and sweet. Hopefully, you found this bite-sized information helpful.