NFT'S

The IP In NFTs – IP Issues When Minting NFTS – IP Ownership And Infringement In The Metaverse – Trademark


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Creating an
NFT
can give rise to other IP issues, aside from
questions of transfer of rights. In particular there is the issue
of who in fact has the right to create and release NFTs and whether
the NFT infringes third party rights.

In this third of our
series
of NFT IP blog posts, we deal with
“minting”, ie the creation and sale of NFTs.

Who has the right to create the NFT?

The first important consideration is understanding who actually
has the right to create (“mint”) an NFT based on a work.
In this context, it is crucial to assess the underlying contract
(if any) regulating a commercial relationship to understand who has
the right to mint an NFT. Minting an NFT without the right to do so
could constitute copyright infringement, infringing the rights of
reproduction and communication to the public in the work. In some
jurisdictions, it could also give rise to an infringement of the
author’s moral rights if the NFT creation was seen as a
distortion of the original work that could be detrimental to the
artist’s reputation or more generally as a derogatory treatment
of the work.

An example of the issue of the minting of an NFT causing IP
problems, because of ownership, is the case of Miramax v
Quentin Tarantino
which is currently being heard before the US
Federal Court. In late 2021, Tarantino minted and sold NFTs
relating to his movie, Pulp Fiction. Miramax alleges that
these NFTs were sold in breach of contract, and infringed trade
marks and copyright owned by Miramax. Tarantino, conversely,
asserts that his contract with Miramax from 1993 reserved him
certain limited rights, including the right to engage in acts such
as the sale of these NFTs. This case highlights the importance of
clarifying contractual rights and limitations to ensure that the
person wanting to mint an NFT based on copyrighted material indeed
holds the right to do so. Parties may also seek to enter into a
subsequent agreement which clarifies the position in relation to
the creation and sale of NFTs, in cases where the earlier agreement
does not expressly address this (which seems likely for any
contracts pre-2021).

Infringement of IP rights and protection of brands

It is of course an infringement of IP rights where content is
used in an NFT without permission. Most often (as above) it is a
copyright issue, but trade marks can also be involved, in
particular where branded goods are being reproduced via NFTs for
use in a virtual environment such as the Metaverse.

Infringement or “fair use”: An
example of how trade marks can play a vital role in product
protection in relation to NFT is the Hermès/Birkin dispute.
Hermès, the creator of the Birkin handbag, is currently
engaged in trade mark litigation against an artist who minted and
sold NFTs depicting the Birkin handbag, rendered in colourful faux
fur (called the ‘MetaBirkins’ collection). This case
explores whether the conduct of the artist constitutes trade mark
infringement including trade mark dilution (if the consumers would
be misled and perceive the MetaBirkin NFT as coming from
Hermès), or if the NFT collection is actually a tribute to
the iconic handbag and constitutes a lawful use of IP protected
asset according to the US “fair use” doctrine (as the
Campbell’s Soup cans were for Andy Warhol).

Descriptive use: The minting and sale of an NFT
may also give rise to issues with third party IP where it is being
used in a purportedly descriptive manner. NFTs can function as a
digital certificate over physical goods, which may enable consumers
of those physical goods to conveniently sell, store and buy the
goods. However, this raises the question about whether or not a
trader is allowed to mint and sell an NFT that contains the trade
mark/s of a third party, with the intention of describing the goods
with which the NFT is associated. This question is currently being
considered in the case of Nike v StockX by the New York
District Court

The issue before the court is whether the use of third party
trade marks in an NFT to sell branded goods is an infringement.
StockX, an online reseller of sneakers and other streetwear,
introduced a series of NFTs called ‘Vault NFTs’, which
feature the image of sneakers (including Nike-branded shoes). The
NFTs entitle the holder to redeem the NFT in exchange for the shoes
depicted by the image, but StockX will keep the shoes safely stored
until they are redeemed. This promotes an active market in shoe
reselling, without the need to physically transfer the shoes
between seller and purchaser. However, Nike has argued that the use
of its trade marks in the image associated with the NFTs
constitutes trade mark infringement. StockX argues that it is
merely using the marks in a descriptive manner, to inform the NFT
holders the type of shoes to which the NFT relates.

In our next blog post we will look at what strategies brand
owners and consumer product manufacturer can adopt to protect their
rights.

See our earlier blog posts in this series
here
– including an explanation of what
NFTs are; how they can create effective control over digital assets
and the use of NFTs for provenance and anti-counterfeiting; and IP
misconceptions and issues that we have seen arise in the NFT space
in relation to rights transfer or use following purchase.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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