The IP in NFTs – IP issues when minting NFTs – IP ownership and infringement in the metaverse

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.

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For comment on how NFTs are being regulated in the UK and EU, please see our FinTech Notes blog post here.