The IP in NFTs – Strategies for protecting your brands and products in the metaverse

The creation (“minting”) and sale and use of NFTs raises many IP issues which we have discussed in our previous posts in our IP in NFTs series. However, brand owners and product manufacturers must also be vigilant in monitoring the virtual marketplaces to ensure that third parties are not creating NFTs that infringe their own IP rights.  This is especially true where the company is considering releasing or has released NFTs, because the public will begin to associate the brand with NFTs (which could include infringing NFTs).  There are several strategies that companies could adopt to minimise this risk.

Strategies for product and brand protection

Companies should become familiar with the NFT marketplaces and conduct periodic searches to see if any of their IP is being traded without their knowledge.  Image matching technology, such as Google’s reverse image search, can also be used to check whether specific image files are present on unauthorised domains.

It is also important for companies to be clear and open about their involvement in the NFT space, including making it easy for the public to see how many legitimate NFTs have been sold by the company and where these are available for sale.  The Ethereum Name Service (ENS) is a type of domain name that uses words as an identifier rather than the alphanumeric string of characters associated with cryptocurrency addresses.  By releasing under an ENS, the creator of an NFT can draw a clear link between their identity and the NFTs being sold by them.

In terms of trade marks, companies may consider filing new trade mark applications in additional Nice classes to protect virtual products (such as classes 9, 35 or 41), in order to prevent third parties trying to obtain protection for the same goods or services in such classes.  There remains an open question whether trade mark offices and IP courts may extend the definition of products in a specific class in order to also include the virtual version of the same physical item, creating a parallel between the real world and the virtual world.  However, in the meantime, it is vital for industries to make a proper assessment of their trade mark portfolio in relation to the specific territorial coverage in order to be ready to protect themselves against infringements in the virtual digital world.

The EUIPO has recently issued guidance notes in relation to trade marks and NFTs entitled “Virtual goods, non-fungible tokens and the metaverse” clarifying the approach that it is taking for applications containing terms relating to virtual goods and NFTs, which applications it says are increasing.

• Virtual goods: From a classification point of view the EUIPO says that” virtual goods are proper to Class 9 because they are treated as digital content or images. However, the term virtual goods on its own lacks clarity and precision so must be further specified by stating the content to which the virtual goods relate (e.g. downloadable virtual goods, namely, virtual clothing)”.  The guidance confirms that the 12th Edition of the Nice Classification will incorporate “the term downloadable digital files authenticated by non-fungible tokens in Class 9″.
• NFTs: The EUIPO also comments that NFTs are treated as unique digital certificates registered in a blockchain, which authenticate digital items but are distinct from those digital items. The guidance states that for the EUIPO, the term “non fungible tokens on its own is not acceptable”.  The type of digital item authenticated by the NFT must be specified.
• Services: The EUIPO’s guidance says that services relating to virtual goods and NFTs will be classified in line with the established principles of classification for services.

Finally, companies should develop a policy around what to do if infringing IP use is detected as part of any routine monitoring, including drafting template takedown letters which could be sent to NFT marketplaces if an unauthorised NFT release is found.

For commentary on the Hermès/Birkin handbag metaverse NFT dispute and the Nike v StockX  litigation over NFTs, see our earlier blog post The IP in NFTs – IP issues when minting NFTS – IP ownership and infringement in the metaverse.

Conclusion

NFTs look poised to begin a new race towards influence in “the Metaverse” with roles in marketing and brand image control, as well as product sales and development.  The explanation and examples given in our series so far demonstrate how, as well as understanding the limitations on the rights transferred with the purchase of an NFT, for companies intending to mint NFTs, care must be taken to ensure that it has the necessary IP rights covering the NFT metadata and underlying digital asset, and that these elements do not infringe on the IP rights of third parties.  Even for companies that do not want to release NFTs, other bad actors may do so by infringing upon their IP, and so vigilance and monitoring is required.

For more information on our expertise in NFTs and the Metaverse from an IP perspective contact any of the below of our IP practitioners. Follow our NFT blog series (including provenance, anti-counterfeiting, minting, purchase and licensing considerations) by subscribing to our blog IPNotes.