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NFTs & Intellectual Property

June 21, 2021

Non-fungible Tokens (NFTs) have made a significant impact on the pop culture and cryptocurrency worlds over the last six months. From Jack Dorsey, the CEO of Twitter, auctioning his first tweet for over $2.9 million at a charity auction, to the emergence of Batman and Superman collectible NFTs from platforms like VeVe, this flourishing technology is just getting started.  

What we are most interested in, is the impact that NFT technology will have on intellectual property, from both a monetization and value perspective. This disruptive technology opens the doors to new monetization potential for IP owners, and methods to impact the value of IP portfolios. Therefore, we believe all IP owners and their legal counsel should familiarize themselves with NFTs, as to make the most of this innovation and avoid potential legal issues.  

What is an NFT? 

The definition of NFT according to Investopedia is, “Cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.”

What this means is that goods classified as “non-fungible” are not interchangeable like currency, such as the US dollar. When looking at the dollar, I can exchange my $100 bill for five $20 bills, because the value of the transaction remains unchanged. Whereas a first edition Spiderman comic book cannot be interchanged with a fifth edition Spiderman comic book. This makes these comic books not fungible, as they each possess unique qualities that impact the value of the good.  

The word token serves its own purpose in this technology, as tokens traditionally serve as proof or evidence of a fact. As an example, a diploma serves as a token that an individual graduated from a specific university within a specific area of study. Tokens within blockchain technology represent an asset and can function as a store of value for the execution of transitions while also verifying the owner of a unique asset.  

Having broken down these elements, it now becomes clear that NFTs are a digital representation of unique digital assets on a blockchain. Each individual NFT can have only one owner and a particular value that can be increase or decrease over time.  

Intellectual Property 

Ultimately, the benefits of NFTs as they relate to IP can be best explained as a way to increase the security of IP while also simplifying the associated transactions. Any patent owner will soon have the ability to turn their unique patent into an NFT, potentially making it easier to license, sell, or commercialize. NFTs also make it simpler to view IP as an asset on balance sheets, which is a massive benefit for patent holders.  

Some major corporations are already taking steps in this direction, as IBM and IPwe announced their agreement to produce their patents as NFTs back in April of this year. All of these NFTs will be stored and shared on IPwe’s platform, hosted on IBM Cloud, and powered by IBM blockchain. One of the benefits associated with the IPwe Platform, is their Global Patent Marketplace, which facilitates transactions and engagement by patent owners and members of the platform.  

By tokenizing IP assets, it makes the process of setting contract terms very simple for patent owners. Recently, True Return Systems LLC put one of their patents up for auction on OpenSea, an emerging NFT marketplace. This is believed to be the first patent auctioned as a non-fungible tokenOne of the attributes programmed into this particular patent is a self-executing smart contract that optimizes the number of documents associated with the transaction and reduces costs as well.  

Despite what seems like an array of transformative results related to NFTs and IP, there are some major issues that open the door to litigation. The most prominent is the fact that ownership of an NFT does not equate to ownership of the underlying patent asset. This requires additional written agreements to be established in order to transfer patent ownership and rights in accordance with the law. Furthermore, assignments with the United States Patent and Trademark Office must still be made.  

Trademarks & Copyrights 

Handling the ownership of trademarks and copyrights through NFT transactions also presents its own challenges. Primarily, just because someone owns an NFT, does not mean that they also own the IP. This must be dictated by the smart contract that is established on the blockchain. What this means is that anyone can buy an NFT that has associated trademarks, but they are not necessarily purchasing the right to use that trademark. 

Owners of trademarks must now consider how NFTs impact the handling of their brand and trademarked content. The addition of clauses within licensing agreements should be considered to exclude the creation of NFTs based on work that is being licensed. While this new challenge might be difficult to navigate initially, it also opens the door to monetization potential for trademark owners. Instead of excluding NFTs, trademark owners can create royalty agreements within smart contracts that benefit both parties.  

When considering copyright ownership, NFTs allow creators to retain the ownership of copyrights associated with work represented in the NFT. When someone purchases an NFT, they usually don’t receive ownership of the copyright and thus are not permitted to reproduce the work in any capacity. While the creator of the NFT can delineate terms that include varying degrees of ownership. If these terms are violated, this would constitute infringement of copyright. 

While NFT technology is brand new, patent holders and their legal teams should consider paying close attention to related developments. NFTs hold the power to improve processes associated with securing, selling, and licensing patents. However, NFTs could also result in litigation should owners of an NFT infringe on trademarks or copyrights. Businesses are already beginning to look to NFTs in order to bring transparency and security to their patent filings, and this trend shows no signs of slowing down.  

For those that are unfamiliar with Round Table Group, for more than 25 years, we have helped litigators to locate, evaluate, and employ the best and most qualified expert witnesses. Round Table Group is a great complement to any litigator’s quest for an expert witness and our search is always free of charge. Contact us at 202-908-4500 for more information or start your expert search now.

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