Intersection of NFT and IP – Developments to Watch

As digital collectables such as NFTs (non-fungible tokens) become more popular in our Web 4.0 era, more IP problems are inevitably created. For those new to this field, IP typically refers to patents, copyrights, trademarks and trade secrets, but in the world of NFTs, copyright and trademark issues generally get the public’s attention.

In China, an April 2022 case of first impression was handed down in Hangzhou, Zhejiang province, involving a “chubby tiger” cartoon. In that case, BigVerse, an NFT minting and trading platform, was sued and found liable for copyright infringement on the grounds that it created an NFT using the plaintiff’s artwork without permission.

BigVerse took an order from its user for minting and distributing an NFT based on a cartoon artwork entitled “A Chubby Tiger Taking Vaccination.” However, the platform did not verify whether the user was an authorized user of the artwork, even though the creator’s copyright marking was visible on the design.

The Hangzhou court ruled for the plaintiff, who was an exclusive licensee of the creator artist, on the grounds that due to the immutable nature of NFTs: Once they are minted, they cannot be easily removed. As such, the platform must undertake a higher burden to verify the ownership or legitimacy of the user before they mint and disseminate an NFT. The court considered the platform in effect was operating as a network service instead of merely a content provider and should have put in place an IP review mechanism before they minted the NFT at issue.

In the United States, there have been several notable NFT-related lawsuits in recent months:

Nike vs. StockX

Early in 2022, Nike sued an online reseller StockX for selling NFTs of shoes bearing Nike’s trademark, after StockX launched its Vault collection of NFTs. StockX told potential buyers that they would be able to redeem the tokens for physical shoes “in the near future.” After filing the lawsuit, Nike managed to purchase physical shoes on StockX’s platform, which allegedly turned out to be counterfeits. Nike has now elevated the case to a new level involving counterfeiting, since Nike considered these physical shoes counterfeits.

It would seem that if StockX is only selling its Vault NFTs as a “claim ticket” for customers to redeem for actual shoes later, they might be able to get away with this practice. After all, NFTs are popular now and if this is a way for StockX to generate more business, all the more power to them. Also, their use of the NFTs will definitely lead to more sales for Nike. However, if their sale of the Vault NFTs generates much more revenue than just a claim ticket, it might be argued that their NFTs are palming off the goodwill of the famous Nike brand. Worse, if the physical shoes Nike or other customers purchase turn out to be counterfeit, it wouldn’t be surprising for StockX to lose its credibility, and all bets are off.

Hermès vs. Rothschild

Around December 2021, artist Mason Rothschild created digital images of fur-covered versions of the luxury Birkin handbags of Hermès. The artist called the images “MetaBirkins” and sold them as NFTs.

Hermès is a well-known luxury designer of many fashion products, including its unique Birkin handbag. Hermès owns the trademark rights in the Hermès and Birkin marks, as well as trade dress rights in the Birkin design. Hermès has accused Rothschild of ripping off the design of the French luxury brand’s iconic Birkin bag. Consumers posting on the artist’s MetaBirkins Instagram page had expressed actual confusion with the MetaBirkins collection. Similar confusion over the source of the MetaBirkins had been reported in the media.

Not surprisingly, Hermès sued Rothschild in January 2022, alleging that the artists’s MetaBirkins NFT collection infringed its trademarks of the famous Birkin bags. Hermès called the artist “a digital speculator who is seeking to get rich quick.” Hermès sued for trademark infringement, trademark dilution and cybersquatting.

One main question is whether “MetaBirkins” is used as a trademark to indicate its source, or as artistic expression. Hermès alleged that the artist used the MetaBirkins mark in commerce to brand his products as well as generate publicity. The artist claimed that the digital version of fur-covered Birkin bags was a creation of art. Also, the title of the artwork, “MetaBirkins,” was used not as a trademark for his products. As such, his use of the Hermès mark should be entitled to protection under the First Amendment, which needs to be balanced against one’s trademark rights in that Second Circuit. This case is now pending in federal district court in New York.

As an IP practitioner, the recent cases from China and the U.S. seem to suggest an inevitable intersection, or collision, between IP rights and free speech rights as NFTs begin to take center stage. While free speech rights are fundamentally important to a society, the rights of IP owners also need to be considered, as always. Preferably, any rights created by the adaptation of NFTs should still be analyzed according to the existing IP law framework. That is, what is not allowed under the existing IP laws should not become allowable simply because of the new NFT technology ‒ at least not without due consideration and balancing. In any event, it is unlikely that there will be a bright-line test for this collision, and it is expected to be a test of balance from both sides. Stay tuned!

P.S. On June 9, 2022, two top members of the United States Senate’s intellectual property subcommittee requested that the U.S. Patent and Trademark Office and U.S. Copyright Office team up and study NFTs and their impact on intellectual property rights.2

In a letter, the senators asked the two executive agencies to look into NFTs in light of their rapid global growth “since their relatively recent introduction.” As mentioned in the foregoing, NFTs are unique digital assets that are stored on a blockchain and represent ownership of an item.

The senators’ letter poses several questions, including whether there would be IP challenges with future applications of NFTs, how transferring an NFT impacts the rights associated with that asset, how licensing rights and infringement work and what IP protections are given to an NFT creator. Again, this is an exciting time for IP and NFTs. Stick around!

For More Information

If you have any question, please contact Philip Yu or any of the attorneys in our firm with whom you are familiar to consult on this matter.

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