Navigating Intellectual Property Rights Of NFTs And The Metaverse

• Published date: 13 September 2022
• Subject Matter: Intellectual Property, Technology, Trademark, Fin Tech
• Law Firm: Buchanan Ingersoll & Rooney PC
• Author: Mr Shawn B. Cage

As adoption around blockchain, non fungible tokens (NFTs) and the metaverse grows, there's an increasing focus on the legal challenges these emerging technologies present. Not having an understanding of intellectual property rights in a virtual environment can increase risk for sellers, buyers and trademark holders alike.

NFTs and the Metaverse Defined

NFTs are crypto assets used to validate ownership in goods and assets sold online or in electronic marketplaces. Currently, NFTs are used to sell interests in a multitude of disparate items including digital representations of music, artwork, photographs, videos, gaming features, concert tickets, domain names, digital real estate, precious stones such as diamonds, and many other types of goods. The real-world value of an NFT is driven, in part, by the uniqueness and/or the rarity of the associated good or asset. An NFT is a container that stores digital information that uniquely identifies the asset and the network location where the NFT can be found. The NFT can also include program code for a smart contract so that fees and/or royalties can be transferred to a creator based on the asset's use, sale, or transfer in ownership. NFTs are based on blockchain technology which makes them indestructible and easily verifiable.

The "metaverse" is a term that broadly describes an implementation of technology under the web3 concept. The metaverse combines virtual reality, augmented reality, and artificial intelligence for an immersive and interactive user experience. Web3 is the evolution of the Internet or the World Wide Web to its third generation which involves a wholly decentralized platform where each user owns his/her data as opposed to the current construct where the platform owns any user-created data.

Trademark Cases Involving NFTs

In the real world, the uniqueness in creative works such as music, art, photographs, and videos is protected through copyright or trademark registration. However, there is much uncertainty as to how IP protection translates to the digital world. If recent U.S. courts opinions are any indication, brand owners and creators are becoming more diligent in preventing and stopping the unauthorized use and sale of their creative works by participants in a virtual or metaverse-type digital environment. The way courts apply and interpret IP law in the digital domain is especially important as the scope of ownership rights transferred to NFT purchasers, and protections enjoyed by NFT creators can be unique in each transaction.

Hermes Int'l v. Rothschild

In Hermes Int'l v. Rothschild, 2022 U.S.P.Q.2d 476 (S.D.N.Y. 2022), the court denied the Defendant's Motion to Dismiss based on a finding that Defendant's use of the mark "MetaBirkins" was misleading as a function of likelihood of confusion and actionable for trademark infringement under the Lanham Act. Rothschild used the mark "MetaBirkins" in association with a collection of digital images he created. Each image depicted an image of a faux-fur covered Birkin handbag, which is sold by Hermes. The images were sold using NFTs, where each image had an...