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Whether you're a trademark attorney or just curious about the overlap between the practice of intellectual property and cryptocurrencies, understanding the legal issues surrounding non-fungible tokens (NFTs), crypto assets, and NFTs' relation to trademarks is becoming increasingly important as more people use them.
As with any new area of intellectual property law, there's room for new interpretations in how courts apply existing laws to this growing phenomenon. And while grasping the complexities of cryptocurrencies, the blockchain, NFTs and the metaverse may initially be off-putting, intellectual property attorneys should have a basic understanding of the terms and the underlying technology.
Cryptocurrency: Crypto refers to any form of currency that only exists digitally, and usually has no central issuing or regulating authority. Instead this currency uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions.
Bitcoin: Bitcoin is currently the most well-known, and most valuable cryptocurrency in the world. Its popularity has inspired the development of many other cryptocurrencies and alternative-coins. It is rewarded to blockchain miners for the work done to verify transactions and can be purchased on several exchanges. Bitcoin was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto.
Alt-coins: Altcoins are generally defined as all cryptocurrencies – the most popular of which is Ethereum. Some altcoins use different consensus mechanisms to validate transactions and open new blocks, or attempt to distinguish themselves from Bitcoin by providing new or additional capabilities or purposes. Most altcoins are designed and released by developers who have a different vision or use for their tokens or cryptocurrency.
Blockchain: Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.
NFTs are digital tokens on the blockchain that can be used to represent and authenticate ownership of a physical or a digital asset. These assets can range from digital or real representations of videos, music, artwork, photographs, GIFs, Tweets, in-game purchases, sneakers, event tickets, domain names, and actual real estate, among other things. NFTs are often used in virtual worlds where users can create their own unique characters and build their own virtual worlds.
NFTs are also traded on crypto exchanges like Binance and Coinbase, where users can purchase the NFTs they want from other users on these exchange platforms with cryptocurrencies like Bitcoin or Ethereum.
NFTs are a newer form of digital asset that is growing in popularity, but they don't have the same characteristics as traditional crypto assets such as Bitcoin or Ethereum. Unlike those cryptocurrencies, NFTs can be traded on peer-to-peer marketplaces without an intermediary like Coinbase or Binance acting as custodian over them.
This means that there's no one company behind an individual NFT and there isn't a central entity through which users can buy or sell their NFTs.
The sale of NFTs has already led to trademark litigation, and experts are watching to see how courts apply the fundamentals of trademark law in what could be landmark cases.
Anne Gilson LaLonde, a trademark attorney and author of Gilson on Trademarks from LexisNexis, says applying typical trademark standards to NFTs won’t necessarily be simple, but going back to the basics will serve attorneys well as new cases come to fruition.
“Initial cases are already getting a lot of attention from trademark law commentators and any decisions will likely be influential,” says LaLonde. “Some early decisions regarding confusion on the Internet have not aged well and unfortunately remain influential, so I hope both that the first judges to write these decisions have a solid understanding of NFTs and also that later judges are able to take a fresh look at those opinions if the technology or use of NFTs changes.”
In one such case luxury fashion brand Hermès has sued an artist who created a series of NFT images depicting an altered version of the brand’s famous Birkin bags. In that case, the creator is arguing that his NFTs are expressive works protected by the First Amendment.
LaLonde says courts will need to tackle many knotty questions, including some involving the technology and others around fundamental legal issues like free speech and fair use.
“Likelihood of source or sponsorship confusion is at the heart of trademark law,” LaLonde says. “If the trademark used for an asset authorized by an NFT, or the asset itself, is likely to confuse, deceive, or mislead consumers as to source or sponsorship, its creator has infringed on another party’s trademark. If not, there’s no liability for trademark infringement.”
“In any given case, a court might find, for example, that the purchasers of a certain series of NFT assets are sophisticated or the conditions of sale make it clear that the trademark owner is not associated with the NFT assets. Or it may find that some images authenticated by NFTs are expressive works protected by the First Amendment, making it very difficult for a trademark owner to prevail in a trademark case. The traditional standards should cover this determination.”
Leading brands have also filed applications at the U.S. Patent and Trademark Office (USPTO) to register their real-life marks for a variety of “downloadable virtual goods.” These goods can be purchased and used in the metaverse, a virtual-reality universe where users can interact with other users in a computer-generated environment. Trademark litigation over the metaverse is certainly on the horizon because there will be plenty of opportunities for unauthorized use of brands.
“Trademark lawyers who really understand the ins and outs of NFTs will likely be in demand,” says LaLonde. “Attorneys shouldn’t be put off by the novelty of the technology. Instead, they should learn the basics of how NFTs work so they can be prepared to counsel their clients and educate judges, if necessary. NFTs are not in the distant future; they exist now and now is the time to understand them.”
Trademark law is an intricate system that can be difficult to understand at first glance. With so many issues to consider when working with these types of assets, it's important for trademark attorneys to have a firm understanding of their clients' needs before they begin drafting an NFT-related or crypto asset trademark application or response letter.
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