Author: Urmi Dnyandeo Sawant , Adv Balasaheb Apte College of Law
To the Point
The rise of Non- Fungible Tokens (NFTs) has revolutionized the digital landscape, offering unprecedented avenues for creators, and brands to engage with unique digital assets despite their verifiable digital provenance, the acquisition of an NFT typically confers ownership of the token itself, not the underlying Intellectual Property (IP) rights. This crucial distinction necessitates a nuanced understanding of existing IP regimes namely copyright, trademark, and, to a lesser extent, patent law to effectively safeguard creators’ rights and inform purchaser’s expectations in this evolving digital frontier. Challenges in jurisdictional enforcement and the nascent legal framework persist, underscoring the imperative for clear licensing agreements and proactive IP strategies.
Abstract
NFT is a unique digital identifier that is recorded in a block chain and is used to certify ownership and authenticity of a specific digital or physical item. It cannot be copied, substituted or subdivided. Delving Deeper into the NFT-IP Nexus. The advent of Non-Fungible Tokens has ushered in a transformative era for digital asset ownership, presenting both unprecedented opportunities and complex legal quandaries concerning Intellectual Property. However, the burgeoning NFT market presents complex and often ambiguous challenges concerning the interplay between NFT ownership and existing Intellectual Property Rights (IPRs).
Use of Legal Jargon
Non-Fungible Token (NFT): A unique and non-interchangeable unit of data stored on a digital ledger (blockchain).
Intellectual Property Rights (IPRs): Legal rights that protect creations of the mind, including copyrights, trademarks, patents, and trade secrets.
Copyright: An exclusive legal right to reproduce, publish, sell, or distribute the matter and form of something (as a literary, musical, or artistic work).
Trademark: A recognizable sign, design, or expression which identifies products or services of a particular source from those of others.
Design Patent: A form of legal protection for the ornamental design of an article of manufacture.
Smart Contract: A self-executing contract with the terms of the agreement directly written into lines of code.
Licensing Agreement: A contractual arrangement where one party (the licensor) grants another party (the licensee) permission to use its intellectual property under specified terms and conditions.
Digital Millennium Copyright Act (DMCA): A United States copyright law that implements two 1996 treaties of the World Intellectual Property Organization (WIPO).
Pro Tanto: To that extent; for so much.
Nunc Pro Tunc: Now for then; a legal phrase meaning an act done at one time is given the same effect as if it had been done at an earlier time.
The Proof
The fundamental “proof” of IPR ownership in the context of NFTs largely mirrors traditional intellectual property principles, albeit with digital nuances:
1.Copyright:
The primary proof of copyright hinges on demonstrating that the underlying digital work is original and fixed in a tangible medium of expression (e.g., a JPEG file, MP3 audio, MP4 video). This originality standard is generally low, requiring only that the work not be copied from another source and possess a modicum of creativity.
Proof of authorship, often evidenced by creation timestamps, metadata, and the creator’s reputation, is crucial. While blockchain records can establish the minting of an NFT, they do not inherently prove authorship of the underlying creative work.
The most critical proof concerning an NFT buyer’s IPRs is the existence of a clear, unambiguous licensing or assignment agreement. Without such an agreement, the NFT holder merely possesses a token representing ownership of a specific digital instance, not the copyright itself. The smart contract associated with the NFT can serve as proof of these terms if explicitly coded, or a separate, legally binding document referenced therein.
2. Trademark:
Proof of trademark rights typically involves demonstrating the actual use of a mark in commerce to identify goods or services. For NFTs, this extends to the sale of digital goods or services represented by the NFT.
The mark must be distinctive enough to identify the source of the goods or services.
Trademark registration provides nationwide rights and constructive notice to others, significantly bolstering claims of infringement. As brands increasingly extend into the metaverse, registering marks for virtual goods and NFT-related services becomes vital proof of intent and scope of protection.
3. Design Patent:
Proof of a design patent requires demonstrating that the ornamental design is novel (new) and non-obvious to a person of ordinary skill in the art.
The most definitive proof is the granted design patent itself, issued by the relevant patent office after a rigorous examination process.
Related Case Laws
Nike v. StockX:
Nike initiated legal action against sneaker resale platform StockX for creating and selling NFTs of its sneakers, accusing StockX of trademark infringement, dilution, and false designation of origin. Nike argued that StockX’s NFTs misled consumers into believing they were authorized Nike products and that StockX was attempting to create its own parallel market using Nike’s intellectual property. While this case is ongoing, it underscores the proactive stance brands are taking to protect their digital identities and control the narrative around their products in the metaverse.
Yuga Labs, LLC v. Ryder Ripps and Jeremy Cahen:
Yuga Labs, the creator of the Bored Ape Yacht Club (BAYC) NFTs, sued artist Ryder Ripps for creating and selling “RR/BAYC” NFTs, which were identical to the original BAYC NFTs. Yuga Labs alleged trademark infringement and unfair competition, arguing that Ripps was intentionally confusing consumers and devaluing the original BAYC collection. A preliminary injunction was granted in favor of Yuga Labs, further solidifying the principle that even in the decentralized world of NFTs, established trademark rights hold sway. This case also raised questions about the boundaries of parody and artistic appropriation in the digital art space.
Conclusion
The landscape of IPR protection for NFTs is characterized by its dynamic evolution. While the blockchain provides an indisputable record of digital ownership, it is crucial to understand that this ownership is pro tanto limited to the token itself, nunc pro tunc to its minting. It does not automatically confer the underlying copyright, trademark, or design patent rights to the NFT holder. The bedrock of IPR protection remains firmly rooted in established legal principles, with explicit contractual agreements whether embedded within smart contracts or in separate legal instruments serving as the indispensable mechanism for transferring or licensing such rights.
FAQs
What’s the biggest legal risk for NFT creators?
Creating an NFT using someone else’s copyrighted or trademarked material without permission is a major legal risk, leading to potential infringement lawsuits.
2. How do smart contracts help with NFT IPR?
Smart contracts can embed terms defining what IPRs (e.g., usage rights, royalties) are granted to the NFT holder, automating and enforcing these agreements on the blockchain.
Does blockchain technology provide IPR protection for NFTs?
While blockchain doesn’t grant IPRs itself, its immutable ledger provides clear, verifiable proof of an NFT’s creation and ownership history, which is vital for proving authenticity and provenance in IP disputes.
4. Does India have specific NFT IP laws?
No dedicated laws yet. India’s existing Copyright Act and Trademarks Act apply to the underlying content. NFTs are taxed as “Virtual Digital Assets”.
