Introduction
NFTs and copyright
NFTs and resale rights
NFTs and trademark law
IP considerations for brand owners
Comment
A "non-fungible token" (NFT) is a certificate of authenticity of a digital asset registered chronologically in a blockchain system. An NFT incorporates a reference to a digital file, indelibly associating it with that file.
It is important to note that an NFT is not the thing that is tokenised, which can be a wide variety of assets (eg, a work of art, an image, a physical good, an entry right to an event or a tweet), nor the digital fingerprint that is associated with it. The purchaser of the NFT acquires neither the work nor its medium, but instead becomes the owner of the token referring to the work.
NFTs thus constitute a new asset, raising many questions from a legal perspective. This article explores the IP implications of NFTs under French law.
"Tokenisation" consists of inscribing an asset and its rights directly on a token, thus making it possible to value and materialise real assets in the digital world. When the asset in question is a protected work, this raises issues of copyright protection.
Does the association of a work with metadata (ie, its tokenisation) constitute a reproduction of the work under copyright law?
Under article L 122-3 of the Intellectual Property Code (CPI), the reproduction of a work consists of the material fixation of the work by any process that allows it to be communicated to the public in an indirect way. Such reproduction without the author's consent is illegal under article L. 122-4 of the CPI.
Can the author of the work oppose its tokenisation?
It would seem that the author of a work would not be able to oppose its tokenisation, because tokenisation does not, strictly speaking, lead to a material fixation of the work. The author would not, therefore, be able to oppose the association of their work with metadata on the basis of their reproduction right.
Do resale rights apply to NFTs?
"Resale rights" are the remuneration from which authors of original graphic and physical works benefit when their works are resold by an art market professional (article 122-8 of the CPI).
As such, the resale of a graphic or physical work associated with an NFT should be subject to resale rights. Indeed, NFTs and the blockchain system could be effective tools to enable the author to track the resale of their works and receive royalties automatically for each of them. In practice, by registering an NFT in the blockchain, any transfer of the NFT will be recorded and the author of the work can follow the transfers of ownership.
The smart contract that generates the NFT can include in its computer code a device equivalent to the resale right and automatically associate any resale of the NFT with the payment of a percentage to the creator. The authors of works tokenised in the form of NFTs can thus determine a percentage of the resale right that will be paid out in the event of (re)sale of the NFT. This is what the American artist Beeple decided to do with regard to the sale of his work.
Initial litigation involving NFTs and virtual goods in the United States has highlighted the importance of trademarks as the primary legal basis for claims by companies. It is thus advisable to strengthen the protection of trademark portfolios for NFTs and virtual goods/services in advance.
How can companies integrate NFTs and virtual goods into their trademark portfolio?
NFTs themselves may be protected in class 9. Data files with associated NFTs may also be protected in class 9. Software and computer services that enable NFTs to be stored within a blockchain system, accessed and then traded or sold on a platform may be protected in:
- class 9 – downloadable software for storing NFTs; and
- class 42 – services for collecting NFTs registered on a blockchain network; services for trading, buying and selling non-fungible tokens.
All virtual goods and services offered on the metaverse are NFTs. Trademark law recognises their protection and, insofar as real-world product or service trademarks do not protect their virtual equivalents due to their distinct nature, they should be specifically protected. Virtual goods/services may be protected in particular in:
- class 9 – downloadable virtual goods (eg, computer products featuring shoes or clothing);
- class 3 – online sales services of virtual goods (eg, clothing or shoes); and
- class 41 – entertainment (eg, online supply of non-downloadable virtual shoes or clothing).
Protection of the functions provided by NFTs must also be considered, as set out below.
NFT brands as marketing tools
NFTs are widely used by companies as a communication tool, to promote their image via the distribution of NFTs representing their products and to animate virtual communities. In addition, NFTs can be used to build a future customer base and to retain existing customers. In this context, it is appropriate to consider the protection of:
- advertising services or sales promotion in class 35;
- online social networking services in class 45; and
- services for the exchange, purchase and sale of NFTs registered on a blockchain network in class 42.
NFTs as alternative financing tools
NFTs are increasingly used as financing tools, with their acquisition intended to secure fundraising with a particular purpose. For these marks, the following services may be registered in class 36:
- financing services; investment of capital; placement of funds; and
- financial transaction services via blockchain; issuance of non-fungible tokens based on blockchain; financial transaction services for non-fungible tokens based on blockchain.
IP considerations for brand owners
Reregister trademarks
Brand owners are advised to refile their trademarks in order to anticipate the exploitation and protection of their IP rights in the metaverse and the NFT universe.
Indeed, insofar as it is not certain that a wording aimed at physical products is sufficient to challenge the exploitation of virtual products in the form of NFTs, filing with the products and services mentioned above to secure virtual goods and services (in classes 9, 35, 41, 42) is appropriate.
It is also necessary to think about protecting the functions provided by NFTs – for example, sales promotion, networking, financing and traceability.
Secure contractual framework with author
A company that embarks on a promotional or commercial operation involving NFTs must conclude a contract of assignment of rights (or an amendment) with the author.
In copyright law, everything that is not expressly assigned remains the property of the author. The rule is, therefore, that each assigned right must be mentioned separately (under article L.131-3 of the CPI).
As NFTs constitute a new and autonomous form of economic exploitation that may give rise to remuneration, it is necessary to:
- provide for the right to tokenise, allowing creations to be transformed into NFTs; and
- formalise this right in a contract.
This right to tokenise is not enshrined in the IPC as such, but an explicit contract makes it possible to reduce the risk of claims by authors.
NFTs represent unprecedented opportunities for brand owners in that they constitute a cutting-edge method of communication and marketing. However, this effervescent universe remains unstable as the legal status and the rules of the game in the field of NFTs are still under development. Brand owners should therefore remain prudent when entering this innovative market.
For further information on this topic please contact Eric Schahl or Salomé Delhome at INLEX IP Expertise by telephone (+33 1 56 59 70 90) or email ([email protected] or [email protected]). The INLEX IP Expertise website can be accessed at inlex.com.