Know the basics
Know your business
Identify relevant third-party stakeholders
Educate relevant customer market
Identify civil enforcement methods
Identify relevant law enforcement agencies
Given the meteoric rise of trade in non-fungible tokens (NFTs), many businesses are looking to protect the authenticity of their NFT-related offerings from digital fraud. This article outlines the basic information US companies need to be aware of from an IP standpoint before bringing NFTs to market, and the key IP tools at their disposal to prevent fraud and scams.(1)
"NFTs" are intangible assets that reside on the blockchain, which is a decentralised digital record of transactions that can be viewed and verified. They are bought and sold in specialised marketplaces, such as OpenSea, usually using cryptocurrency, which is stored in a digital wallet. When an NFT is purchased, the buyer will receive a certificate of authenticity that establishes ownership and provenance on the blockchain.
Before launching an NFT, it is important that a company is familiar with its IP assets, such as registered and unregistered trademarks, trade dress or copyrights. These existing IP assets may provide different means of protection, obtaining redress and preventing fraud from occurring during or after the launch.
If a company is thinking about launching an NFT with new source identifiers, it may be harder to enforce or to protect against theft, because it is difficult to obtain federal trademark registration at short notice and because third parties are less likely to assist with the enforcement of unregistered marks.
It is also important for a company to be familiar with its URLs and social media handles and to be aware that bad actors may attempt to use confusingly similar URLs and handles to trick NFT customers. It is also recommended to designate a point of contact at the company to collect all relevant information about the launch so that the company is in a strong position to identify and combat fraud.
Identify relevant third-party stakeholders
Identifying third parties where the NFT is going to be promoted (eg, social media platforms, the NFT marketplace, digital wallets or blogs) and determining their internal processes regarding infringing or violative conduct can help a company prevent fraud. It is also worth considering pre-emptively reaching out to relevant third parties to ask if there are any steps or safeguards that can be used to limit fraudulent activity or scams.
Educate relevant customer market
Making NFT customers aware of all relevant facts concerning authentic NFT offerings is a key tool for preventing fraud. The basic steps in a company's NFT purchasing process should be laid out on its main website and promoted through any advertising platforms. The information should include links to the official NFT website and to any official social media handles specifically related to the company's NFT, with a note stating that all other websites and social media handles are unauthorised.
Identify civil enforcement methods
If fraud occurs after the NFT has launched, the Lanham Act may provide a means for a company to get a court order to stop it if the fraud involves unauthorised use of its trademarks. The Lanham Act has very powerful ex parte tools to combat scams or fraud involving registered trademarks, which is another reason why it is important for a company to use its legacy IP in all NFT offerings. Under 15 US Code (USC) section 1114 and 15 USC section 1116 of the Act, brand owners can seek immediate ex parte relief, which comes in the form of a powerful temporary restraining order that can be served on the various entities involved in the fraud. A slower but more cost-effective option for combating fraud may also be available through the Uniform Domain-Name Dispute-Resolution Policy, which could allow a company to obtain control of a disputed domain through use of an administrative panel without having to go to federal court.
Identify relevant law enforcement agencies
Various law enforcement agencies and task forces in the United States are focused on digital scams and fraud, including local law electronic crimes task forces, the Internet Crime Complaint Center, and the Federal Bureau of Investigation's intellectual property rights crimes unit. As these entities are bombarded with reports of scams and frauds, it is very important to gather all available evidence when making a complaint, including screenshots and consumer complaints if available, in an easy-to-use package and, where possible, to assign a monetary value to the fraud or theft.
For further information on this topic please contact Marcella Ballard or Maria Sinatra at Venable LLP by telephone (+1 410 244 7400) or email ([email protected] or [email protected]). The Venable LLP website can be accessed at www.venable.com.
Endnotes
(1) For a detailed webinar on this topic, click here.