Currently, brand owners are at a crossroads—should they dip their toes into new web3 mediums and opportunities, or should they guard against potential pitfalls in this new space?
While there is no one-size-fits-all answer for brand owners on the new web3 frontier, there are steps companies can take to minimize risk posed by such newly emerging technologies as non-fungible tokens, interactive "metaverses," and augmented reality.
Here are five steps a brand owner can take to better minimize risk in licensing its trademarks for use in web3 endeavors.
1. Register Early and Often, and Know Your Rights
For established brand owners, it likely comes as no surprise that if a business intends to use a source identifier over the long term, it often is beneficial to seek registration of the trademark with the United States Patent & Trademark Office (as well as any other applicable agencies). Having a registered trademark in connection with any source identifiers involved with a web3 licensing deal diminishes ambiguity among the parties and hinders other parties from attempting to try to claim or register the trademarks improperly as their own later down the line. In short, obtaining a trademark registration may save a brand owner a lot of time and energy if there is a later dispute over ownership rights.
In a licensing deal, having a registered trademark also makes it clear to all parties exactly which trademarks are being implicated in the deal, and which trademarks are being approved for licensing use. Once all parties are clear as to which trademarks are being implicated, it also makes the scope of a deal clearer.
For example, if a brand owner has a trademark registered only within the U.S., it may not be feasible or permissible for the brand owner to authorize use of the same source identifier in China absent registrations in that territory. Likewise, identifying specific trademark registrations may also be beneficial to the brand owner if it wants to convey trademark licensing rights only in certain geographic territories.
Once a brand owner identifies the applicable trademark registrations it would like to license, and the geographic territory applicable to the license, another consideration should be whether the license is exclusive or non-exclusive. Given the constantly evolving nature of web3 technology, business owners may want to minimize risk and increase potential opportunities by not limiting themselves to exclusive licenses in the emerging space.
2. It's Not You, It's Me—Include Indemnification Provisions
While it's typical to include indemnification provisions in a licensing agreement, a brand owner should be cognizant of provisions that it can include to limit its exposure to risks associated with new web3 technology.
For example, if a brand owner is licensing its trademarks to a software company that is planning on using the brand's logo to create a store within an online world, the brand owner may want to include provisions in the license that would require the software company to indemnify it in the event the software company's technology violates the intellectual property rights of others, involves any false advertising, or causes any personal injuries, among other scenarios.
3. Make It Simple, Stupid—Avoid Legalese
Many early adopters of web3 technology may not be familiar with legal terms, so to minimize risk and disputed terms, make any public terms or disclosures involved with the licensing agreement as simple as possible. Not only will clear terms diminish risk, but they are more likely to appeal to web3 markets and users.
4. Put Stake Holders on Notice—Post Terms Prominently
To minimize risk involved with licensing trademarks in the web3 space, the brand owner should confirm that any users of the web3 technology are on clear notice of any licensing terms that may be implicated in the technology.
For example, a notice indicating the brand owner's intellectual property rights should be included in an NFT listing and can be included in any pop-up notices and in any terms and conditions of stand-alone websites that are connected to the web3 experience.
5. Have a Back-up Plan—Include Jurisdictional Provisions
In the event a licensed trademark is not being used pursuant to the brand owner's specifications, the brand owner should try to include licensing terms preemptively that can help with enforcement efforts in the event trademark infringement or a breach of the licensing agreement occurs.
For example, if the brand owner is located in New York City, it may want to include a provision in its license and/or web3 terms and conditions stating that users of its trademarks or technology consent to and agree to jurisdiction in New York, NY. Provisions regarding jurisdiction are particularly important in the web3 space, where users of the technology can be located all over the world, and can operate anonymously, making it difficult for trademark owners to bring enforcement actions.