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Revenues for non-fungible tokens (NFTs) are expected to grow over the next decade. With increasing NFT sales come contractual and intellectual property (IP) considerations for buyers and sellers, licensors and licensees, and IP owners within the NFT ecosystem.
Available IP protection for NFTS and what constitutes the appropriate balance of IP contract provisions/permissions between buyers and sellers or licensors and licensees are just a couple of the potential issues the NFT market faces.
Below we outline the copyright, trademark, and patent protections available for NFTs, as well as important licensing issues for those engaging in or contemplating the creation, sale, and/or purchase of NFTs.
The Copyright Act protects original works of authorship fixed in a tangible medium of expression. When these statutory requirements are met, the Copyright Act provides the copyright owner the exclusive rights to make copies of, distribute, perform, display, and create derivative works of the copyrighted work, among others.
An NFT is made up of encoded data on a blockchain. The token includes a unique identifier, a smart contract, and, in many cases, some underlying content (e.g., an image, video, or audio file). Because unique programming code and content can fulfill the authorship, originality, and tangible medium requirements under copyright law, copyright protection may attach, most notably, to the underlying NFT content.
But note that in the case where NFT content is generated by artificial intelligence without any human intervention, such NFT content would not benefit from copyright protection because it would lack a human author, as the federal district court in DC recently held.
NFT Trademark Rights
Under the Lanham Act, federal trademark protection generally requires a distinctive mark, word, phrase, or design that identifies the source of goods and services that is used in commerce. In general, and in accordance with the Lanham Act, the owner of a federally registered trademark is entitled to the exclusive right to use and prevent others from using the mark in the United States.
In the NFT context, trademarks can be included in the underlying NFT content. For example, an NFT seller may incorporate their own or a third party's existing mark, logo, or brand into this content. And a federal district court held earlier this year that where a mark, logo, or brand has not yet been used in commerce, the sale of the NFT, although virtual, satisfies the Lanham Act's "use in commerce" requirement. So, if a mark is used in connection with the sale of an NFT, such use may well be grounds for obtaining trademark protection under the Lanham Act.
NFT Patent Rights
Under U.S. patent law, "any new and useful process, machine, manufacture, or composition of matter, or … improvement thereof" is eligible for patent protection. In addition to being new and useful and meeting the subject matter eligibility requirements, the invention must also be non-obvious to a person of ordinary skill in the art. While the platforms underpinning NFT marketplaces and blockchain technology may be eligible for patent protection, the NFT and its content will likely be out of scope because each would not constitute eligible subject matter.
NFT sellers offer NFTs to buyers through online marketplaces, collections, or libraries. While ownership rights to the NFT itself are transferred to the buyer upon purchase, such purchase does not necessarily transfer ownership of any related IP rights in the underlying NFT content. Rather, many NFT transactions merely provide a narrow license grant to use the NFT content and may include various restrictions or limits. This means that possession or control of an NFT doesn't necessarily grant the exclusive right to use the NFT in any manner.
An NFT seller (or an IP owner) may strategically withhold IP rights in the NFT content, such as commercial rights, so that it may monetize this content outside of the NFT ecosystem. For example, a major professional sports league involved in the creation and sale of NFTs offers a restrictive license for the "artwork" contained in the NFT. Specifically, the license limits the NFT buyer's use of the artwork:
- To personal/non-commercial use
- To commercial use solely for reselling the NFT as part of a NFT marketplace
- To use in software that allows the display of NFTs (e.g., social media, video games, experience, etc.)
But some NFT sellers offer buyers ownership or broad IP rights associated with an NFT. For example, a prominent NFT collection both conveys ownership and grants the NFT buyer a license to use, copy, display, and create derivative works of the underlying NFT content. This broad license allows NFT buyers to commercialize the NFT content separate and apart from the NFT itself (e.g., on/through merchandise).
If you or your company would like to talk about IP protections for NFTs or preventing unpermitted IP uses, please contact A.J. Zottola or Ben Myers. Click here to learn more about Venable's IP Tech Transactions services and here to subscribe to Tech Contract Quick Bytes.