Trademark Law and New Technologies: IP Implications 2023

Recently, the U.S. Patent and Trademark Office (USPTO) and the U.S. Copyright Office (USCO) performed a research to examine intellectual property (IP) legal and policy concerns pertaining to non-fungible tokens (NFTs). In response to a mandate by the U.S. Senate Subcommittee on Intellectual Property to confer with the corporate sector, the purpose of this research was to examine this developing technology and its implications for intellectual property rights.

To aid in this endeavor, the two agencies sponsored public roundtables on trademarks and NFTs, patents and NFTs, and intellectual property and NFTs. This series segment on trademarks featured panelists from the technical, artistic, and academic sectors, as well as trademark owners, practitioners, and industry representatives. Angela Kalsi, an officer in Greensfelder’s Intellectual Property department, discussed the promise that NFTs offer to the IP sector and how the USPTO might more effectively defend and enforce IP in the setting of NFTs.

What Are Non-Ferrous Transfers?

A non-fungible token is a digital asset built on blockchain technology. NFTs are distinct in that they cannot be interchanged or replaced. Rather, they consist of cryptographically unique software code that links them to underlying assets. The code may include a “smart contract” that outlines the specifics of a certain NFT and its related intellectual property rights.

Often, NFTs are used to authenticate ownership of digital assets. Simply put, they function as certifications of authenticity. For instance, if an individual purchases a work of digital art, the NFT verifies its ownership and validity. It is essential to recognize, as many have erroneously believed, that NFTs reflect an artwork but are distinct from the underlying work. This implies that the buyer owns a representation of the work that has been “tokenized” in the form of an NFT, but does not hold the underlying intellectual property rights to the work unless the seller has expressly given it.

Why NFTs Are Vital

In 1975, 17 percent of the S&P 500 was comprised of intangible assets such as patents, trademarks, and copyrights. As we reach the Web3 era, this percentage has increased to 90 percent. Technologists concur that in this economy of creators, intellectual property protection must be improved, sped up, made more affordable, and simplified; NFTs are one approach.

NFTs establish ownership of an object that might be easily replicated otherwise. By downloading a copy, it is simple to replicate digital artwork, for example. Smart contracts with time-stamping log the date and time a document was digitally signed and offer evidence of the document’s production. Hence, NFTs make ownership explicit and traceable and make it more difficult for fraudsters to assert bogus rights to intellectual property. The technology may also be used to real-world assets, with some firms currently employing NFTs to track commodities in a supply chain to verify quality and provenance from the moment of manufacturing to the point of sale. At a recent panel on trademarks, the panelists expressed hope that this technology will make the buying, selling, and trading of assets more efficient and reduce the risk of fraud, allowing businesses to more easily transfer assets and data across decentralized platforms and opening up new growth opportunities for creators. In the area of intellectual property, this technology might lead to a future where traditional IP ownership indicators, such as trademark registration certificates, are issued as NFTs.

Problems with NFTs

Not all panelists shared this optimism. Several had queries regarding obstacles that have left firms unsure of their capacity to defend their brands in the NFT sector. Trademark practitioners urged the USPTO to collaborate with foreign communities to standardize registration classes and inquired if Class 9 is the proper classification for a digital token. Additionally underlined was the necessity for the USPTO to explain how brand owners applying to defend their rights in this technology should handle specimens of usage. Others inquired about safeguards for those who do not wish to enter the digital arena but believe their brand may be violated there. For example, will a standard fashion application in Class 25 be enforceable against a junior mark in Class 9, and will the USPTO flag this application in its 2(d) examination? The recent decision in Hermès International, et al. v. Mason Rothschild made it plain that digital representations of real-world items might infringe upon their real-world equivalents, and the USPTO’s examination processes must keep pace with the issue.

Another considered a developing concern in the metaverse was trade dress. For instance, is protection possible in a product configuration for an entirely virtual product? Additionally investigated was the practice of some NFT makers to relinquish all economic rights to utilize the intellectual property in the NFT acquired. If holders of comparable NFTs decide to use those artworks to promote their own enterprises, would this not pose a danger of trademark confusion if two NFT holders have similar businesses, and eventually lead to dilution of the underlying brand?

There are many reasons to be optimistic about the promise of NFT technology, but it also presents new obstacles. The USPTO and USCO are commendably investigating these challenges for the first time.

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