NFTs and Intellectual Property Rights: What We Know and What Is Coming

by Micah Kindred, Associate Member, University of Cincinnati Law Review Vol. 91

This article is the second in a series by Micah Kindred on the current NFT landscape. For a primer on what NFTs are all about, read Part One here.

I. Introduction

Would you buy a piece of digital art for more than sixty-nine million dollars?¹ One person did, and many others have spent millions as well.² These digital artworks sold as nonfungible tokens (“NFTs”).³ NFTs are not solely representative of digital artwork, though; NFTs can be representative of videos or real-life assets, among other things.⁴ While NFTs can be bought and sold, there is some confusion on what exactly constitutes an NFT and what rights come with ownership of it. This article will explore intellectual property rights as they relate to NFTs. Part II will provide explanations of NFTs and common misconceptions with NFT intellectual property rights. Part III will discuss these rights and examples of the issues that come with them. Part IV concludes the current state of NFT intellectual property rights.

II. Background

NFTs have skyrocketed in popularity in recent years.⁵ In 2021, the total amount of NFT sales hit over twenty-five billion dollars.⁶ This is a stark increase compared to only ninety-four million dollars in 2020.⁷ The prevalence of NFTs has led to many misconceptions, especially related to intellectual property.⁸

A. What is an NFT?

To fully grasp the issues with NFT intellectual property rights, it is critical to understand what an NFT is. For a primer on what NFTs are all about, read Part One here. NFT stands for “non-fungible token” meaning one NFT cannot be easily exchanged or traded for other NFTs because the value of each NFT is not always the same.⁹ Another key piece of understanding NFTs is understanding blockchain. Blockchain is a “system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.”¹⁰ One additional key piece of information is that NFTs are not the actual digital file. “The NFT purchaser owns nothing more than a unique hash on the blockchain with a transactional record and a hyperlink to the file of the artwork.”¹¹ Essentially, the NFT is a separate entity from the file itself.¹²

III. Discussion

With a significant amount of money being invested in NFTs, those buying NFTs need to understand exactly what they are buying and what rights may come with their purchase. One common misconception is what intellectual property rights come with the purchase of an NFT.¹³ Copyright, trademark, and design patent rights all must be part of the conversation when discussing NFTs. Intellectual property rights, for example, may come with an NFT purchase, but they are not guaranteed.¹⁴

A. Copyright

Copyright is one type of intellectual property right at issue when it comes to NFTs.¹⁵ Copyrights can be transferred with the purchase of NFTs, but do not have to be.¹⁶ When an NFT is created, the copyright attaches just like any other copyright.¹⁷ Therefore, the copyright is held by the creator of the NFT. When the NFT is sold, the copyright is not necessarily sold with it.¹⁸ The NFT itself is not the art or other asset being represented,¹⁹ meaning there is a separation between the art and the NFT. The transfer of the copyright of the art or other asset associated with an NFT can be assigned as part of the sale, though.²⁰ If the copyright is not included in the sale, the creator retains the copyright even after the NFT is sold.²¹ Critically, any royalties the buyer earns from the NFT, even after the sale, belongs to the owner of the copyright, not the owner of the NFT.²² Beyond that, the owner of the NFT may not be able “to reproduce the work, prepare derivative works, distribute copies, to display the work publicly, [or] to perform the work publicly.”²³

SpiceDAO, a decentralized autonomous organization, learned this the hard way.²⁴ SpiceDAO paid three million dollars to win an auction for “Alejandro Jodorowsky’s unpublished manuscript for an unmade film adaptation of Frank Herbert’s 400-page odyssey” in the form of an NFT.²⁵ After buying the unpublished manuscript, SpiceDAO released plans to “make the book public (to the extent permitted by law),” “produce an original animated limited series inspired by the book and sell it to a streaming service” and “support derivative projects from the community.”²⁶ Soon after, SpiceDAO learned that neither the copyright or licensing rights for the manuscript were included in the sale, so its plans were halted.²⁷ Like the manuscript purchased by SpiceDAO, buying an NFT does not also confer the copyright of the contents of the NFT, just as the copyright of the art was not conferred.²⁸

Since copyrights are not always transferred with the sale of NFTs, buyers must be cautious. If a buyer purchases an NFT for their own enjoyment, copyright issues likely will not be an issue. However, if a purchaser hopes to utilize the NFT in a commercial way, the purchaser should be sure to contract for the copyright to be included in the sale or buy the copyright separately. To protect themselves, buyers should always examine the contract for the sale of the NFT and understand whether the copyright is included.

B. Trademark

NFTs are presenting new issues for trademarks, as well.²⁹ Some brands are beginning to utilize NFTs for product verification, in an effort to help brands prevent counterfeit goods.³⁰ Other companies are venturing into the NFT space by licensing their trademarks for use with NFTs or other digital content.³¹

There are two ongoing lawsuits directly addressing the questions raised by NFTs and trademarks.³² One is between Nike and StockX, an online shoe retailer.³³ StockX was creating NFTs that showed Nike’s trademark without Nike’s permission.³⁴ Nike sued StockX for trademark infringement.³⁵ StockX resells shoes, including Nike shoes, and mints NFTs associated with the shoes.³⁶ Since StockX is a reseller, the court will likely decide whether the NFTs StockX creates are “new, distinct products that seek to capitalize on the trademark owners’ marks” or are protected by the first-sale doctrine.³⁷

Another interesting case in this area is between Hermès and Mason Rothschild.³⁸ Hermès is a luxury design house responsible for their famous Birkin bag.³⁹ Mason Rothschild created the “MetaBirkin” collection of NFTs.⁴⁰ Hermès sued Rothschild claiming Rothschild infringed its “Birkin” trademark. Hermès’ “Birkin” trademark only applies to leather goods though, not digital assets like “MetaBirkin” NFTs.⁴¹ Rothschild does have a disclaimer on his website stating the “MetaBirkins” are not associated with Hermès.⁴²

Both cases present interesting questions at the intersection of NFT and trademark law. They will likely shape the future in this area and provide guidance as brands explore the NFT space. NFTs present a new way for brands to monetize their trademarks with NFTs or licensing for use in NFTs. While there is little decided in this area currently, brands should be on the lookout for ways to protect themselves and their trademarks in the future.

C. Design Patent

Currently, design patents do not seem to be of much concern in the NFT space, but they could be at issue in the future.⁴³ A design patent, if a creator is able to get one, would be a great way to protect NFTs from unauthorized duplicates.⁴⁴ The owner of a design patent of an NFT could sue infringers and if successful, “be awarded the profits that the infringer earned from the commercial exploitation of the patent owner’s patented design.”⁴⁵ However, copyright law provides a similar remedy. Obtaining a copyright and a design patent may be the safest way to protect an NFT, since so little is known about this area. Acquiring both a design patent and a copyright on an NFT would provide the most robust protection that give the owner of both ample means to collect from infringers.

IV. Conclusion

NFTs and intellectual property are intertwined. With NFTs being newer technology, intellectual property law is having to adapt to this new landscape and come up with creative resolutions. Between copyrights, trademarks, and design patents, NFTs are presenting a host of new intellectual property questions. Some of which are being resolved in court right now.⁴⁶ Most importantly, NFT owners, buyers, and anyone who owns any form of intellectual property need to be aware of the forthcoming decisions in this area as they can and likely will have significant effects.

Cover Photo by Umberto on Unsplash

Micah Kindred

Micah Kindred graduated from the University of Louisville in 2021 with a degree in Computer Science and Engineering with a minor in Business Management. Micah spent her undergraduate co-ops working in software development, enterprise architecture, and data science. Micah hopes to pursue a career in patent and corporate law after law school.

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