By Mansi Jain, National Law University, Jodhpur.
Many brands such as McDonald's, Crocs, TacoBell, and CVS, have reported to offer NFT Drops and are submitting trademark applications for their NFTs. Since the legal regime pertaining to trademark protection of NFTs is not well- settled, it has raised several disputes.
Mason Rothschild was recently sued by Hermès for allegedly infringing on Hermès’ trademark by naming their NFT line “metabirkins” Rothschild infringed on Hermès’ trademark by allegedly using its NFTs sales platforms, and as a hashtag, according to Hermès. During the dispute, Hermès alleged, Mason Rothschild converted the well-known Hermès Birkin bags into NFT and marketed them on the OpenSea platform under the name “MetaBirkins” despite not having the appropriate authorization and authority.
Similarly, Nike launched a lawsuit against StockX, a marketplace platform, because the NFTs that StockX offered for sale were connected with the NFTs of Nike items, claiming that its trademark rights had been breached. As a result, the question of whether NFTs may be protected under trademark laws, and to what extent is critical.
Non-Fungible Tokens (NFTs)
A non-fungible token is a financial instrument comprised of digital data maintained on a blockchain, a type of distributed ledger.
It is critical that everybody who participates in the NFT market be aware of their rights and what they are paying for. NFTs are viewed as financial assets (rather than tokens that indicate ownership of underlying assets), and while this is erroneous, it is far more vital for a person to be able to distinguish between the NFT and the underlying asset it represents. Similarly, it is critical that consumers grasp the distinction between asset ownership and ownership of proprietary rights in that asset when it comes to IP rights.
Nfts As Works Of Art
Several treaties, such as the “Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)”, have established the status of IP protection in international law.
NFTs point to a one-of-a-kind item, such as a .jpg file, a GIF, a music, a limited-edition print, or even an analogue artwork. On the collector's side, obtaining an NFT entails receiving a certificate of authenticity that cannot be destroyed, lost, or altered in any way. Fine painters and digital producers alike may choose to sell their work, and the options are limitless. In this scenario, it's important to assess whether NFTs qualify as “artwork”.
Therefore, NFTs must be recognised as works of art since they are designed to give the owner something unique: ownership of the piece, albeit the creator retains the copyright and reproduction rights, just as with physical artwork.
Trademarks Protection
A trademark is a sign that may “distinguish one organisation's goods or services from those of other organizations”. Work of Art may be protected by trademarks.
For things that are works of art, trademarks can be registered. This may simply be expressed because the Nice Classification offers pre-approved phrasing for certain types of creations that are classed based on the work's substance (e.g. paintings in class 16, etc.).
Those seeking protection for replicas of artworks have a variety of goals. The “Lady with an Ermine” by Leonardo da Vinci is an excellent illustration. The Princes Czartoryski Foundation, a department of the National Museum in Krakow, applied to the Polish Patent Office in 2001 to register a replica of the artwork. The Foundation, as the owner of the picture at the time, wished to obtain exclusive rights to exploit its replication for commercial advantage from a variety of goods and services under Nice Classification classes 6, 9, 14, 16, 20, 21, 28, 35, 41, and 42.
Because property copyrights can't be claimed for the Lady with an Ermine, registering a replica of the artwork as a trademark would provide the owner a legal monopoly over it.
Also, Warhol's 1962 artwork predates the first trademark registrations displaying Campbell's soup labels. As a result, it may be determined that this was a feature of a work of art that was later registered as a trademark. However, it's worth noting that pop-art works that dealt with consumerism and materialism drew inspiration from a variety of advertising-related aesthetic expressions. As a result, this visual style is more akin to a trademark, which may be utilised as a marketing tool to advertise certain goods or services.
Therefore, since NFTs are works of art with a visual style, it may be protected under the trademark law.
Gap in the Law & Recommendations
Misuse of a trademark
Trademarks are often copied in NFTs, generally without the trademark owner's consent. Unauthorized trademark usage raises obvious issues regarding potential trademark infringement.
Under the Benelux Convention on Intellectual Property, a registered trademark gives its owner the exclusive right to prevent others from using an identical or similar sign for comparable or identical items and/or services.
Many companies have yet to submit trademarks for metaverse, digital art, or NFT, owing to the fact that NFTs are still relatively young. As a consequence, a rigorous interpretation of trademark law would infer that there is no trademark infringement because the goods and services are unique. At the time, there is no case law in this area, therefore courts may take a different approach.
Filing (or re-filing) trademark registrations embracing goods and services related with the metaverse, online world, digital art, and NFT to protect your trademarks in the online world may result in better protection.
Laws in International Market
The nation in which a trademark is registered determines the scope of trademark. If prior equivalent third-party rights exist in that nation, selling physical and virtual items via metaverse to a client in a jurisdiction where a trademark does not have existing trademark protection might result in infringement actions. This danger will disproportionately harm smaller, less well-known firms, since well-known brands are more likely to be able to depend on their existing reputation.
In India, NFT-related marks are not expressly protected. Furthermore, rules in other nations may differ.
Brands can't completely shield themselves against rip-offs or infringement in such a scenario. Taking precautions and preparing ahead for new markets, as well as enforcement strategies, may provide brand owners an advantage and assist safeguard trademarks from being stolen when new markets emerge.
Constraints on smart contracts
A hacker targeted Ethereum’s “bullet proof” smart contract technology, stealing $60 million in the first 12 hours of the attack. There is no doubt that smart contracts are beneficial, but they also include dangers that might result in significant losses for consumers if they are not handled. Because smart contracts and blockchain technology are still in their early stages of development, we should wait to see how legal systems throughout the globe handle these agreements in terms of taxation and other regulations.
Furthermore, issues with smart contract termination and amendment are a serious concern, and improvements should be made to address this.
As a result, parties must first assess what rights buyers/licensees will have in the NFTs, evaluate marketplace platforms, and the underlying contracts and rights, including smart contracts.
Therefore, before releasing NFTs into the metaverse, creator must ensure sure all intellectual property rights are safeguarded.
NFT Classification System
For the classes of products and services for which they have been registered, trademarks are always protected (so called Nice Classes). While the sale of physical fashion items in the real world and via the metaverse is likely to be protected by the trademark registration for “clothing” in Nice Class 25, the question for fashion brands intending to sell virtual versions of the clothing via the metaverse is whether virtual versions of the clothing could also be covered by Class 25 or whether additional trademark registrations in other goods and services classes are required. This topic is particularly relevant for smaller, less well-known businesses, as well-known brands are more likely to be able to rely on their existing reputation and so claim cross-class trademark protection.
However, it is already being seen that well-known businesses are applying for previously existing trademarks in additional classes that are obviously geared at usage in the metaverse. Saint Laurent, for example, has reapplied for its existing trademarks in Nice Class 9 for downloadable and recorded virtual products, in Class 35 for “online retail shop services including virtual goods”, and in Classes 36 and 41, all of which are obviously aimed at usage in the metaverse.
Conclusion
Taco Bell, Coca-Cola, and Nike are just a handful of the big-name brands that are making their initial forays into the NFT world. Because these corporations possess all of the IP rights linked to the underlying works, the likelihood of their NFTs being the subject of legal action is extremely minimal, if not non-existent.
As the number of NFTs rises, so does the demand for safety. Although NFTs provides many opportunities for businesses, it is critical that NFT sellers clearly define what is and is not permitted in terms of intellectual property rights in the smart contract. Given the novelty of NFTs and trademark claims, it will be interesting to see how courts treat trademarks in the metaverse, and in particular, whether they identify a potential gap for trademark holders when it comes to trademark rights in the virtual world.
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