The Committee on Legal Affairs of the European Parliament published a study on non-fungible tokens (NFTs) and intellectual property (Dr. Katharina Garbers-von Boehm, Helena Haag, and Katharina Gruber for the European Parliament Committee on Legal Affairs, Intellectual Property Rights and Distributed Ledger Technology with a focus on art NFTs and tokenized art, October 2022, PE 737.709: europarl.europa.eu). The study focuses primarily on the impact of NFTs on copyright and vice versa. However, this study also includes information or arguments of high interest for trademark rights owners.
Definitions. – The authors of the study provide several factual definitions (as opposed to “legal definitions”), including “non-fungible tokens”, “Off-chain vs. On-chain NFTs” and “smart contracts”. They also describe the “minting” process required to create any NFT. Notably, the authors call on stakeholders (lawyers, engineers, and businesses) to adopt consensual definitions, an essential preliminary step to “the acceptance and the application of any potential future regulation concerning DLT in general or NFTs in particular” (p. 13).
Trademark law. – The authors briefly make reference to the Nike v. StockX and Hermès v. Mason Rothschild cases (pp. 40 and 41). However, to date, these cases have not given rise to any decision on the merits. Meanwhile, brand owners are advised to extend the scope of their trademarks (p. 41), i.e., classes 9, 41, or 42. The authors acknowledge, however, that brand owners face new challenges. They, therefore, recommend “A harmonized approach to the classification of virtual assets in the form of NFTs other is desirable” (ibid.).
Authentication and certification of goods. – It is recalled that “NFTs can also be used to verify the authenticity of physical assets” (p. 45). The study refers to the watchmaker Breitling, which issues “a blockchain-based “passport” which is based on NFT technology to certify the authenticity of its luxury watches” (ibid.).
Intellectual property infringement. – The conditions for recognizing intellectual property infringement do not seem to raise insurmountable difficulties. On the other hand, the authors specify that the technical characteristics of NFTs pose real and serious problems from the point of view of the effective execution of the rule of law (see p. 43). However, the study’s authors reassure the rights holders, who are not entirely helpless. One solution would be to provide in the relevant smart contract the possibility for the issuer of an NFT to “access the NFT in any wallet of any subsequent buyer of the NFT in order to move it to a “burn wallet”” ( p.43).
Detection of intellectual property infringement. – According to the authors, “the biggest challenge for trademark and copyright holders is the detection and enforcement of infringements, for which the application of artificial intelligence/upload filters – if possible on a self- regulation, voluntary basis – might be useful. Without such tools, the detection of infringements would face serious obstacles (p. 47). Between utilitarianism and opportunism, human nature is such that with each technological progress, it is to be expected that some will use profitable technological advances for their earnings without breaking the purse. Owners of intellectual property are aware of the risks and issues. Many of them have adopted and maintained since the early 2000s proactive defense strategies consisting in detecting infringements of their rights on the Internet. The advent of NFTs – and Web3 in general – only adds an additional front in the fight against counterfeiting. There is no doubt that rights holders and providers of counterfeit content detection and removal services will know how to adapt their strategies and tools to deal with this new threat. In any case, it is pretty legitimate for rightsholders to expect, on the one hand, from intermediaries to produce accurate and substantial self-regulation efforts and, on the other hand, from judges to issue deterrent decisions.
Self-regulation. – The ability of NFT issuers to embrace protective rules for Internet users and intellectual property owners will be the key to their success or failure. If that fails, it will be up to the legislator to end the abuses (pp. 9, 44, and 47). The authors are optimistic, recognizing that many marketplaces already provide functionalities for notifying and removing infringing content. In this regard, they add that “it is in the own interest of NFT marketplaces to provide for mechanisms that prevent the offering of infringing NFTs” (p. 47), which is in line with our opinion on the matter (iptwins.com, 2022-08-30).
Private International Law. – The disseminated nature of NFTs raises questions of private international law of unprecedented and challenging complexity. Procedurally, in the event of an infringement generated by the issuance of an NFT, which court would have jurisdiction? On the merits, the question that arises is that of the applicable law. The authors agree that “the private international law principle of lex rei sitae fails when it comes to distributed ledgers” (p. 7). No doubt, it will be necessary to give preference to an organic/subjective criterion rather than to the generating event, which presupposes the identification of the author of the generating event beforehand.
