On June 9, 2022, the Chairman, among others, of the Subcommittee on Intellectual Property of the United States Senate Judiciary Committee, requested a study on the intellectual property legal issues associated with non-fungible tokens (NFTs), in order to understand how this new technology interacts with intellectual property rights. On November 23, 2022, the United States Patent and Trademark Office (USPTO) and the U.S. Copyright Office published a request for comments from stakeholders. In response, the two institutions received sixty comments from a variety of stakeholders, including industry organizations, businesses, artists, and inventors. A series of three public online roundtables was also organized in January 2023 to gather additional contributions (Joint study on intellectual property rights and non-fungible tokens | USPTO). This reflection gave rise to a report published on March 12, 2024 (Non-Fungible Tokens and Intellectual Property: A Report to Congress (uspto.gov)).
Definition of a non-fungible token (or NFT)
There is no universally accepted definition of NFTs, but the authors of the report have adopted the following definition:
A non-fungible token (NFT), which is unique and non-interchangeable, is:
- a unique cryptographic token, with technical characteristics ensuring that its data is accessible only to authorized users;
- recorded on a blockchain or other distributed ledger system, which is a distributed database that records and stores information immutably; and
- providing the owner with rights or access to one or more assets or entitlements (pp. 2-5).
Indeed, NFTs can grant their owners rights or access to various assets. The authors emphasize the distinction between the token and the associated asset or right, clarifying that owning an NFT does not necessarily confer ownership of the intellectual property rights to the associated asset.
NFTs and copyrights
Copyright considerations related to NFTs are varied and complex. One primary concern is that minting an NFT may constitute creating a copy of a copyrighted work, thereby invoking the exclusive reproduction rights of the copyright holder (which could be the author, the assignee, or the licensee). Additionally, the authors of the report highlight that simply storing an asset associated with an NFT can raise copyright issues, as on-chain storage often necessitates creating a copy of the artwork.
Moreover, marketing an NFT inherently involves copyright considerations. It is crucial to differentiate the work from its medium; transferring an NFT reassigns ownership of the digital token but does not necessarily transfer the copyright of the associated work. Therefore, a separate agreement is often required to transfer these rights.
Finally, while smart contracts can automate parts of this process, the authors urge caution regarding the legal validity of such transfers.
The authors of this report believe that existing US laws are sufficient to address copyright infringements related to the creation or use of NFTs. They emphasize that rights holders can enforce their rights using tools such as the Digital Millennium Copyright Act (DMCA) notification and takedown system, which allows for the removal of infringing NFTs. However, the authors acknowledge that enforcement can be challenging and sometimes arduous due to the anonymity of counterfeiters and the decentralized nature of NFT storage, which complicates the identification of infringers and the removal of infringing copies.
NFTs and trademarks
Trademark owners can find several uses for NFTs, starting with the function consubstantial with a trademark which consists of identifying the origin of the products. NFTs can also play a role in trademark rights management. Finally, businesses can employ NFTs as a new form of media to reach new consumers with interactive products and services.
The authors of the report recall that as part of a trademark registration or trademark extension procedure, the USPTO requires specific descriptions of goods and services linked to NFTs. As part of this exercise, it is important to describe the assets or services offered precisely. Classifications of goods and services The prices associated with NFTs are determined based on the characteristics of the underlying assets or services, and not the NFT itself. The USPTO’s Trademark Next Generation ID Manual (known as “ID Manual”) provides a list of acceptable identifications for NFT-related goods and services in trademark registrations. This list is regularly updated to reflect evolving market practices and includes specific examples, including the following:
– Class 009: downloadable image files authenticated by NFT;
– Class 016: paintings authenticated by NFT; or
– Class 35: an online marketplace for buying and selling goods authenticated by NFTs.
Some stakeholders had suggested expanding the list of these goods and services to better represent the wide range of those related to NFTs. Thus, terms such as “downloadable” may not always be accurate because many NFT-related assets are stored on third-party platforms and accessible by buyers without downloading. In response, on April 20, 2023, the USPTO added new identifications for goods and services related to NFTs to the Identification Manual.
Regarding the international classification designations, some stakeholders had also recommended considering the full range of goods and services associated with NFTs, highlighting the need to more clearly differentiate goods and services in the classification system. Subsequently, the USPTO advocated to the Nice Classification Expert Committee for reform which ultimately resulted in the addition of new entries in the Alphabetical List (in classes 9, 25, 35 and 42).
The authors of the report observe that trademark counterfeiting is common on NFT platforms. Some stakeholders representing trademark owners are concerned about both the volume of counterfeiting and the degree of collaboration of intermediaries:
“One commentator noted that trademark owners are not confident that NFT platforms will suppress unauthorized uses of a mark in connection with digital goods based on a trademark registration for similar physical goods” (p 54).
This intervention also demonstrates the need to extend the material scope of the trademark to the goods and services concerned. However, the validity (even partial) of a trademark being subordinate to its use in business life, this also forces the owners of a trademark to use the latter for said goods and services, which sometimes involves unforeseen investments. . Under these conditions, it is desirable that judges who have to rule on such cases show understanding towards trademark owners.
The report’s authors add that blockchain-based domain names pose a serious concern for trademark owners due to the risks of cybersquatting.
Dispute Resolution
The report rightly proposes the creation of a centralized mechanism to resolve disputes involving blockchain-based domain names, modelled on the ICANN model known as “UDRP” for “Uniform Domain Name Dispute Resolution Policy”. which proved its effectiveness at the end of 1999.
Recommendations
The report includes a number of recommendations made by stakeholders towards NFT platforms:
- Verification of sellers;
- Transparency (providing clear information in particular on the intellectual property rights transferred during the sale);
- Encoding of information: encoding intellectual property rights information in NFTs and making it accessible to buyers;
- Disclosure of identities to help right holders identify infringers;
- Develop tools allowing rights holders to detect counterfeits;
- Propose a mechanism for removing counterfeits (in compliance with the DMCA law).
- Adopt measures against repeat offenders.
In short, it appears from these recommendations that stakeholders encourage platforms to comply with the law and best practices in the fight against online counterfeiting.
Legislate?
As for the need for legislation, the report’s authors take a patient and cautious approach justified by the evolving and rapid nature of NFT technology. In other words, it is better, at this stage, not to restrict the creativity of players in the sector.
In doing so, the authors of the American report adopt a position which differs from that adopted by the British in an equally recent report (Recommandation de la Commission européenne sur les mesures à adopter pour combattre la contrefaçon – IP Twins, 2024.03.220).
Use of blockchain technologies by the USPTO
Finally, blockchain technology could also be integrated into certain processes of the United States trademark and patent office, for example for the issuance of trademark registration certificates or exchanges information between intellectual property offices, in particular to eliminate the need for trademark owners to submit certified copies of registrations to foreign offices.
