NON-FUNGIBLE TOKENS: A SYNOPSIS ON CONTEMPRORARY INTELLECTUAL PROPERTY PROTECTION AND LEGAL CONCERNS IN DIGITAL ASSET MINTING
Intellectual property (IP) rights represent the protection of ideas, creative works such as musical and artistic creations. However, invention seems to be outpacing international and domestic IP legislation, the latest in the wave of invention appears to be the blockchain backed Non-Fungible Tokens (NFT).
NFTs present an interesting dimension in intellectual protection. Does ownership of NFTs confer exclusive rights as in copyrights and trademarks? This paper evaluates this emerging dynamic with brief analysis of the Hermes/Mason Rothschild dispute as well as the Spice DAO copyright conundrum. Perhaps the IP/NFT space would require a watershed event or case law that would eventually settle these emerging concerns or at least be a pointer to how they should be handled.
Intellectual Property simply refers to a body of intangible creations of the human intellect. This class of property require special protection, thus conferring rights to creators or authors over the creations of their minds and giving them exclusive right over their use for a stipulated period of time. Intellectual property includes copyrights, trademarks, patents and trade secrets. The scope of this paper would be limited to copyrights and trademarks and their interaction with emerging digital assests. Intellectual property has its origins in providing authors and creatives exclusive rights to their property, prevention of piracy and to reward mental labour. This system is in place to encourage creativity and also as an incentive to ensure economic reward for creative output.
THE WORLD INTELLECTUAL PROPERTY ORGANIZATION (WIPO)
The World Intellectual Property Organization (WIPO) is tasked with the duty of promoting the worldwide protection of both industrial property (inventions, trademarks and designs) and copyrighted materials (literary, musical, photographic and other artistic works). The organization emerged in 1967 and became a specialized UN agency in 1974.
WIPO emerged after the Paris Convention for the Protection of Industrial Property to help inventors gain protection for their works outside the jurisdiction of domestic intellectual property legislation. It currently has more than 180 member-states, 170 non-governmental organization as observers and holds a biennial conference.
WHAT ARE NON-FUNGIBLE TOKENS?
Non-Fungible Assets (NFTs) are assets minted (created) on the Ethereum blockchain; a decentralized peer-to-peer network of host computers. In simpler terms, an NFT is a creation; either a photo, drawing, enabled through blockchain technology. Its non-fungible nature is perhaps its most distinctive feature. A Fungible asset is one that is functionally indistinguishable from its equivalent making it perfectly substitutable. For example, 1naira in Lagos is perfectly substitutable with five 1nira coins from Abuja. The distinctive feature of fungible assets is that they occasion no loss or profit to the holder(s). A Non-Fungible asset is the direct opposite of this. It is not perfectly interchangeable even if the assets are similar in likeness, nature or appearance, as such, an exchange would render it an imperfect substitute and therefore not interchangeable. In addition to this feature and unlike other assets that can be physically handled, NFTs are digital in nature and cannot be physically transferred. A “Token” refers to an open ledger-like, trackable transfer of the ownership of an asset that is updated every time such ownership changes.
Though NFTs were first introduced in May 2014, but as Victor Danciu opined they became popularized during the 2020 lockdown, when many people were unable to leave their homes. Harvard Law Professor, Rebecca Tushnet believes that “in lockdown people can’t do many of the things they usually do for fun, so they trade intangibles instead. That seems like a good explanation for the rise of NFTs, with a side order of conspicuous consumption: Instead of setting piles of money on fire, you can set piles of money on fire on the blockchain.”
This trend continued into 2021 when the most expensive NFT till date was sold for $69.3million: “Everydays: the first 5000 Days”. Nonetheless, the current legal status of NFTs and the quantum of protection if any they can enjoy vis-à-vis Copyright laws remains vague and inconclusive. While this is unsurprising, especially considering that cryptocurrency and digital assets retain a controversial status globally among governments of the world, its usage has become too notorious and prevalent for copyright laws to ignore.
DO NON-FUNGIBLE TOKENS QUALIFY FOR TRADEMARK OR COPYRIGHT?
A trademark is a type of intellectual property consisting of a recognizable sign, design or expression that identifies products or services from a particular source and distinguishes them from others. Any legal entity can be a trademark owner, as such, an organization or individual can be a trademark owner. Usually, there are different trademark laws per jurisdictions, however, it is not uncommon to see similarities. A trademark owner has an enforceable right against anyone who uses the trademark without permission. A copyright on the other hand is the exclusive legally secured right to reproduce, distribute and perform a literary, musical, dramatic or artistic work. The core purpose of copyright is protection against unauthorized use of an artistic, literary, musical, dramatic work. In essence it confers a monopoly on the holder. The holder is therefore assured of fair use, getting credit and financial benefits.
The core difference between a copyright and a trademark is that the former protects original work, while trademark protects items that distinguish or identify a particular business from another. A trademark is established through common use of the mark while a copyright is generated automatically upon the creation of an original work.
In this sense, an NFT is a representation of the underlying work and not the work itself, however this distinction is not without its controversy. The luxury designer, Hermes filed a suit against Mason Rothschild citing the infringement of its trademark among other concerns. Rothschild who is a digital artist had created “METABIRKINS” as an NFT which mirrored the Hermes Birkin handbag design. Hermes complained that this digital representation which Rothschild advertised on numerous digital marketplaces constituted an infringement of its trademark rights since no permission had been sought. They argued that notwithstanding the addition of the prefix “META” to “BIRKIN”, it was an appropriation and a rip off.
In Rothschild’s defense, he argues that his First Amendment right gives him the right to make and sell art that depicts trademarked assets just as it gave Andy Warhol the right to make and sell art mirroring “Campbell’s soup cans”, cleverly making reference to popular painter Andy Warhol’s depiction of Campbell soup; an establishment where he was a customer. Rothschild appears to believe that an artistic representation (or in this case digital representation) of an intellectual property is not an infringement of the exclusive protection it enjoys. The vital question the US Court would ask is if IP protection can exist on any realm other than a physical one, especially since the domestic copyright legislation did not anticipate the emergence of the advancement in artistic and literary creations blockchain technology offers.
Another interesting issue emerged in the Spice DAO case where the NFT group splashed out almost three million Euros on the NFT depiction of the book “Jodorowsky’s Dune” based on the erroneous belief that the NFT conferred them the copyright to the actual book. Spice DAO seems to misunderstand the nature of ownership acquiring NFTs confer. When someone buys an NFT of an image, they are in effect purchasing a receipt that shows ownership; however, Callum Booth, the Editor of Plugged by TNW regards this sort of ownership as tenuous at best.
Whatever the case may be, the line between owning NFTs and the intellectual property rights discourse and its evolution should get more interesting in the coming years.
- Intervention of WIPO:
A quick fix to address the emerging concerns is for the Supranational body (WIPO) to harness a concrete body of rules, regulations and thresholds that directly target digital assets and make provisions for the rights enjoyed, protection accorded and process for recognition.
This would go a long way in giving direction to member-states on how to handle NFTs within their respective domains.
- Intervention of domestic legislation:
The rank of countries for the highest volume of digital assets traded include the USA, India, China and Nigeria. This should be a legislative front-burner for these countries. The digital asset space is largely unregulated in these countries and the longer they are discountenanced the steeper intellectual theft and disputes in this realm continues. Domestic legislation should be engineered to suit to the quantum of protection and rights member-states are open to granting at this nascent stage.
- Global Coordinated efforts to statutorily recognize and regulate the crypto-space:
This third recommendation is connected to the previous two. There is an urgent need for global cooperation to effectively address and curb IP concerns in the digital space, particularly NFTs. This cooperation is however more effective if coordinated by WIPO.