What Are IP Rights in Non-Fungible Tokens (NFTs)?

A study to be conducted jointly by the US Patent and Trademark Office (USPTO) and US Copyright Office (USCO) aims to bring clarity to this cloudy issue. Just before Thanksgiving, the Directors of the USPTO and USCO published a Federal Register notice seeking comments regarding IP concerns stemming from the growing use of digital assets known as non-fungible tokens (NFT or NFTs).¹ The USPTO and USCO also plan to hold public roundtables in January 2023 to gather input to assist in their work on NFT policies.

The Reasons for the Study

The announcement comes in response to a June 2022 request from Senators Thom Tillis (R-NC) and Patrick Leahy (D-VT), respectively the Ranking Member and Chairman of the Senate Committee on the Judiciary Subcommittee on Intellectual Property (IP).² They requested the study address the growing use and adoption of NFTs “in nearly all spheres—from academia to entertainment to medicine, art, and beyond,” which has made it “imperative that we understand how NFTs fit into the world of intellectual property rights—as said rights stand today and as they may evolve as we move into the future.”³

A study of IP ownership in the NFT context is certainly timely as there has been a notable increase in attempts to secure and enforce IP rights in the NFT and metaverse space. More and more companies are filing trademark applications to protect their rights regarding NFTs and the metaverse. Copyrights, too, have been implicated by NFTs as the technology’s ability to mark a digital copy with an unalterable blockchain identifier offers the possibility of identifying and prosecuting unauthorized copying of digital files. Indeed, notable lawsuits involving NFT-related intellectual property rights have already been filed, include those addressing:

• whether NFTs containing images of trademarked physical goods—allegedly used to authenticate ownership of those physical goods—infringe trademarks, or whether they constitute fair use in a secondary market;⁴
• whether images of physical goods infringe trademarks in those goods when the images are minted as NFTs, or whether those NFTs amount to new artwork protected by free speech rights;⁵
• whether newly minted NFTs including the same image as previously minted NFTs (that include trademarks) infringe the trademarks or are protected by free speech rights—especially where the newly minted NFTs include a disclaimer specifically asserting that the newly minted NFT is for the same image previously minted, but is minted as a new NFT for “educational purposes, as protest and satirical commentary;”⁶
• whether the scope of a license to publish copies of a script includes the right to mint NFTs of the script.⁷

The study also provides an opportunity to address additional issues beyond those raised in these already-filed cases. Other unresolved issues range from the most basic (such as definitions of foundational terms like token, non-fungible token, and blockchain) to addressing anticipated conflicts (such as whether minting an NFT that is directed to copyrighted material constitutes infringement of the copyright, assuming minting is not authorized by the copyright owner).

Ideally, the study will allow stakeholders to better know the scope of their IP rights in NFTs, and potentially the metaverse.

Questions Raised

Mindful of these issues, Senators Leahy and Tillis raised an expansive, though non-exhaustive, list of questions they would like the study to address, including broad, open-ended questions intended to provide the lawmakers with foundational knowledge, such as “What are the current applications of NFTs and their respective IP and IP-related challenges?” and “What potential future applications of NFTs do you foresee and what are their respective potential IP challenges?”

But the Senators also asked very specific questions targeted at particular problems, such as whether and how the Digital Millennium Copyright Act (DMCA) applies to NFTs and how IP infringement is to be analyzed with respect to NFTs in situations where a digital asset or other asset associated with an NFT is owned by a third party.⁸

Contributing to the Discussion

The USPTO and USCO are seeking public comments on the questions raised “to assist in their work on IP policy related to NFTs and in conducting the study.”⁹

Those who are interested in submitting written comments must do so by January 9, 2023, and public roundtable discussions¹⁰ will be conducted remotely according to the following schedule:

All members of the public will be able to watch the virtual roundtable sessions, which will also be recorded and made available for later viewing.

Bottom Line

As with any new technology, the advent of NFTs has given rise to a number of interesting and complex issues, including those related to ownership, licensing, and enforcement of IP rights. The study is an important step forward in identifying and addressing those IP issues.

Please reach out to us if you would like assistance with any aspect of the process of contributing to this discussion.

¹ 87 Fed. Reg. 225 (Nov. 23, 2022).

² See our firm’s prior discussion of the request in Senators Dive Into the World of NFTs, Asking US Patent and Copyright Offices to Consider Questions Regarding Related IP Rights.

³ Letter p.1.

⁴ See e.g., Nike, Inc. v. Stockx LLC, 1:22-cv-00983 (S.D.N.Y. 2022).

⁵ See e.g., Hermes Int’l v. Rothschild, No. 1:22-cv-00384 (S.D.N.Y. 2022).

⁶ See e.g., Yuga Labs, Inc. v. Ripps, 2:22-cv-04355 (C.D. Cal. 2022).

⁷ See e.g., Miramax, LLC v. Tarantino, 2:21-cv-08979 (C.D. Cal. 2021).

⁸ Letter pp. 1-2.

⁹ 87 Fed. Reg. 225 (Nov. 23, 2022).

¹⁰ Those interested in participating as a roundtable panelist must submit a request to do so by December 21, 2022 (not all requests will be granted).