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NFT and IP DISPUTES

As a specialist litigation firm with lawyers renowned for their experience acting in Intellectual Property (IP) and Art Law disputes, we have already seen some of the same IP Rights issues that traditionally have arisen in the art world, now affecting NFTs.

We are able to advise and act for third parties seeking to enforce IP rights infringed by NFTs, and for other parties to IP disputes arising out of the sale/purchase and creation of NFTs.

IP Rights and NFTs

NFTs (Non-Fungible Tokens) have risen to prominence in recent times as a must-have crypto asset. The size of the NFT marketplace is quickly approaching that of the global art market.

You can think of an NFT as a record, like a certificate/receipt, that is stored on an unchangeable digital ledger called the blockchain. When you buy an NFT, you acquire a unique class of crypto asset; it is a set of digital code that represents uniqueness and singularity (this is the “non-fungible” element). An NFT is therefore different to a ‘crypto currency’, which is “fungible” i.e. replaceable and mutually interchangeable.

Whilst being an asset itself, an NFT also represents or points to another digital or physical asset, commonly a digital or physical work: a meme, a sports clip, or a digital artwork; you may be familiar with the now ubiquitous ‘Bored Ape Yacht Club’ digital characters who have come to typify NFTs.

IP disputes can arise however, when an NFT has been minted (created) using work (an image, for example) that infringes a third-party’s copyright or trade mark rights. For an NFT buyer, and/or its creator, IP disputes may arise around the extent of the IP rights and contractual obligations are provided for in the NFT.

Despite a greater awareness of NFTs, they are still commonly misunderstood by both buyers and creators alike, leading to confusion, uncertainty, and an increased risk of litigation.

Recent examples of IP - NFT disputes:

  • Copyright: a successful copyright claim made in respect of an NFT featuring, and purporting to assign rights in, the artist Jean-Michel Basquiat’s 1986 mixed media work on paper, ‘Free Comb with Pagoda’. The NFT was created without the permission of the copyright owner (the late artist’s estate) and was removed from its hosting forum.

See the article here.

  • Trade Mark Rights: the Premier League’s enforcement of its trade mark rights in respect of NFTs created by former footballer, John Terry, which featured (without permission) protected trade marks, such as images of the Premier League’s trophy.

See the article here.

IP Risk in NFTs

As we referred to above, IP rights in NFTs present a risk to:

Copyright and Trade Mark Owners

The most common IP rights infringed in respect of NFTs are Copyright and Trade Mark rights, with rights owners having to take enforcement action to protect their rights.

Copyright Owners

The owner of copyright in a work (for example, an illustration, a video, a photograph) has the right to protect their work by stopping others from using it (copying, displaying, exploiting it) without permission.

Copyright infringement with regard to NFTs can occur when the NFT represents or directs to a work that copies the whole, or a substantial part, of an original work without the copyright owner’s permission.

The remedies available to copyright owners include having the work removed from the platform hosting the NFT, a claim in court seeking damages, an order for destruction or delivery-up of the infringing work, or in urgent cases, an injunction.

If your copyright has been infringed by an NFT, instructing the right legal counsel (experienced and knowledgeable in IP law and NFTs) is critical; an IP claim must be made precisely, decisively and without delay.

We have extensive experience in acting for copyright owners, enforcing their rights against infringers. We are happy to discuss this further with you – contact us.

Trade Mark Owners

The use of a third party’s trade mark (registered or unregistered) with an NFT without their permission (taking unfair advantage of the mark) can cause considerable damage to the goodwill in a trade mark, and correspondingly, its owner.

A complaint can be made to the platform hosting the NFT, however it will also be necessary to engage with the creator and/or owner of the NFT, in an effort to avoid litigation, if possible. The remedies available for trade mark owners against infringers include obtaining: an injunction to prevent further infringement; an order that the infringing goods/materials are delivered up or destroyed; an order for damages (financial compensation) and the payment of legal costs.

Trade Mark law is complex, with many traps to snare the unwary and inexperienced. If you believe your trade mark rights have been infringed in the creation of an NFT, it is important to consult IP specialists at the earliest opportunity. We have extensive experience in acting for trade mark owners, enforcing their rights against infringers. We are happy to discuss this further with you – contact us.

NFT Buyers

When acquiring an NFT, the buyer enters into a contract (a smart contract) with the seller, and the terms of that contract determine what rights are acquired in the asset connected with the NFT (if any). To protect the buyer, it is important to determine whether they are acquiring: only the NFT, the NFT and a digital representation of the connected work, or the NFT and the actual physical connected work.

The standard-form contracts often used with NFTs can lack certainty or may be opaque in the rights they purport to grant, or not grant the rights the buyer assumes. Why is this relevant? A buyer should have certainty as to what rights and obligations they are acquiring.

There are also multiple cases of NFTs being created using work that infringes copyright or the trade mark rights of third parties. The risk in buying an infringing NFT is that it becomes worthless, and the buyer may become a party to infringement proceedings; holding an infringing copy of an artwork can result in liability for an unwitting buyer.

If you have purchased an NFT and the rights conferred are not as represented, you suspect the NFT may infringe third party rights, or a claim of infringement has been made against you, it is important to seek urgent legal advice; we have the expertise and experience to advise you, please contact us.

NFT Creators

Despite the relative ease with which NFTs can be created, there are still some important legal issues of which creators should be aware:

Third-Party Rights

If a third party’s work is copied in order to create an NFT, without the permission of the owner of copyright in the work, it’s likely that the copyright in that work will be infringed. This can lead to legal action being brought against the NFT’s creator.

Copyright infringement can lead to not only the removal of the NFT from the hosting platform but can also trigger a copyright infringement claim against the creator.

The creator of an NFT should also be aware of any trade mark rights which may be infringed in the creation of the NFT. If an NFT reproduces and takes unfair advantage of, or is detrimental to, an existing mark, it may constitute trade mark infringement.

The law in respect of trade marks and copyright is complex, and so it is recommended that legal advice is sought if there is any uncertainty or a dispute arises on this point, particularly if a claim of infringement of third-party rights is made against you as a creator. We are able to assist and advise, as required.

Clarity on Rights

Smart contracts (which determine the terms under which the NFT is sold, and the rights and obligations that accompany the NFT) should set out and provide for the IP rights (copyright) being sold/retained/licensed. However, standard form smart contracts may not provide sufficient clarity to protect a creator – rights may be inadvertently disposed of or waived.

Also, if an NFT is misrepresented, a creator also risks falling foul of advertising and other ‘sale of goods’ regulations.

If you are accused of infringing a third party’s rights in your creation of an NFT, or you are concerned that it is not clear what IP rights are provided with an NFT you have created, we would recommend contacting us without delay.

Advice from our Specialist IP Team

If you wish to discuss any of the above issues, we recommend that you do not delay in contacting our specialist IP Team, headed up by respected and experienced IP lawyer,  Will Charlesworth.

 

Call us on 020 7632 4300 or make an enquiry online.