Non-Fungible Tokens (NFTs) & Intellectual Property (IP)

When an NFT for a piece of digital artwork (by the artist Beeple, aka Mike Winkelmann) sold for $69 million in March 2021, it became the third most expensive artwork ever sold by a living artist. Now businesses and the legal world are trying to understand the commercial potential and legal issues surrounding NFTs.

What is an NFT?

In essence, an NFT is a type of cryptoasset; an NFT certifies the uniqueness of an individual digital asset.

Like Bitcoin, NFTs are stored on blockchain. However, unlike Bitcoin and other cryptocurrencies, NFTs are not interchangeable, because each NFT is unique. You can swap a Bitcoin for another Bitcoin and the value of the cryptoasset in your possession has not changed. This is not the case for NFTs, as each NFT is different, so too is their value.

NFTs have become a hot topic in recent months, and not only because of Beeple example. The Kings of Leon recently released NFTs for their latest album, with NFTs being available for deluxe digital versions of the album and other perks, such as digital artwork and access to limited edition vinyl. Floyd Mayweather has just announced that he will release NFTs for digital animations, artwork and memorabilia in advance of his fight with YouTuber, Logan Paul. Kate Moss is currently auctioning three digital ‘moments in time’ (also known as three short videos, one showing her sleeping, another showing her driving, with the final video showing her walking) for charity.

Commercial use of NFTs

But is there a commercial use for NFTs, beyond these examples? Put simply, yes – NFTs have been used for some time within the gaming community, with perhaps one of the best-known examples being CryptoKitties, a game that enables players to breed collectable digital cats using NFTs.

Commentators are also speculating as to how NFTs may revolutionise e-commerce, with NFTs replacing SKUs and allowing for infallible data tracking for products.

In addition, there is the potential NFT application in a Software as a Service (or “SaaS”), where access to the asset, rather than ownership of the asset, is the key revenue generator. An NFT could provide a means of issuing proof for a customer’s right to access the asset at a specific time and place, and the storage of the NFT on the blockchain can be used to enable that asset.

Are NFTs a form of IP?

Whilst an intangible asset, NFTs are not a form of IP.

However, they do have significant potential to impact how IP is protected. Consider the digital art example, the ‘original’ art can be tracked through the blockchain ledger. Any unauthorised copies of that art would be easily identifiable as infringing copies, for the purposes of copyright.

A real-world example of the interplay between IP and NFTs can be seen if we look at Nike.

At the end of 2019, Nike secured the grant of a US Patent for a blockchain system for recording and transferring ownership of Nike’s trainers. Upon the purchase of a physical pair of Nikes, the purchaser will be granted an NFT for corresponding digital shoes – that NFT verifies the authenticity of the shoe, as well as providing the NFT holder with other perks. This demonstrates how NFTs and blockchain can be used in the fight against counterfeits and also how patents may be obtained to protect NFT and blockchain-related inventions.

It is also interesting to note that Nike’s plans for its ‘Cryptokicks’ appear to go beyond concerns relating to counterfeiting and into the realm of NFT owner generated designs. The patent reportedly provides for the NFTs to be traded independently of the physical shoe, for the digital shoe to be mixed with other digital shoe designs and for a shoe to be made to that hybrid design. Cryptokicks have yet to be released (although trade mark filings for the brand have been made in a number of jurisdictions) and it will be interesting to see how the resultant designs from these hybrid shoes are treated – will they be owned by Nike, or the NFT holder.