NFT, Metaverse: a new challenge for intellectual property

NFT, metaverse, blockchain are new technologies that open up new virtual universes for both companies and individuals, but which raise questions for lawyers, especially in the field of intellectual property, in the absence of a well-established legal framework. This dematerialized world is generating new legal issues.

General presentation

NFTs have already invested heavily in online games like CryptoKitties, which allow you to buy virtual cats in exchange for “Ether” cyptocurrency. Companies are interested in this Web3 revolution to improve their brand and capture an often younger audience.

NFT (non-fungible token) works through a “smart contract” written on a blockchain that creates a token with a unique identifier. The “smart contract” is a computer code that allows programming of the creation of NFT, which can formalize an original creation or reproduce a brand.

Unlike digital images, NFTs contain unchangeable metadata, which guarantees that the possessed asset is the original NFT, in a tamper-proof manner thanks to their registration on a blockchain. The purchaser of NFT does not become the owner of the work itself or its media, but of a digital certificate of authenticity.

Copyright protection

The Society of Authors in the Graphic and Plastic Arts believed in a manifesto of June 7, 2022, that the creation of an NFT and the sale on the Web3 platform are acts of reproduction and representation that require acceptance by the recipient in these terms: “The marketing of a work associated with an NFT is no exception to this rule: no one is permitted to publish a digital work on a sales platform or to inject it into a metaverse without the consent of the artist or his successors in the title (heirs, funds, etc.) The theft of an artist’s identity can also give rise to severe punishments for other reasons ”.

When purchasing an NFT, which to date can only be done by cryptocurrency, the buyer becomes the owner of the metadata and not the copyright to the creation. A purchaser of an NFT must verify that the author of the original work has approved its transformation into an NFT.

The lawyer must attach himself to the computer developer by inserting contract clauses such as the resale right, which is the remuneration that the authors of original graphic and plastic works benefit from during resale of their works in the “smart code” and in the metadata.

The preparation of copyright transfer contracts must foresee future uses of the work, such as its representation in the meta-verse or the possibility of performing NFTs on the creation, because the intellectual property right in French law does not allow as destination as specified in the assignment.

In order to preserve copyright, contracts between authors and operators must be strictly regulated: for example, the clause “for all future products” may not be sufficient to determine the creator’s remuneration in return for a new mode of exploitation

It is advisable to specify the terms of use circulating with NFT and in the general terms of sale with reference to the sales platform.

Protection of trademark law

Metaverset is an opportunity for companies looking to position themselves in this new market to make their virtual products more attractive. In the last two years, we have witnessed an increase in requests for comprehensive trademark registrations.

The question that arises is whether it is appropriate to re-register a trademark denoting classic products in other classes denoting the virtual product or not. Is a trademark adequately protected against use in the metaverse, even if it only designates “classic” products such as glasses filed in Class 9, would this class protect augmented reality glasses?

And this while Article L. 713-3 of the Intellectual Property Code provides that: “Registration of the mark gives its proprietor ownership of that mark for the products or services which he has designated.”

To date, there is legal uncertainty and we have no case law. It will be necessary to examine the future attitudes of the various trademark registration offices.

The challenge is to identify the content and scope of ownership when offering virtual branded products for sale to position oneself in this virtual world and protect oneself from counterfeiting.

Some companies such as Nike have anticipated this by re-submitting their trademark in the United States in Classes 9, 35 and 41 on October 27, 2021. In France, the Carrefour Company filed on April 5, 2022 in Classes 9, 35, 36, 41 and 42, especially for “retail and online retail services relating to virtual goods, digital collectibles and non-fungible tokens” (class 35) or even “entertainment services, namely online games, where players can win virtual goods, digital collectibles, non-fungible tokens, digital tokens or other application tokens” (class 41). This brand is still under revision.

Care should also be taken to re-register the trademark to align the wording by targeting the products and services associated with the meta-verse, because the absence of registration provides the opponent with a defense in litigation.

Another question is the territoriality of trademark protection, because a virtual good does not correspond to a physical good: in what territory should it be protected? Will it be possible to implement the rules on counterfeiting on the Internet if a series of clues show that the French public is targeted (use of the French language, delivery in France, accessibility of the website for Internet users from France …)? Here again, it seems preferable to re-register the trademark for all the countries where it will be used.

Measures to combat counterfeiting

Due to the lack of verification of the authorship of works on exchange platforms such as Open Sea, an NFT may be issued on a protected work without the permission of the author.

The legal arsenal to combat counterfeiting to Web3 may take actions already known to the Internet, such as action in the notification of withdrawal of illegal content from the platform. An infringement case can be brought against the issuer; however, it will sometimes be difficult to identify it, and most of the time the players in the virtual world are located abroad.

In the United States, an artist has created NFTs representing iconic Hermès “Birkin” bags protected by copyright and trademarks called “MetaBirkin”, without requesting permission from the Hermès company to commercialize the NFT representing said bag. The Hermès company has initiated an infringement case against the artist, the case is still ongoing. In particular, it contrasts freedom of creation and expression through metaverse and intellectual property rights with damage to a company’s reputation and deception about the origin of the product.

In conclusion, regulation requires, in addition to the existing and / or future legal reference, innovative technological tools, even guidelines on good practice. More than ever, companies will need to involve lawyers in their digital marketing project.

By Me Nathalie Bastid, lawyer in Grenoble.

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