Webcast Explores Non-Fungible Tokens and Their IP Issues

Published: August 18, 2021


Valdir Rocha Veirano Advogados Associados Rio De Janeiro, Brazil INTA Bulletins—Latin America Subcommittee

A recent INTA webcast on non-fungible tokens (NFTs) and intellectual property (IP) provides an overview of cryptocurrencies and the minting of NFTs and examines their use to create unique digital assets that can be traded—especially by collectors and investors—and give artists a revenue stream. It also examines how NFTs can track the resale of digital works, even in jurisdictions that do not contemplate such rights in their national laws.

The webcast “What Are NFTs and the IP Issues Surrounding Them?” took place on August 12 and is now available on demand on INTA TO-GO. Nerissa Coyle McGinn (Loeb & Loeb, USA), a member of the Leadership Development Committee, moderated the event, and Mercedes Kelley Tunstall (Loeb & Loeb, USA) was a speaker.

Speakers explained that NFTs are transacted like digital cryptocurrencies on blockchain and possess unique identification codes that detect the blocks of data moving down the chain every time the data is sold to someone else.

Further, cryptocurrencies use encryption techniques to regulate the generation of units of currency and verify the transfer of funds. To transact, one needs to combine one’s individual key with the public key, and upon completion of the transaction, the buyer receives his or her own private key. If the owner loses the private key, he or she loses access to their cryptocurrency. The same happens with an NFT—if the key is lost, the NFT is lost.

An NFT has a base (usually Ethereum), a digital file, and smart contracts (computer codes that interact with the blockchain). When these three components are combined, the NFT is minted. The creation of NFTs marks the first time since the launch of the Internet that a digital content can be owned, cannot be copied, has verifiable ownership, and can generate royalties from subsequent sales.

Ms. McGinn highlighted several iconic examples of NFTs of well-known individuals and brands and the important IP issues that need to be addressed. Among the well-known examples is one created by an artist known as Beeple, which was sold earlier this year at Christie’s for US $69 million, the highest price paid for an NFT to date.

Other examples included the Stella Artois virtual racing horses that buyers were able to run in the brewer’s app. As in an iconic case of “crypto kitties,” also mentioned, Stella Artois’ horses can be bred.

Inbev launched its Bud Light NFTs following the Stella Artois example. Nike is going to use NFTs to authenticate real shoes, selling the shoes together with the respective NFT, the speakers said.

Soccer clubs are selling NFT cards with pictures of their players, musicians are using NFTs as a new source of revenue streams, and there is significant potential for NFTs to be used for the sale of tickets.

IP Issues

The speakers emphasized several IP issues. For instance, when creating an NFT for a short video, the creator must obtain consent from copyright and trademark owners if the works or products of those third parties are being shown. If any person appears on the video, that person’s rights of publicity should also be authorized.

An example of an NFT of a video where IP infringement took place was one created by a skateboarder who used a Fleetwood Mac song and was drinking a drink while skateboarding without authorization from the band or the drink’s trademark owner.

Ms. McGinn also noted that using stock photos, such as those available on Getty Images or other vendors, to create NFTs can create IP issues.

In terms of counterfeit NFTs, Ms. Tunstall explained that the solution is to use the takedown tools available in the market. In the United States, the Digital Millennium Copyright Act provides for such takedowns.

A company can create its own NFT platform, but to avoid liability, it should address security, reputational, liability, copyright, and securities issues.

Regarding infringement of IP rights on NFTs, Ms. McGinn cited a case involving record executive Damon Dash, who was prohibited from selling Jay-Z’s Reasonable Doubt album as an NFT. The venues took down the NFT, but Mr. Dash insisted on trying to sell it in other locations until Jay-Z obtained a temporary restraining order to stop him. Now Mr. Dash has brought a case over streaming rights, according to reports.

These cases and more are explained in the webcast.

Although every effort has been made to verify the accuracy of this article, readers are urged to check independently on matters of specific concern or interest.

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