In recent months we have noticed an upward trend in the number of matters relating to the use of non-fungible tokens (NFTs). We’ve also noticed how the interaction between IP rights and virtual content in a metaverse is becoming more widely reported. One example of this is the recent Hermès action against Mason Rothschild regarding the “MetaBirkins” NFTs, which feature images of Hermès’ iconic Birkin bag.

Though the technology behind NFTs is complex, the same principles of brand enforcement apply to unauthorised use of trade marks associated with NFTs. The familiar challenges of enforcing rights online still apply too.

What is an NFT?

NFTs are effectively pieces or “tokens” of metadata that allow digital content to be represented and authenticated on a blockchain, such as the Ethereum network. An NFT can be used for any form of digital content, for example a piece of digital artwork, that is unique and requires provable authorship and ownership.

In general NFTs can only have one official owner at any given time and therefore can be used as means of tracking and authenticating ownership of digital content though blockchain technologies, which act as a secure public ledger. In other words, an NFT acts as a certificate of ownership and authenticity for digital content. The exclusivity and authenticity of an NFT is what makes NFTs valuable.

Creating an NFT is known as “minting” and NFTs are minted through “smart contracts” that assign ownership and manage the transferability of NFTs on a blockchain. When an NFT is created, the creator executes a code in a smart contract that conforms to a certain standard for the relevant blockchain. The code and information in the smart contract is then added to the blockchain where the NFT exists and is managed.

How might an NFT infringe an existing trade mark?

Trade mark infringement may occur where an NFT incorporates a sign identical or similar to a registered trade mark, for example:

• Where an unauthorised third party offers for sale or sells an NFT that incorporates a registered trade mark, or references a registered trade mark without the proprietor’s consent
• NFT marketplaces, such as OpenSea, which facilitate the trading and exchange of NFTs, could also be exposed to liability for trade mark infringement, in much the same way as e-commerce platforms may be liable or be required to remove content. OpenSea recently removed the listings of Rothschild’s MetaBirkins following legal complaint from Hermès.

Use in the course of trade

Trade mark infringement requires use in the course of trade, so depending on the nature of use, the mere use of an NFT on a social media profile, for example, may not satisfy that requirement. Only when the use of the NFT is in the course of trade will trade mark rights be engaged, e.g. if a trade mark is applied to an NFT and offered for sale, at that point the trade mark is likely to be used in the course of trade.

A more complex point will apply to the process of minting an NFT on the blockchain, if the NFT is minted and used by a private individual. For example, it is unclear if creating an NFT of Nike trainers to be worn by an avatar in a virtual world can amount to trade mark infringement. The fact that the NFT may be created in the context of a blockchain eco-system and used in a virtual environment does not automatically amount to use within the course of trade. A consideration of all the circumstances will be required.

If there is a question whether the use in the course of trade threshold applies, it will be appropriate to consider if the trade mark applied to the NFT is an instrument of deception and qualifies as passing off. This subset of passing off was found to exist 25 years ago in the context of domain names, which were fraudulently registered by unauthorised third parties on the basis that the placing on the domain register of a famous brand name makes a representation to persons who see the register that the domain name registration is connected with the brand registered. An NFT using a famous trade mark is highly likely to be acting as an instrument of fraud where the use results in misrepresenting to the public that the NFT is connected with the brand owner.

Location of use and jurisdiction

The location of use may also be an issue in terms of establishing jurisdiction for UK trade mark infringement. For online use to qualify as “use in the UK” for trade mark infringement, the use must be targeted at the UK market.

There are well-established principles for the concept of targeting that would be equally applicable to NFTs, but if NFTs are being traded on social media or peer-to-peer platforms, for example, that have no specific target market or ties to a particular geographic market, it may be difficult to establish any targeting of the UK market. The usual targeting criteria will apply and it is important to bear this is in mind when taking legal action in the UK.

The goods/services protected by registered marks

Another important consideration for trade mark infringement is whether the registered mark covers NFTs or similar goods/services, or if the registrations for real-world goods/services protect virtual goods/services. Whether existing trade mark registrations for goods and services will be applicable to virtual equivalents is unresolved, so it is unclear if an existing registration for “trainers” will cover “virtual trainers”. It seems unlikely that physical trainers will be considered identical to virtual trainers, so it will be difficult to argue use of an identical sign in relation to identical goods. So proprietors may be forced to establish a likelihood of confusion in order to make out infringement.

In that sense, existing trade marks will provide some degree of protection, but perhaps not complete protection against the misuse of NFTs.

Of course, even if the registered mark does not cover NFTs or similar goods/services that is not fatal, it may well be arguable that the use of the mark takes unfair advantage of, or is detrimental to, the reputation of the registered mark, and therefore infringes.

Brand protection and enforcement

Even though the technology underlying NFTs is complicated and unfamiliar to many, the digital content connected to NFTs is essentially the same as any other digital media used online. If that media contains infringing content, businesses will be able to rely on IP rights, including registered trade marks, to restrict unauthorised use.

A main attraction of NFTs is that they exist within de-centralised crypto eco-systems. The de-centralised nature of the creation and peer-to-peer NFT trading through crypto communities, such as the Ethereum ecosystem, could make it challenging for brand owners and businesses to police NFT trading and protect their IP rights.

Monitoring NFT marketplaces will help to identify more high-profile NFTs and sellers, but rights holders may need to come up with more creative technical solutions to target and combat peer-to-peer trading.

Likewise, while it is possible to use the metadata to verify the author and owner of an NFT, the metadata cannot help link the NFT to a physical person, nor can it validate if a creator owns or has the rights to produce NFTs for the content. Therefore, practically speaking, rights holders may find it difficult to identify who is responsible for minting copycat or counterfeit NFTs.

The key for rights holders will be to identify what types of use they want to oppose, the types of use that can be tolerated and even uses that can be embraced and endorsed.

So, in summary…

• Even if you do not have a specific trade mark registration covering a virtual version of your famous physical world products, there will be a strong case for trade mark infringement on the basis of a similarity leading to confusion or through exploitation of the reputation of your trade marks and such use by unauthorised parties gaining an unfair advantage or causing detriment to the repute of your marks.
• A key issue for trade mark infringement will be whether the use of an NFT or other content in a metaverse is “use in the course of trade”. If the NFT is being offered for sale, it is likely to constitute use in the course of trade. If it is not offered for sale but is tokenised as an NFT created by a private individual for their own use, then there will be challenges proving that use is in the course of trade.
• Passing off might again be highly relevant for enforcement; it is 25 years ago since a domain name was considered to be an instrument of deception if registered in the wrong hands. A similar argument might be that an NFT, even if used by a private individual, could be an instrument of deception if it conveys to others that the NFT originates from or is connected to a particular brand.
• The normal jurisdiction challenges apply for any online use, but they may be even harder to overcome with NFTs and content in a metaverse. Identifying the ultimate party responsible for acts of infringement may be equally problematic, in particular identifying those responsible for creating unauthorised NFTs. In terms of offers for sale of NFTs, the usual targeting criteria will apply, so before taking action it will be important to assess the context of use and what rights you will deploy in which jurisdiction.

If you have any questions or would like specific advice in the area of NFTs and brand protection and enforcement, please contact Jeremy Blum at jeremy.blum@bristows.com or Simon Clark at simon.clark@bristows.com for more information and support.