Despite the current prevalence of NFTs, it is often unclear what legal rights they convey to the new owner upon resale. Owners of copyright and trademark assets underlying NFTs may claim legitimate rights that conflict with those that NFT owners believe they possess. Below we examine legal questions related to NFTs and intellectual property (IP) rights, exclusivity, and other issues in light of recent lawsuits. We will also examine the impact of unsettled legal questions on the development of the metaverse and other next-generation technologies.
Rights of Copyright Holders to Mint NFTs of Their Works
Recently, New York-based art gallery Tamarind LLC received a cease and desist letter after announcing its plan to issue a series of NFTs based on a 60-foot-long mural known as Lightning or The Guernica of India. Artist Maqbool Fida Husain’s estate claims in the letter that it maintains the copyright to the mural, which Tamarind purchased from the late artist for $400,000 in 2002. Tamarind disagrees, contending the purchase gives it the exclusive, worldwide, royalty-free license “to display, market, reproduce and resell all or any part of the artwork, including on all digital and off-line media.”
Seeking relief from the cease and desist letter, Tamarind filed a complaint with the New York Federal Court on 21 January 2022 for a declaratory judgement stating that it can proceed to mint NFTs based on Hussain’s mural. The suit asserts that Hussain agreed that he would no longer be the owner of the artwork or the intellectual property associated with it.
The case is still pending.
Rights of Trademark Holders To Mint NFTs
While the Tamarind/Lightning case hinges on whether the IP creator conveyed copyright and trademark rights to the buyer, other cases involve buyers minting NFTs based on IP for which they definitely have not received the trademark holder’s blessing. For example, US-based sportswear giant Nike has sued StockX, an online resale marketplace selling NFTs of shoes, streetwear and other goods, for trademark infringement, trademark dilution, and other violations. Similarly, Hermès filed a lawsuit against Mason Rothschild for NFTs infringing the Birkin trademark. Such unauthorized use raises important questions regarding the NFT rights of trademark holders. As the NFT marketplace continues to expand, trademark holders are increasingly taking steps to protect their IP and assert exclusive rights to commercialize NFTs that depict or are otherwise based on their marks.
The Benelux Convention for Intellectual Property grants trademark holders the right to prohibit third parties from using identical or similar signs for similar or identical goods and/or services. For stakeholders in digital industries and verticals, that means that trademark infringement likely occurs if a third party uses the trademark without consent and registers the trademark for classifications linked to the metaverse, extended reality, video games, digital music and art, collectibles, or NFTs. However, because NFTs are a fairly recent development and new use cases emerge daily, few companies have registered their trademarks for classes associated with the digital environment. Currently, no case law has been decided, adding to the confusion. To ensure their IP is fully protected, trademark owners should file trademark applications that encompass goods and services associated with the metaverse, virtual spaces, digital art, and NFTs.
One recent high-profile case raises questions concerning chain of title over NFTs. In Free Holdings v McCoy, the plaintiff, a Canadian entity, alleges that it owns artist Kevin’s McCoy’s Quantum, which is regarded by many to be the first-ever NFT. Free Holdings brought a suit before New York’s Southern District Court, claiming that auction house Sotheby’s wrongly attributed ownership of the NFT when it sold the work for $1.47 million. Free Holdings asserts that it assumed the rights to the NFT after McCoy failed to renew his ownership. According to the suit, the blockchain on which McCoy minted Quantum requires that owners renew their rights every 250 days; McCoy let his ownership expire, and the NFT went unclaimed for years, Free Holdings says.
This case is important as it is the first to address the issue of what it truly means to own something minted using blockchain technology. While blockchain technology is supposed to provide a permanent and indisputable ledger of provenance, the complexity of the technology muddies the waters. The confusion is worsened by the inconsistent terms related to transfer of content and ownership from one blockchain to another. The court’s decision in this case should create a long-sought precedent and help establish how courts view ownership as it relates to blockchain. It could also shed light on whether blockchain is in fact the game-changing innovation that many of its supporters claim it is.
These cases are likely to have profound implications on blockchain technology and its utility in proving digital ownership in the metaverse. It is hoped that they will answer questions including whether minting an NFT is the exclusive right of copyright owners, when and how NFTs violate trademark holders’ rights, and whether minting NFTs is contrary to traditional legal principles protecting intellectual property. Of course, some of these cases may settle without providing any legal guidance, or be resolved by holdings that cannot be used as general references for future cases. Regardless of the outcome, companies in the blockchain, metaverse, and digital asset space should periodically consult with an attorney or a law firm specializing in NFTs and other emerging technologies for up-to-date legal advice on the complexities and technicalities surrounding the rights of IP holders in these spaces.
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