NFTs are a hot topic everywhere, from Super Bowl LVI (1) to fractionalized NFT ownerships. With major projects launching periodically, users are growing more attached to this captivating innovation that draws their minds and reflects their mind's personalities in the form of digital art. However, understanding the fundamentals of NFTs, such as their intellectual property, is also necessary for everyone.

Private property, no trespassing sign in Rodanthe, North Carolina.
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Artwork, literature, and genuine innovations are examples of things we make with our intellect and are considered intellectual property. In the analog era, it was reasonably simple to enforce these safeguards. Still, it is undoubtedly difficult to stand out in the digital age, where copy and paste are commonplace, and millions of individuals produce their work.

The potential for NFTs to revolutionize everything from modern art culture to music records, movie merchandise, and even football cards makes them an intriguing prospect. Even so, several problems must at least be partially resolved.

The industry still understands the NFT owners' rights, and there are further threats that must be promptly handled. Does the victim of a malicious actor who steals an NFT still hold the IP rights that state the precautions taken to avoid the possibility of duplicate NFTs being created on a competing blockchain?

What is NFT?

Non-Fungible Token NFTs are digital certificates utilizing blockchain technology to authenticate asset ownership. Since each NFT has a unique identifier and associated asset metadata (2) that cannot be altered or replicated, NFTs are the best way to establish and track ownership of both physically represented tokenized and natively digital assets.

Due to their inherent nonfungibility, NFTs cannot be exchanged for one another like fungible assets such as commodities or other assets where the underlying assets are valued equally. Banks will undoubtedly exchange a damaged bill for a fresh one during this time.

NTF inscription on cubes against the background of dollars and microcircuits
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While society has for eons distinguished nonfungible physical assets and valued them differently based on their uniqueness, for example, original artwork or collectible trading cards, this was not previously operable for purely digital content such as metaverse in-game assets where CTRL+C and CTRL+V can effectively create a perfect copy.

NFT makes it possible to distinguish between authentic digital assets and replicas while transforming solely digital content into distinctive, verifiable assets that individuals may value differently and exchange or trade.

How are NFTs connected to the blockchain?

NFTs employ blockchain technology to register ownership and validate authenticity. A procedure called "minting" is used to create the cryptographic token that serves to reflect the uniqueness and record it on the blockchain. An NFT is eventually cryptographically published on a blockchain and cannot be swapped or altered after minting.

blockchain concept illustration in 3d, connected blocks in blockchain.
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The programming of the smart contract facilitates and monitors the transfer of the NFT between buyers and sellers after mining is done. The smart contract code outlines the rules that apply to the NFT, such as the terms of purchase or resale, etc., and executes the transfer of NFT ownership on its own when the necessary conditions are satisfied.

However, NFT developers cannot create or transfer ownership rights over an underlying asset that does not already exist, giving buyers and sellers the advantage of a safe, effective market with streamlined transactions and verifiable chains of title. For instance, one cannot acquire ownership of a physical item, such as real estate, by minting an NFT for a tokenized piece of land another person owns.

NFTs and Intellectual Property

NFTs may be subject to intellectual property rights such as copyright, design patents, and even trademark rights; therefore, buyers or collectors should always be cognizant of what intellectual property rights are included with the NFT they have purchased.

While some NFTs include a license that only allows the NFT buyer to use, copy, and even display the NFT, in the case of Jack Dorsey (3), who sold an NFT of his first-ever tweet for $3 million (4), the owner of the NFT did not obtain the intellectual property rights in the tweet. It was, therefore, unable to print the tweet on hats and sell them without Dorsey's consent as he still holds the copyright.

Although some NFT developers limit commercial usage by giving extensive rights to NFT owners, members of BAYC (5) have commercial usage rights for their "Apes," which also implies they can sell caps, T-shirts, etc. Like this, CryptoKitties (6) has broad freedom to commercialize its merchandise under the license rules as long as the sales volume doesn't exceed $100,000.

creative commons CC BY-NC-ND
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This is all related to copyright, and once the NFT is established, copyright protection is already in place in nations like the USA (7). As a result, if the NFT is sold, the copyright owner does not necessarily pass it along. This subtlety implies that, barring any copyright assignment to the NFT, the copyright ordinarily remains with the original owner.

In addition, the copyright owner for the underlying work will receive any royalties from work in the future, regardless of who owns the NFT. However, NFT creators also have the option to add a royalty rate during the minting process, in addition to the specifications for the royalties added to the smart contract.

Furthermore, NFT royalties compensate creators every time their NFT is purchased; this presents a new way for artists to continue generating revenue from their work after the initial sale while retaining their IP rights.

This also suggests that the brand owner should pursue trademark registrations to cover NFT-optimization applications. For example, Nike (8), a sports-leisure clothing and footwear brand, has applied for trademarks covering the production and sale of virtually made-for-the-Internet apparel and footwear. Several trademark applications for producing and marketing virtual items have also been submitted by Walmart (9).

Design patents are precious because, unlike other intellectual property protection laws, they entitle owners to all of the profits made by infringers rather than just the portion of profits attributable to the use of the design, which makes them different from trademark and copyright protection. Brand owners should consider this in addition to trademark and copyright protection.

When an NFT is purchased, do intellectual property rights automatically arise?

It is always important to read the fine print to comprehend what you are buying fully, and it is certainly not possible to automatically create IP for NFT once acquired. The New York Times (10) pulled off a stunt when they released a piece about cryptocurrencies and collectibles and gave readers the option of tokenizing the version of the story.

This ultimately resulted in the sale of 350 ETH, valued at $560,000 at the time and roughly $600,000 by the beginning of August 2022. This NFT also included benefits that allowed buyers to identify images in a subsequent article but did not include copyright for the content, reproduction rights, or syndication rights.

With its digital recreation of Hermes' iconic bags (11), MetaBirkins (12) undoubtedly contributed to the NFT boom. However, digital artist Mason Rothschild (13) got into legal trouble with the designer brand after asserting that it would confuse buyers.

Compared to the Birkin bags (14), which cost between $40,000 and $500,000, these NFTs were sold on the OpenSea (15) platform for 5 to 25 ETH on the secondary market, with MetaBirkins being a little closer to the price range hitting six digits. While some of the 100 distinctive NFTs have designs like polka dots and cheerful smiles, some have images of famous paintings like Vincent van Gogh's Starry Night (16) and Leonardo Da Vinci's Mona Lisa (17).

The Hermes firm claimed that the artist Rothschild's MetaBirkins misappropriated their well-known Birkin trademark by merely appending the generic word "meta" to it. In addition to seeking monetary compensation, the company is asking for a court order to prevent Rothschild's NFTs from producing more samples and to give Hermes the domain name for the project's website.

This was certainly the first major example of a brand taking legal action over the use of its trademarks in the virtual world, and the outcome may shape how even artists and brands function in the still-unfamiliar territory. Similar but not identical ownership disputes have bubbled over a series of unauthorized NFT photos of Olive Garden (18) and Quentin Tarantino's NFTs from Pulp Fiction (19).

This all started when Hermes first sent the artist a cease and desist letter. While responding to it, the artist was unmoved and did not intend to take it down, but then the NFT marketplace OpenSea removed these NFTs from the platform and delisted them, sparking the dispute.

In contrast, Rothschild's idea reimagined popular designer bags with synthetic, colored hair and was a gesture that embraced alternative fibers and the expansion of fur-free fashion trends. Hermes asserted that the disclaimer at the bottom of the website states that Hermes is not affiliated with MetaBirkins and does not promote them. Still, Hermes asserted that the disclaimer ultimately made matters worse because the brand's name was highlighted.

Although Rothschild claims that this endeavor falls within the parameters of free speech under the First Amendment, which grants the right to create and sell artwork that features Birkin bags in a manner akin to how Andy Warhol was able to do with the artwork that features Campbell's soup cans (20). Later, he said that the fashion company's allegations were unfounded and intended to pursue legal action.

In the future, brands will need to get their heads around what is happening while comprehending the claims they wish to make and why they wish to make them. This case is undoubtedly an example for other artists and brands regarding whether the product might confuse a good-faith customer but remain the same in the metaverse as it does in the real world.

Which NFT collection offered the NFT buyer intellectual property rights as well?

It is certainly noteworthy that some of the top NFT collections on the market, such as BAYC, have provided users with full intellectual property rights. Thus, the BAYC NFT and any possible gains from them effectively belong to the users who own the BAYC NFT.

Major websites have sprung up where collectors can rent their NFT apes to brands. When actor Seth Green (21) revealed his intention to develop a television program based on his BAYC NFTs, Green made headlines.

Although Green's NFT collection was ultimately lost due to a phishing assault, he had to pay a major to the hackers to obtain those NFTs back. The BAYC license declares that users who fully own their NFTs also own the artwork, but it does not refer to what happens in theft cases.

Web3 and NFT protocols operating for transferring Intellectual Property rights

Although the 21st century has certainly begun as a battleground for intellectual property and a graveyard for creativity, things must change because this is, ideally, just the beginning. With new and improved NFT initiatives, it may be possible to clarify the veracity of these assets, safeguard their uniqueness, and simplify management rights.

Blockchains for IP rights are scalable, interoperable, and aspire to be included in the web 3. INV4 is an innovation, involvement, inventory, and investment protocol that includes on-chain copyright licensing and a variety of piracy-proof files.

This also points out the potential use case for how it is approached. It might alter the creative sector with a project that paints a scenario where decentralized music studios and record labels can flourish alongside individual artists that also contribute distinctive elements. This may also be combined to create a song with various beats and rifts, with each contributor keeping their intellectual property and holding the rights to track and split the royalties.

Users that obtain the most desirable NFTs, such as CryptoPunks (22), Bored Apes, or Meebits (23), can set up on-chain agreements that will enable them to extend the use of their NFTs in a third-party product.

A market in which artists and NFT copyright holders can generate attractive income streams from NFTs while increasing the raw value of these digital assets.A pre-existing marketplace where communities can purchase merchandise and items related to their interests.

Decentralized autonomous organizations might undoubtedly make it simpler for nonprofits to finance intellectual property development, and organizations could still create revenue flow without transferring the IP rights.

Even while it follows a natural path, the distance between the most well-known and expensive NFT collections and the tens of millions of other digital goods floating about on the blockchain and the upcoming web3 phenomenon will only grow with time, upgrading the digital world undoubtedly.

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