In January 2022, the Hermès companies sent a cease-and-desist letter to Mason Rothschild, an artist and NFT creator based in Los Angeles, regarding trademark infringement, dilution, and unfair competition claims. The allegations arose from Rothschild's sales of MetaBirkin NFTs online for prices as high as $23,500 in the digital world. In response to this letter, Rothschild penned an open letter to Hermès asserting the First Amendment in his defense. The ensuing social media buzz will no doubt draw even greater attention to the business of selling digital assets with powerful brands.

In a similar vein, Jay-Z recently sued Damon Dash, the co-founder of his record label, for Dash's attempt to mint and sell an NFT of the copyright to Jay-Z's debut album, Reasonable Doubt, as an NFT. It seems that as digital assets and NFTs become increasingly prominent and relevant culturally, such legal disputes involving NFTs would be inevitable.

For Hermès, Jay-Z, and other prominent business owners or celebrities, their names are the very backbone of their businesses and legacies. Naturally, the threat of NFTs being used by others to take unfair advantage of their reputations is highly concerning. If you are a brand owner, this may be cause for worry. How is it legal for someone to take the product and the trademark that you own in the real world, reconstruct it in the virtual world, and then sell it for their own gains? Do trademark laws protect your intellectual property beyond the physical world?

What is an NFT and how does it work?

An NFT or non-fungible token is a digital certificate that evidences certain rights associated with an asset. Each sale of an NFT is recorded on a blockchain, creating an immutable and verifiable ledger of the owner of each NFT. When an NFT meets all necessary requirements for creation, it is said to be "minted."

NFTs and possible trademarks infringement

Although not yet tested in courts, if someone wishes to mint an NFT of an existing trademark or copyright, they would likely need to obtain permission from the trademark or copyright holder who has sufficient rights to grant the "minter" permission to tokenize it into an NFT, or risk getting into legal dispute. Ownership rights of the trademark or copyright on the physical assets do not transfer to the purchaser of the corresponding NFT. The question remaining is, will the owners of the real-world copyrights and trademarks be treated as also owning those rights and marks of the corresponding NFTs?

Although it may take a while for this question to be considered by the courts in Canada, many owners find themselves unwilling to take the risk. To protect against this additional risk for infringement borne of NFTs, many owners of valuable copyrights and trademarks have been taking proactive steps to ensure they also own the rights and marks to the NFTs of their real-world assets. For instance, Mattel Inc., Marvel Characters Inc., and The Andy Worhol Foundation for the Visual Arts, Inc. are among trademark owners who made trademark filings regarding NFT brands as of October 2021. One notable wordmark on this list is "BLOCKCHAINSMOKERS" by musical artists The Chainsmokers.

As NFTs continue to capture the fascination of consumers around the world, acting fast to ensure "first mover advantage" is likely in the best interest of the owners from a business standpoint.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.