Trademark Issues In NFT's

NFTs, or Non-fungible Tokens, have received a lot of attention recently, but many people are still unaware of their uses and functionality. A non-fungible token, or NFT, is a blockchain-based digital asset that cannot be exchanged or traded.

Trademarks are frequently replicated in NFTs, usually without the owner's knowledge. Such unauthorised use immediately draws attention to trademark infringement and the remedies available for it. The Benelux Convention on intellectual property states that the IP holder is the sole person with the right to forbid others from using his registered product in an unfair way even if his product is not very prominent in the market. Otherwise stating, if any person not authorised uses the trademark without the knowledge of the owner in the metaverse or any digital space, then there has been a trademark infringement. However, many businesses have not yet filed their trademarks for protection in connection to the metaverse, digital art, and NFT because NFTs are still relatively new. Since the goods and/or services are distinct, a literal interpretation of trademark law would indicate that there is no trademark infringement.

In any case, the issue of resemblance of goods does not arise when it comes to well-known trademarks. Indeed, owners of well-known trademarks have the right to take legal action against comparable signs used for both similar and dissimilar goods and/or services. It is necessary to submit (or re-file) trademark applications that cover the goods and services connected to the metaverse, online world, digital art, and NFT in order to protect trademarks in the digital sphere. The owner of a trademark can also keep an eye on the markets for NFTs, take appropriate actions, when necessary (against, for instance, minters who lack the proper authorization to mint an NFT, markets where NFTs are for sale, etc.), and educate personnel to spot unlawful IP use in NFTs.

NFT – A BOON OR BANE FOR TRADEMARK HOLDERS

It is clearly visible that there are many instances of copyright and trademark infringement in the quickly expanding market that have not yet been discovered. Specifically, many digital artists attempt to "free ride" on the popularity or good reputation of specific Trademarks, changing not only the core principles of the chosen brand but also deceiving the public about the NFT that results from a partnership between the artist and the Trademark holder. Since the concept of NFTs is still emerging, there are many cases that have been filed under various courts by major brands regarding the trademark or any other intellectual property infringement by other companies who have either tried to sell their product or their trade name in the name of NFTs.

In the case of Yuga Labs v Ryder Ripps, Yuga Labs filed a lawsuit for trademark infringement against Ryder Ripps for their trademark infringement of the Bore Ape Yacht Club Trademark (BAYC). BAYC is a well- known profile picture generator NFT and Ripps is one of the critics and protestor against BAYC. In this case Ribbs copied all the details of the BAYC like its logo, tradename and is selling the copied Bored Apes in the form of NFT itself just like the main company BAYC but using its own name. Ripps has contended that by copying the entire trademark of the Bored Apes of the BYAC but by selling it under another NFT, it has recontextualized the trademark work and it cannot be considered as infringement.

It is necessary to understand here that the mention of the word "fair use" in the trademark right has two meanings i.e. 'nominative' and 'classic'. Nominative refers to the use of trademark in such a way that does not create a confusion in the minds of the consumer. And a classic fair use would mean the use of the class name of the product in the trademark. In this case it can be said that Ripps copying and selling the entire trademark in the same form could lead to a confusion in the minds of the people and hence it cannot be said to be fair use of the trademark. However, the lawsuit awaits final solution as it in its very early stage.

In Nike v StockX, the world-famous brand Nike has filed a suit for trademark infringement against StockX. StockX is allegedly selling their NFTs by advertising the Nike brand sneakers and Nike has stated that StockX is using their brand name and tradename for their own benefit. StockX is not selling the sneakers but the NFT vault. They can state that they are not selling the Nike sneakers physically but just the NFT and the person buying the NFT which is priced at a much higher price than the sneakers originally will have a pair of sneakers which they select for buying the NFT will be kept for them in the vault. It will only be available once the NFT owner resells the NFT to someone else which is called the redemption of NFT and after that the owner will lose access to the NFT and therefore they would also not get the sneakers.

However, the owners will have the contract papers and ultimately the would be entitled to their pair of sneakers. Owing to this the StockX can use the defence of the 'first sale' doctrine under the trademark law and state that it is reselling the Nike sneakers using this doctrine only. The trademark first sale doctrine holds that "resale by the first purchaser of the original article under the producer's trademark is generally neither trademark infringement nor unfair competition" unless the reseller's behaviour or sales practices creates a risk of consumer confusion or lead to the dilution of the original mark. Nike could raise contentions that an NFT is similar to a product being sold. The lawsuit is still pending and the closure of the same is likely to bring big chances in the world of trademark and NFT.

Trademark Issues Based on the Indian Perspective

With the rise of the IP infringement issues, people in India are also filing for the registration of their trademarks of the 'downloadable virtual goods' and 'online virtual services' from the Indian Trade Mark Registry. But the main issue arises with the classification of these goods because at present the downloadable goods are being classified under downloadable computer program. But with the increase in the NFTs a clear classification would be required to curb out the confusion.

Another issue that the trademark law is facing with respect to the NFTs is of dilution. It means the use of some famous trademark illegally for an unrelated product. In this case even the two products are unrelated the improper use might lead to the weakening of the reputation of the trademarked product.

It is necessary to understand here that the mention of the word "fair use" in the trademark right has two meanings i.e. 'nominative' and 'classic' and both these terms have provided the NFT makers with enough gap to escape the law without liability. Nominative refers to the use of trademark in such a way that does not create a confusion in the minds of the consumer. And a classic fair use would mean the use of the class name of the product in the trademark. Therefore, it brings us down to another major issue that is that the present Trademark laws are not well- prepared for being used in the digital world. They need to bring clarity for the NFTs makers as to what could amount to infringement.

The trademark infringement in the digital world is likely to have great impact on the trademark reputation because of the growing exposure of the people towards these NFTs as a way of investment. The trademark law which only used to provide protection in the virtual world now requires provisions for protecting the rights of the trademark holders in the virtual world and also mention the remedies available to them in case of infringement.

Conclusion

The grant of a trademark depends on the commerciality of the product and on reviewing the above cases it has become very clear that even if the infringement takes place on a very small scale but it will largely affect the company because the infringement is taking place through NFTs on a digital platform which is continuously gaining more and more popularity and with a greater number of consumers the product credibility is likely to take a fall.

Due to the fact that product resemblance is not a necessity to prohibit registration or use of a later mark, owners of well-known Trademarks stand a good chance of banning its use in the digital sphere under existing Trademark regulations. If it can be demonstrated that the corresponding virtual goods are unfairly abusing a trademark's reputation or are otherwise harming it, the trademark's legitimate owner may suspend the virtual goods. The owners of "regular" Trademarks, however, face challenges. As a result, the new NFT market may have an impact on all trademark owners.

It is evident that there will be a proportionate rise in trademark infringements given that there are more and more virtual goods and services being sold on the new digital markets every day. There are many questions that must be resolved. Among them one issue is the applicability of the various rights under the trademark law that is granted to people in the real world and the applicability of the same in the NFTs. For instance, the use of the doctrine of first- sale might give a defence to users like StockX who try to deceive the parent company of the trademark. Now is the time to begin securing trademark rights for the alternative reality since NFT is a future that has already materialised and is swiftly turning into our present. When virtual goods and services are protected by trademarks, trademark owners will be more confident in their ability to combat trademark infringement and assert their rights.

The major question that requires attention is not whether the NFTs will flourish but whether the world is ready to protect its laws and make them applicable to the digital world in the same way as the real world.

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.