Senators call for joint study of NFTs and intellectual property issues

With a market capitalization forecast of over $35 billion for 2022, there is no doubt that non-fungible tokens (NFTs) are extremely popular. Despite this, the intellectual property rubric underlying these NFT offerings is inconsistent, confusing and, in many cases, in conflict with applicable law. These matters were apparently brought to the attention of Senator Thom Tillis of North Carolina and Senator Patrick Leahy of Vermont, who in a letter dated June 9, 2022 (consistent with their roles as Ranking Member and Deputy Chairman Judicial Committee on Intellectual Property), requested that the USPTO and the Copyright Office undertake a joint study addressing a number of intellectual property legal issues relating to CFLs. Citing these roles and their broader interest in “the continued development and use of emerging technologies,” the senators requested that the study address the following non-exclusive list of questions:

  • What are the current applications of NFTs and their respective IP and IP challenges?

  • What potential future applications of NFTs do you foresee and what are their respective potential IP challenges?

  • For current and potential future applications of NFTs:

    • How are the transfers of rights applied? What is the impact of the transfer of an NFT on the intellectual property rights in the associated asset?

    • How are license fees applied? Can and how can intellectual property rights in the associated asset be licensed in an NFT context?

    • How does the offense apply? What is the analysis of potential infringement when an NFT is associated with an asset covered by the intellectual property of a third party? Or when the underlying asset associated with an NFT belongs to the creator of the NFT and is violated by another?

    • What intellectual property protection can be granted? What IP protection can be granted to the creator of NFT? What if the creator of the NFT is a different person or entity than the creator of the associated asset?

    • If not, how does 17 USC § 106 apply?

  • What are the current and potential future uses, internal and external to your agencies, of using NFTs to secure and manage intellectual property rights?

  • How do current legal copyright protections, such as the DMCA, apply to NFT marketplaces and are these protections adequate to address current infringement concerns?

We have looked at many of these issues for our customers. We have also shared on this blog some concrete examples of these issues related to intellectual property. For example, our article on the StockX The litigation explored how and whether the doctrines of first sale and nominative fair use of trademarks apply to NFTs that represent trademarked physical goods. In that same article, we have highlighted many unanswered intellectual property-related questions at the heart of this case that necessarily reflect the heart of the questions proposed for study, such as the extent to which NFT ownership conveys benefits or costs beyond or separate from those associated. with ownership of the physical good?

In another recent article discussing the DMCA’s applicability to the NFT market, we noted that the Copyright Office published a report in 2020 that called the DMCA’s notice and takedown system “unbalanced” and suggested ways in which Congress could modify the existing regime. . Our article discussed in detail the nuances of a DMCA takedown of a server-based Internet-stored NFT versus storing using an alternative to traditional location addressing (i.e. say binding) called “content addressing”. An additional post on this blog raised several issues regarding NFTs and the DMCA, including, but not limited to, to what extent an NFT coiner who owns the copyright to content associated with the NFT can issue a valid DMCA takedown notice. to an NFT market operator to request that the NFT be removed from the list, if the NFT was distributed without an express content license agreement to the recipient. In any study published by the Copyright Office that discusses the adequacy of the DMCA takedown regime to manage the presence of infringing content in NFT marketplaces, it may well address these issues.

The senators requested that the USPTO and the U.S. Copyright Office respond to this request by July 9, 2022. If the agencies choose to undertake the study, the senators requested that it be completed by July 2023 However, given the pace of innovation in NFT and the crypto space and the current crop of active litigation regarding intellectual property issues and NFTs, there may be market-driven answers to many of the questions. these questions, even before the publication of the study. And, of course, as technology, creativity, and business models continue to evolve at an incredibly rapid rate, there are likely to be new issues to consider.

Caroline Rimmer, Proskauer Rose Summer Associate, is the author of this article.

© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 189

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