By: Christos Makridis
Intellectual property (IP) is integral to economic activity because it provides not only legal protection under the rule of law to inventors and creators, but also incentives for exclusive access to benefit from the discovery. “Industries in the United States that intensively use IP accounted for 41% of domestic economic activity in 2019,” according to the U.S. Patent and Trademark Office. Although the costs associated with fraud and piracy are hard to quantify and detect, counterfeit trade for the European Union (EU) represents 6.8% of imports from non-EU countries, according to 2016 data from the OECD.
Non-fungible tokens (NFTs), or digital assets that are used to authenticate ownership, coupled with near-field communication (NFC), have the potential to substantially reduce fraud and strengthen protection of IP since the sequence of an asset’s activity can be tracked on an immutable and public ledger, or a permissionless blockchain.
“While blockchain has been around since the 1990s, the availability of computing power was a limiting factor... but not anymore! Patent and trademark offices should look towards the blockchain as a way of recording IP, particularly as a way of spurring entrepreneurship among startups and smaller organizations that do not have the same resources to devote to the legal fees associated with patents and trademarks,” said Michael Dorner, chief executive officer of VariusSystems and president of the International Card Manufacturers Association.
“NFTs provide enormous potential for IP licensors, licensee’s and regulators, largely due to the transparency blockchains provide. For example, if an individual wants to license IP rights, an NFT-based system could give them the opportunity to secure a license simply by minting an NFT aligning with that license, while also completing any necessary paperwork. Given the fragmentation and black box that is today’s IP regime, this improvement in efficiency offers a promising solution,” said Jacob Robinson, host of the Law of Code podcast.
ALTAVA Group, in collaboration with Cosmic Shelter, and Fendi have launched the first-ever virtual ... [+]
The legal landscape has established platform-agnostic precedent on intellectual property, meaning that innovations on the blockchain can be grafted into existing law. Nonetheless, without much, if any, case law that has yet to rule or enforce major cases involving IP on the blockchain. However, there is a growing recognition that violations are commonplace.
“The vast majority of NFT art projects … convey no actual ownership for the underlying content,” said Alex Thorn, head of research for Galaxy Digital involving a recently-released report. “We reviewed the licenses for all of the top NFT collections, and in all cases, except one, the issuers offer only a usage license to the NFT purchaser, with varying levels of commercial rights ranging from permissive to highly restrictive. In many cases, issuers are less than forthcoming about this point, either encouraging directly or by omission through their marketing content a widely held misconception that ‘you own the art,’” according to the report.
Until IP can be clearly articulated to NFT holders and enforced, the decentralized vision of web3 is unlikely to scale. “Acquiring an NFT, or digital asset in the metaverse, oftentimes comes with commercial exploitation rights which allow the owner to use the image for commercial purposes, thus giving them IP ownership to the particular NFT they own. However, holders are generally not allowed to utilize the brand trademarks associated with this NFT, but that can result in confusion,” said Natalie Rebot, founder of the Moonlite Projector toy and co-founder of Supercute World NFT.
Renault Motor Korea x ALTAVA Metaverse NFT Project Oct 2022
VeeFriends is an example of an NFT project that not only contains IP behind it, but also clearly communicates to holders what they receive when buying an NFT. “What was innovative for VeeFriends is that it was birthed, created, and established first and foremost using NFT technology, building an audience and community of holders… it is still backed by copyrights and trademarks, just like other notable and traditional IPs,” said Andy Krainak, president of VeeFriends. "VeeFriends is an IP company, and we believe that experiencing the brand through events will be an essential part of our DNA,” Krainak continued.
The original VeeFriends collection – born in 2021 and developed around characters that were imagined, drawn, and created by Gary Vaynerchuk – features 10,255 NFTs and the second iteration featured 55,555 lower priced NFTs as of April 2022. Recently, Company Chairman, Gary Vaynerchuk, named Sivan Nadler and MyLinh Chau as Executive Vice Presidents to lead strategy and production for the VeeFriends' experiences and events division with a mission of building bespoke events that drive value to the VeeFriends community and partners through meaningful experiences - both in person and virtually.
“We used NFT technology as a foundational layer for the VeeFriends because of the inherent benefits and use cases that blockchain technology provides… establishing provenance and the legacy of ownership of VeeFriends NFTs, which are meant to unlock access and utility to holders/owners through events, digital and physical collectibles,” Krainak continued.
VeeFriends NFT Collection
Fashion brands have much to gain through the use of NFTs. “We digitized every item in our WOY (Worlds of You) metaverse application for ALTAVA, with final approval coming from the brands themselves. In our upcoming version, only approved brands and creators will be able to produce items like, say, the NFT jacket from Balmain and trade/sell these items in our market, which has built-in security,” said Andy Ku, chief executive officer and founder of ALTAVA Group.
“Particularly with the use of NFCs, NFTs offer substantial protection for brands to prevent fraudulent activity and copycats,” Dorner continued. In this sense, every purchase of a luxury item could have an embedded NFC and come with an NFT to ensure irreversible proof of ownership and authenticity.
NFTs have the potential to track IP even better than conventional approaches because they tokenize ideas at their most granular level. Federal agencies that oversee patent and trademark applications have played an integral role in economic development over the years, but they are still centralized entities that can experience backlogs, labor shortages, among other challenges. In contrast, NFTs are published on the blockchain, meaning that their contents are on public display on a distributed, immutable digital ledger.
