Non-fungible tokens (“NFTs”) have become a topic of significant interest for intellectual property owners, content creators, investors, and crypto-enthusiasts alike. Whether or not they will transform markets by ushering in a new digitised future, it is clear that NFTs present commercial opportunities.
NFTs are unique, digitised certificates of ownership rights which exist in relation to some digital content, live on the blockchain, and are “minted” (i.e. created) using self-executing smart contracts. The scope of an NFT owner’s legal rights, as well as the provenance of those rights, are “baked in” to that NFT’s immutable, incorruptible code, and the metadata associated with it.
These specific qualities allow for a number of compelling applications for this new asset class. For example, NFTs could become the gold standard for sharing certificates, tickets, and other documents which represent proof of pedigree. This use-case extends across sectors, from recruitment (e.g. to verify diplomas and employment history) to sports and entertainment (e.g. to prevent ticket fraud). In the music, media, and entertainment industries, artists, musicians, and content creators can secure for themselves a cut of the revenue from all secondary sales following an initial transaction simply by encoding royalty provisions into their NFTs’ unalterable smart contract codes. This application is particularly relevant in today’s burgeoning “creator economy,” where we can witness the balance of power shifting away from platforms and toward artists or content creators and their fans. For creators looking for new ways of monetising their work and increasing fan engagement, digital NFTs appear to offer a compelling case.
Much media attention has however focused on the “hype” surrounding NFTs as unique collectables or investment assets, and indeed many businesses are taking advantage of their brand power to monetise existing IP by minting NFTs, either on their own or in collaborations with other names. Adidas, Nike, Gucci, and Louis Vuitton are just a handful of the fashion giants leveraging their brand power to generate further income flows via NFTs. Earlier this month, jewellery titan Tiffany & Co. debuted a pendant which reproduces, in gem-embellished rose gold form, the digital artwork known as Cryptopunk #3167 – an NFT owned by its VP Alexandre Arnault – in a business move that bridges digital art and tangible goods. Individuals, too, have begun embracing NFTs as a new means of commercialising cultural cachet: former NBA star Dennis Rodman recently released an NFT collection celebrating his iconic hairstyles.
Yet NFTs are not without their criticisms, dangers, and legal drawbacks. Blockchain technology is exceptionally energy-intensive and many have pointed to its environmental impact. Further, the proliferation of NFTs presents potential dangers for market participants. Because of the low barriers to entry involving in creating and selling NFTs, owners of intellectual property will need to be vigilant in policing their IP rights and goodwill against unauthorised use, for example by dealers attempting to exploit rights in IP they do not properly own; the Tolkien estate’s successful WIPO complaint against crypo-project “JRR Token” for trademark infringement offers a recent example of such policing. Those who mint, advertise and sell NFTs will also need to keep abreast of regulatory developments and decisions from bodies such as the Advertising Standards Authority and Financial Conduct Authority, both of which are taking an increasing interest in this area (the former, for example, issued a decision late last year against Arsenal Football Club in relation to the Club’s ads for Fan Tokens). Finally, consumers wishing to participate in this market would be well-advised to engage in at least some due diligence before purchasing an NFT to avoid unpleasant surprises relating to, for example, the content of NFT ownership, the legal rights of the seller, and the accessibility of the digital asset to which the token relates.
Ultimately, however, and despite these issues, NFTs are poised to become an important feature in the intellectual property landscape.