Fintech

They want to fight for their right to NFT

Does owning a shoe or screenplay give you the right to turn it into an NFT? Lawsuits are testing the boundaries of intellectual property rules for digital assets.

A gavel made of tokens.

Trademark law is relatively settled, but NFTs are testing some of its principles.

Illustration: iStock / Getty Images Plus; Protocol

A wave of NFT lawsuits is cresting as celebrities, corporations and startups scramble after the intellectual property rights that may or may not ride along with the trendy tokens people are trading.

NFTs don’t themselves convey any intellectual property rights, unless a contract specifically provides those rights and vests them in ownership of the token. But that hasn’t stopped many NFT buyers from trying to convince themselves and others that owning a shoe, screenplay or some other form of intellectual property gives them the right to mint digital assets off of it.

When any new technology is released, there is always conflict until a standard set of understandings sets in, said Peter Willsey, an intellectual property attorney who has worked on NFT cases at Brown Rudnick. Willsey expects to see NFT lawsuits filed for a couple of years until the law is more settled and people find legal ways to get what they want.

“With any of these changes in technology over the last 30 years, eventually litigation is going to teach people what the rules are,” Willsey said. “College students got sued for using [Napster]. After a while people realized, ‘You know what, I'll just pay Spotify the monthly fee, and legally get whatever music I want’” instead of relying on unlicensed file-sharing.

Trademark law is relatively settled, but NFTs are testing some of its principles. A notable lawsuit involves Yuga Labs, creator of the popular Bored Ape Yacht Club NFTs, which has sued Ryder Ripps, who minted NFTs that essentially copy Bored Apes. Ripps has said that he was “trolling” consumers. Yuga accused Ripps of trademark infringement in Los Angeles federal court, saying his project devalued Bored Apes and caused confusion in the market. Yuga even blamed Ripps for causing a decline in Bored Ape prices.

Ripps’ attempt to claim parody or satire as a defense will be balanced against his clear ability to make money from the work, according to legal experts. “You can parody and that might be okay,” Willsey said. “But if you're doing it mainly for commercial purposes, which it looks like he's doing — he’s come up with these explanations that ‘I'm making social commentary,’ but he also claims that he's made over $3 million doing this.”

In another trademark case, Nike sued shoe reseller StockX in February for creating NFTs derived from Nike shoes. StockX says the “Vault” NFTs represent ownership of a product it stores for customers, saving them the trouble of finding space in a closet, and can redeem the NFT at any time to have the actual shoes shipped to them. Nike argued that it’s trademark infringement, pointing out that buyers can sell the NFT without ever taking possession of the shoes.

Contracts from the pre-NFT era often aren’t much help in clearing up issues that arise. In another recent case, Miramax sued Quentin Tarantino in November for creating NFTs of his screenplay of “Pulp Fiction.” The studio argued that the filmmaker didn’t have rights to do so. Tarantino’s lawyers responded that the NFTs are a derivative of the screenplay, to which he retained publishing rights. The original agreements between the parties were before NFTs existed, so the case will depend on how language conferring “other” rights is interpreted, Willsey said.

In at least one case, the parties came to an agreement. Jay-Z’s Roc-A-Fella Records sued co-owner Damon Dash, claiming he was attempting to sell part of the copyright to Jay-Z’s “Reasonable Doubt” album as an NFT. Dash said that he was not trying to sell an NFT of the album but rather his interest in the record label. Last month, the parties settled, agreeing that Dash could sell his one-third stake in the record company, but could not sell any part of the album, which was a corporate asset.

“It's another example of people thinking, ‘Oh there's this new technology, here’s what I can do with it’ — without thinking, ‘Am I violating somebody's intellectual property rights?’” Willsey said.

The notion of tokenizing the music industry’s royalty streams has some merit. Justin Blau, known as 3LAU when performing as a DJ, has started a company called Royal that’s aiming to do just that. But Royal is setting up agreements with NFTs in mind from the beginning, not trying to graft them onto old contracts.

While these cases wind their way through the courts, there will likely be debates about whether the underlying copyright or trademark laws need to change to account for NFTs. Willsey doesn’t think they do, but some in the industry disagree. “It's up to the courts to interpret those statutes and apply them to new types of work like NFTs,” Willsey said.

But change may be coming. In June two senators asked the U.S. Patent and Trademark and Copyright Offices a series of questions about whether NFTs required changes in laws and regulations, and those agencies recently agreed to undertake a study.
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