The Risks and Rewards of Adding NFTs to Your IP Portfolio

AuthorLinda J. Thayer, Anna B. Naydonov, Rosie Norwood-Kelly, Matthew C. Berntsen, John Mulcahy
Pages12-59
Published in Landslide, Volume 14, Number 4, 2022. © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the
American Bar Association.
12
Images: Getty Images; image manipulation: Jill Tedhams
Published in Landslide, Volume 14, Number 4, 2022. © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the
American Bar Association.
13
The Risks and Rewards
of Adding NFTs to Your
IP Portfolio
By Linda J. Thayer, Anna B. Naydonov, Rosie Norwood-Kelly,
Matthew C. Berntsen, and John Mulcahy
Linda J. Thayer is a partner in the Boston oce of Finnegan,
where she guides clients on patent portfolio oensive and
defensive strategies in multiple complex technologies. She can
be reached at linda.thayer@f‌innegan.com. Anna B. Naydonov
is a partner in the Washington, D.C., oce of Finnegan, where
her practice focuses on trademark and false advertising
litigation. She can be reached at anna.naydonov@f‌innegan.
com. Rosie Norwood-Kelly is an associate in the Washington,
D.C., oce of Finnegan, where she focuses on trademark
litigation and prosecution as well as advertising counseling
and litigation. She can be reached at rosie.norwood-kelly@
f‌innegan.com. Matthew C. Berntsen is of counsel in the
Boston oce of Finnegan, where his practice focuses on
all aspects of complex intellectual property disputes. He
can be reached at matthew.berntsen@f‌innegan.com. John
Mulcahy is a partner in the Reston oce of Finnegan, where
his practice focuses on patent litigation and prosecution. He
can be reached at john.mulcahy@f‌innegan.com.
It is said that a picture is worth a thousand words, but in the
digital age where emojis, GIFs, and “likes” have replaced tradi-
tional forms of conversation, it may come as no surprise that
digital assets are being valued as worth more than a thousand
words—some have price tags in the millions of dollars. Although
we are nding it tricky to nd the right words to describe Nyan
Cat—the animated ying space cat with a Pop-Tart for a body—
the remastered GIF sold for 300 ETH, or about $590,000, in
February 2021.1
The total sales volume of non-fungible tokens (NFTs) in 2021
surpassed $14 billion,
2
with Christie’s auction house sales exceed-
ing $150 million3 and Sotheby’s sales reaching $100 million.4 But
it’s the peer-to-peer NFT marketplaces like Rarible, Nifty Gate-
way, and OpenSea spearheading the jaw-dropping NFT sales.
Rarible tokens have racked up $27 million in sales over the past
two years.5 Between May 2020 and September 2021, Nifty Gate-
way recorded roughly $409 million in NFT sales.6 And, since its
founding in 2017, OpenSea has established itself as one of the
largest marketplaces for NFTs, handling more than $10 billion in
sales and trading volume over the period.7
Seeing the massive potential in the NFT market, artists, brands,
and companies alike have taken to minting NFTs and participat-
ing and pushing the bounds of the NFT market in various ways.
For example, Taco Bell made its NFT debut by selling taco-themed
animated GIFs and images.8 In December 2021, Nike purchased
a virtual shoe company to sell digital kicks and NFTs in the meta-
verse.
9
Luxury brands have jumped on board, too; in August 2021,
to commemorate the 200th birthday of the brand, Louis Vuitton
launched its adventure-based game, Louis the Game, through
which users venture into different worlds searching for items to
collect.
10
Also embedded in the game are 30 NFTs designed by
artist Beeple, which are accessible only through playing the game.
But What Exactly Drives and Dictates the Value of
NFTs?
As with most goods, value is tied to several factors, such as exclu
-
sivity and rarity of the item, the fame or notoriety of the issuer
or creator, and the ownership history.
11
Even more than these,
though, the narrative for the NFTs and the community access
conferred to purchasers often dene their value. For example,
through purchasing certain NFTs, owners are afforded access to
an online community and/or club membership that comes with
additional benets. These can include exclusive events or experi-
ences, access to online forums,12 or other content or items made
accessible only to NFT owners, such as new music releases or
signed jerseys.13
Published in Landslide, Volume 14, Number 4, 2022. © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the
American Bar Association.
14
But value can also be driven by whether the sale grants intel-
lectual property (IP) rights in the underlying work. Certain NFTs
(including Bored Apes, which are some of the most popular and
highest valued NFTs) come with rights in the underlying artwork
(including the right to commercialize the artwork through deriva-
tive works).14 Generally, however, those rights are not conferred
through the sale of an NFT; and the accompanying license and/
or terms and conditions impose restrictions on commercializing
the underlying IP.15
This misconception and the general lack of legal framework
in the NFT marketplace have resulted in recent IP disputes, with
some IP owners experiencing their works being used and offered
for sale in the form of an NFT without their consent.
16
These
disputes, some of which are discussed below, give rise to several
NFT-specic IP issues and questions regarding ownership, contract
drafting, trademark registration considerations, and even fair use
and First Amendment rights.
Recent Disputes Involving Trademarks and
Copyrights
Because of the unique properties of NFTs, they can be used to
represent and authenticate ownership, with ownership and
other information recorded and secured on the blockchain.17 But
although there can be only one ofcial and authenticated NFT
owner, the ownership of the underlying property is not always as
clear. And, unfortunately, the blockchain cannot tell the purchaser
if the good sold is an unauthorized copy of a copyrighted work or
if the seller has the legal right to sell an NFT tied to existing assets.
A recent example of this type of snafu is the pending litigation
between Miramax and Quentin Tarantino in the U.S. District
Court for the Central District of California.18 At the NFT.NYC
conference in November 2021, Tarantino announced his plans
to auction off seven “exclusive scenes” from the 1994 lm Pulp
Fiction in the form of NFTs, which would contain previously
unknown behind-the-scenes secrets from the American classic.
The plans, however, were kept secret from Miramax, which
sued Tarantino, alleging breach of contract, copyright and trade-
mark infringement, and unfair competition. In its complaint, the
movie giant argues that Tarantino assigned all rights in Pulp Fiction
to Miramax in 1993 and thus cannot legally sell the NFTs and
accompanying content.19 Although the 1993 agreement between
the parties does not reference rights to the production and sale of
Pulp Fiction-related NFTs, Miramax argues that its rights include
“all rights . . . now or hereafter known . . . in all media now or
hereafter known,” and Tarantino’s limited “reserved rights” do not
contain forward-looking language such that they would encom-
pass any rights to create or sell NFTs tied to Pulp Fiction assets.20
The U.S. District Court for the Southern District of New York
addressed a different ownership issue in June 2021 and granted
the copyright owner a temporary restraining order to prevent
an NFT sale.21 Roc-A-Fella Records (RAF) sued one of its three
joint owners, Damon Dash, seeking an order enjoining him from
making any sale of the copyright in the master recording of Jay-
Z’s album, Reasonable Doubt. RAF is owned equally by Shawn
Carter (Jay-Z), Kareem Burke, and Damon Dash and is the record
label under which Jay-Z released his debut album in 1996. Under
the impression his one-third ownership of RAF gave him a joint
interest in the copyright of the musical recording of Reasonable
Doubt, Dash announced plans in June 2021 to sell his share as
an NFT and has been exploring outlets through which to offer it
up. RAF sued, arguing that Dash has no right to sell what he does
not own.22
Specically, RAF argues that the 1995 agreement between Jay-Z
and RAF concerning the album states that RAF would own “[t]he
Masters and the LP, from the inception of the recording thereof,
and all Phonograph Records and other reproductions made there-
from, together with the performances embodied therein and all
copyrights therein and thereto (excluding the copyright in the
underlying compositions) throughout the world, and all renew-
als and extensions thereof.”
23
Based on this language, RAF insists
that Dash holds no individual ownership interest in Reasonable
Doubt and cannot legally sell the underlying copyright.
Besides questions of ownership, issues of First Amendment
and fair use defenses have arisen in the context of NFTs that
feature brand logos, designs, and trademarks. For example, digi-
tal artist Mason Rothschild received a cease and desist letter from
Hermès in December 2021 after he debuted his MetaBirkins
NFT collection at Art Basel.
24
Hermès claimed that the NFTs
were marketed using the Birkin name without its authorization
or consent. In addition to bearing a strong resemblance to their
real-world namesake, the MetaBirkins have been highly lucra-
tive in the virtual marketplace, with the rst MetaBirkins NFT
selling for about $40,000.25
Rothschild took to social media to respond, arguing that his
collection is protected by the First Amendment, which gives him
the right to create artistic commentary on the fashion world and
to use Hermès’s Birkin bags as inspiration for his work. Hermès
led suit in the U.S. District Court for the Southern District of New
York in January 2022, and Rothschild’s motion to dismiss was
denied.26 This case should be interesting to follow as the dispute
gives rise to questions regarding the merit of Rothschild’s First
Amendment defense, particularly where the goods in question
are both luxury and/or collectible pieces and where the classes of
goods are different and do not overlap.
NFTs and Patents
In some industries, such as high tech and biotech, the IP portfolio
derives a signicant portion of its value from patents, whether util-
ity or design. A strong portfolio comprises patents on key aspects
of a company’s products that provide defensive assets in a particu-
lar space or provide revenue through licensing. Many believe that
the existence and illiquidity of patents stymies product develop-
ment and critical research in biopharma.
NFTs seem poised to affect the patent sphere in a number of
different ways. First, it remains to be seen what types of NFT-
related patents may be obtained. So far, fewer than 20 U.S. patents
have issued claiming a “non-fungible token” (or similar),27 and
under 60 mention such tokens in their specication.
28
Because
patent applications typically remain unpublished for 18 months
after ling, there is no way to reliably predict how many are in
the pipeline, and it is difcult to conduct due diligence. If history
repeats itself, however, we should expect many patents on vari-
ous uses for NFTs. Nike, for example, has obtained a patent on
tokenizing the ownership of shoes.
29
If a Nike customer purchases

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