29th June 2022
Over the past few months, the Technology & Digital Group at Walker Morris has been exploring the world of NFTs, cryptoassets and the metaverse . With the adoption of these new technologies on the rise, it is critical that businesses understand the benefits and risks associated with them.
It can be difficult to know where to start and which areas of law to turn to. While lawmakers around the world grapple with how to protect consumers and citizens while promoting the benefits of innovation and the digital economy, intellectual property law is one area that has been and will continue to be used to understand and regulate these new and emerging technologies. In this article, Senior Associate Matthew Lingard takes a brief look at some examples of how IP law is being applied in this context.
For a quick refresh on what NFTs are, you can view our short video here.
Seen by many as the most popularised NFTs, the tokens sold by the Bored Ape Yacht Club have at times commanded incredible prices, with some being sold for over a million dollars for a single token. That price has now dropped significantly and there are other indicators to suggest the party may be over. We mentioned in one of our regular Technology & Digital round-ups that the buyer of an NFT of Twitter co-founder Jack Dorsey’s first tweet was struggling to sell it after being offered only about 0.2% of the $2.9 million it was bought for. This raises the significant question – what do you actually get for your money when you buy an NFT?
The short answer is, it depends. In most cases people are securing far less rights than they think they are. Take for example the recent purchase of a rare art book, Jodorowsky’s Dune, the guidebook to an ambitious but ultimately unmade film adaptation of Frank Herbert’s Dune by an anonymous crypto/NFT collective called Spice DAO for €2.66 million. Reports suggested that, although purchased with the intention of then launching various Dune-related materials and digital content, what the purchasers apparently failed to realise was that they had at no stage received an assignment of any associated copyright in the Dune universe. Without this, what they appear to have been left with is a rather expensive art book.
This example, although not the purchase of an NFT itself, epitomises a key risk presented by the current obsession with all things NFT-related – parties often rush to engage with new and exciting technology without remembering to undertake basic legal checks first.
From an IP perspective, the buying and selling of NFTs brings a number of challenges. The first is a question of ‘fixation’ – does copyright even subsist in an NFT? On the one hand, an NFT image could attract copyright if it is based on a tangible image that has been created. If the image has merely been created digitally, there could be an argument that the image itself lacks fixation and is therefore not eligible for copyright protection. However, in this instance it could be argued that the underlying code to the NFT is the thing that is protectable and not the image itself. This is just in relation to images – an entirely different discussion could be had in relation to the many forms of NFT being touted around at present.
If it is accepted that NFTs are works of copyright, the actual assignment or transfer of that copyright is often forgotten or deliberately omitted from any NFT purchase. The transfer of copyright is the act which empowers any new owner to enforce and enjoy the legal benefits of being a copyright owner. Without an assignment of copyright, you are left owning a very expensive token with no underlying legal rights to protect or exploit your new property.
Led by the UK Jurisdiction Taskforce and the Law Commission, the English legal system has been impressive in its recognition of both the importance and legal status of cryptoassets. As a result, England is considered one of the key jurisdictions in which to bring actions relating to these technologies. The biggest mystery at the core of the cryptoasset world, and specifically Bitcoin, is one based on a question of intellectual property ownership.
Bitcoin, it is widely accepted, was introduced as a concept through a whitepaper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”. The author of this whitepaper used the pseudonym Satoshi Nakamoto. Dr Craig Wright, who claims to be Satoshi Nakamoto, the creator of Bitcoin and author of the whitepaper, is faced with the classic intellectual property issue, i.e. proving that they are the actual owner of the work and the person behind the pseudonym. This issue has recently been played out in the English courts where Wright has been suing a crypto blogger in libel in relation to publications which are said to allege that Wright fraudulently claimed to be Satoshi Nakamoto.
Proving ownership of copyright is largely an evidential-based analysis. We would always advise clients who are creating concepts or developing new technologies to ensure that they keep a clear record of their work and store back-ups of important documents so that they can be easily drawn upon in the future.
The metaverse is the catch-all term used to describe the increasing number of virtual worlds being constructed, where people can live, work and play via an avatar. At the one end you have traditional industries, such as gaming, that have created and operated virtual environments for a number of years. However, more industries are pushing into the virtual world, a trend that has been accelerated due to the restrictions placed on physical movement caused by the Covid-19 pandemic.
The metaverse brings a number of legal challenges, in particular relating to IP. For example, should a user wish their avatar to wear Gucci trainers and carry around a Starbucks coffee cup, who is responsible for designing and providing these accessories? A number of brand owners have discovered that their brands are being put to use in the metaverse without any consent being granted.
This problem is compounded by the fact that when the brand owner comes to bring an end to this use, they discover that it is technically taking place in a jurisdiction outside the coverage of their trade marks. Many brand owners are also finding that even when their trade mark rights do geographically cover the infringing act, the specifications do not cover the act of infringement. Though Gucci may have a trade mark that covers physical trainers, they may not have coverage for the digital asset that forms those trainers in the virtual world. Many brand owners are now turning to register new trade marks for their brands to include coverage for digital assets and tokens. This shows again that although the problem is relatively novel, existing IP regimes can assist to provide a solution.
This has been a whistle stop tour through some of the recent IP issues arising from NFTs, cryptoassets and the metaverse.
The key lesson to be learned is that, regardless of the technology involved, in most cases the same legal principles will apply. In the examples highlighted above, what can initially seem like relatively new and difficult questions regarding ownership and entitlement can quickly be stripped back and revealed as capable of being addressed using current traditional legal tests.
Going forward it will be interesting to see what, if any, specific legislation is introduced to address the issues associated with new and emerging technologies, and the extent to which the current approach of adapting conventional rules to fit new scenarios will continue to apply.
We will continue to guide clients along this journey as more and more new technologies are adopted.
Our Intellectual Property, Trade Marks & Designs Team provides a one stop shop for clients on all IP matters. Our lawyers are specialists in the field and are trusted by many household names, innovators and manufacturers to manage and protect their valuable brands and technology. Our multidisciplinary Technology & Digital Group brings real-world experience and specialist knowledge to the table to make sure you find a way to solve your technology concerns. We’re specialists in edge technology (including Artificial Intelligence and blockchain) and frequently give advice on the IP implications of these exciting new technologies.
If you are affected by any of the points raised in this briefing or have any queries about how to manage the risks associated with new and emerging technologies, please contact Matthew who will be very happy to help.
 See, for example, our short videos What is a blockchain? and What is an NFT? and our articles: Understanding blockchain, NFTs & smart contracts; Smart legal contracts: An explanation and practical advice; Manchester City in the metaverse; NFTs in football? Enter Liverpool FC; and Blockchain and commercial disputes: new Law Society guidance.