NFTs and Trademarks - How to Deal with Legal Uncertainties
NFTs (non-fungible tokens) are digital units depicted on a blockchain which are not replaceable and are therefore unique, in contrast to cryptocurrencies and other fungible tokens. NFTs can represent physical objects or include digital assets or rights. They are usually purchased with cryptocurrencies such as Bitcoin or Ether and are often found in the art world or entertainment industry.
NFTs and branded products
If NFTs are used in connection with the sale of branded products, brand owners must consider how best to protect their brands and token creators should be clear how to avoid risking trademark infringement claims.
If an NFT depicts another party’s brand without the trademark owner’s permission, this can infringe the trademark. For example, Nike brought a claim against the sale of Nike sneaker NFTs on the online platform StockX based on trademark law.
Trademark law
According to the legal definition, a trademark is a sign which is used to distinguish goods or services belonging to a business from products of other businesses. The mark is only protected once it is registered in the trademark register. Exceptions to this are so-called notoriously famous brands.
Trademarks do not give an exclusive right to use the registered sign, rather rights are restricted to specific goods and services. Therefore, those applying for trademarks must stipulate for which goods and services the mark is claimed. There is an exception for famous brands (e.g. Nike), which enjoy wider protection for all goods and services.
Trademark law gives the owner the exclusive right to use the mark to label specific goods or services. This means that trademark owners can prohibit third parties from using the protected mark, or similar signs in connection with the protected goods and services. Staying with the Nike example, shoes can only bear the Nike swoosh and be sold with Nike’s consent.
However, goods and services categories which are not claimed by the trademark owner remain available and third parties can use the protected sign or a similar sign for marketing other types of products. In addition, trademark protection does not apply in the areas of freedom of expression or artistic freedom, in other words, outside of commercial use.
Are NFTs new products, or just depictions of a physical object?
The creation of NFTs raises questions of whether trademark protection for physical goods extends into the virtual world and which categories of goods and services NFTs fall under for the purposes of trademark law. Does trademark protection for the goods “shoes” also extend to NFT shoes? Or could the creator of a shoe NFT claim that trademark law only applies to the sale of physical shoes and that depiction in an NFT is an acceptable activity within the scope of resale?
These are questions which Swiss courts will also have to consider in the future. As so often the case in law, the answer will ultimately depend upon the specific circumstances of the individual case. The purpose of an NFT in the particular case will be determinative.
In order to minimize legal uncertainty, some trademark owners have already taken steps and included specifications in trademark applications targeted at NFTs, for example, “downloadable virtual goods in the form of items of clothing for use in online virtual environments”. This means that trademark protection is also claimed specifically for the virtual environment and any uncertainties in this regard can be resolved in advance.