Trademark protection for NFTs and the metaverse: IP enforcement fit for the future

March 2023 | SPOTLIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

March 2023 Issue

Blockchain technology, the basis of cryptocurrencies, has attracted the interest of many companies and industries in recent years. Analysts expect it to revolutionise the financial sector as well as many other business areas in the near future. However, cryptocurrencies are by no means the only area of application for blockchain technology. Other areas of application that have experienced rapid growth within the last 12 months are non-fungible tokens (NFTs) and metaverse platforms. For companies, both NFTs and metaverse platforms such as Ethereum-based metaverse ‘The Sandbox’ provide great potential from a marketing and trademark strategy perspective. The technologies are expected to evolve further and will continue to grow in their importance in the years to come. At the same time, social acceptance of the technology is expected to increase further with the coming generations for whom interactions within the metaverse will likely be more natural. Companies should therefore closely watch the development of both business areas.

The metaverse could generate billions in potential revenue. Due to its revolutionary nature, it has already attracted various multinational companies. Closely linked to the business opportunities of the metaverse are NFTs. NFTs are digital assets based on blockchain technology, but as their name suggests, they are non-fungible. NFTs have become increasingly popular and exist in a wide variety of forms, such as fashion pieces for avatars in the metaverse, metaverse real estate, images, video clips and artwork, among others.

However, as is often the case with revolutionary ideas, they give rise to various legal issues. Of particular interest are intellectual property (IP)-related issues such as the possibility of trademark protection for NFTs and virtual goods or – vice versa – a trademark infringement through NFTs or virtual goods. So even if the metaverse or NFT market is not a viable option for a company, the behaviour of third parties on metaverse or NFT trading platforms should still be monitored.

The importance of such oversight was illustrated by a recent ruling of the Court of Rome of 20 July 2022. Italian football club Juventus had initiated preliminary injunction proceedings against a tech start-up that used NFT playing cards depicting the trademarks of Juventus for their football manager game without Juventus’ consent. According to the Court of Rome, the use of the NFTs constituted an infringement of Juventus’ trademark rights.

On a European level, the decision is the first of its kind. German courts have not yet had the opportunity to deal with trademark infringements through NFTs. However, due to their steadily growing importance, this will only be a matter of time. Against the background of the recent decision of the Court of Rome, this article will provide a first indication of how NFTs might be assessed from the perspective of German trademark law.

The importance of NFTs for brands

Depending on the company’s business orientation, entering the market for NFTs can offer significant advantages. For example, many companies use NFT trading platforms as additional channels for their marketing activities to strengthen customer loyalty. They auction or raffle off NFTs, organise competitions, and communicate with other users of the platform. Entering the market is also fundamentally necessary to maintain the brands’ competitiveness. To reach the younger generations, marketing activities must include the channels used by the younger public. These channels are primarily digital and increasingly virtual in nature. Just as advertising efforts today are focusing more on online channels rather than physical advertising space or radio and television advertising, NFT and metaverse advertising campaigns could become more important for marketing efforts in the future. Also, the development of blockchain technology shows that with increasing digitalisation, new markets are emerging with new business areas and opportunities.

In addition, companies can use NFTs to verify their products and guarantee the authenticity of their products to their customers. Through NFTs, both the company and the end users can trace back the entire supply chain of the manufacturing process to the sourcing of materials, helping compliance with the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz). This allows companies to both effectively combat the successful distribution of counterfeit goods and increase their customers’ confidence in the quality of legitimate goods.

NFTs in the context of German trademark law and EU trademark regulation

From both a German and European perspective, there is still a certain degree of uncertainty when dealing with NFTs under trademark law. For example, it has not yet been conclusively clarified in which Nice classes NFTs can be classified. While the ruling of the Court of Rome indicates a classification as goods in class 9, a classification in class 35 (‘provision of an online marketplace’) or in class 42 (‘user authentication services using blockchain technology’) for the related services might also be possible. The update of the Nice classes, which came into force on 1 January 2023, explicitly includes the term NFTs in class 9 (‘downloadable digital files authenticated by non-fungible tokens’ (NFTs)) and thus provides some more legal certainty. If trademarks are to be used in connection with NFTs, it is therefore advisable to also register them in class 9, in addition to other classes which might be of interest. Otherwise, there is a risk that the trademark might not enjoy sufficient protection in one of its essential fields of application. This applies particularly to trademarks that are not well-known, since the scope of protection of well-known trademarks is already much broader. Under German and European trademark law, well-known trademarks, other than ‘normal’ trademarks, do not necessarily depend on similarity or even identity between the goods and services for which they are protected and the (virtual) goods and services in question. However, how broadly the scope of protection will be interpreted has not yet been conclusively clarified by the courts; especially not in connection with NFTs and the metaverse. Moreover, not all virtual goods authenticated by NFTs will fit into class 9. Only material that is downloadable fits into this class. NFTs can also verify the authenticity of genuine items such as sneakers, luxury bags, watches and so on, all of which suffer from extreme counterfeiting problems, and such goods do not belong to class 9.

Regarding a trademark application for services in connection with NFTs, the European Union Intellectual Property Office (EUIPO) explicitly mentions in its 2023 draft guidelines that such trademark applications had to be classified according to the established principles of classification for services. However, the EUIPO (and the Court of Rome) differentiates: NFTs would authenticate (digital) items, but had to be distinguished from them. A trademark application solely for NFTs is therefore not admissible. According to the EUIPO, the specific type of digital item authenticated by the NFT had to be indicated. In principle, this seems quite reasonable. Otherwise, a large part of the metaverse, for instance, could be monopolised by a few trademark applications. However, this also means that companies should carefully examine their projects and the areas in which they wish to operate, as it is not possible to amend the list of goods and services after the application. As usual, care should also be taken to ensure timely use of the ‘NFT trademarks’; otherwise they could become subject to cancellation proceedings upon expiry of the grace period of use. It is therefore insufficient to obtain registration for the widest possible scope of protection.

It should also be considered that the use of another’s sign does not automatically lead to a trademark infringement. For example, the use of signs as a mere reference usually does not constitute a trademark infringement. Case law regarding the ‘analogue world’ should also be applicable in its principles to the virtual counterpart.

Conclusion

Going forward, NFTs and the metaverse will play an increasingly important role for companies, and not just in a trademark-related context. In order not to lose any first-mover advantages and to keep their own brand competitive, both NFTs and the metaverse should be on the radar of trademark owners already. For the time being, it remains to be seen how German courts will deal with this subject from a trademark perspective. What is certain, however, is that an adaptation of the trademark strategy and monitoring is required to meet the special challenges of both NFT trading platforms and the metaverse. This is the only way to ensure comprehensive trademark protection in the future. A first step could be to adjust prior rights and delimitation agreements and agreements on rights of use, such as by incorporating clear provisions with regard to the rights of use for NFTs and the metaverse. A rather blanket agreement granting rights of use in connection with digital offerings is likely to be too vague when considering the versatile possibilities of both technologies.

Yvonne Draheim is a partner and Hendrik Schulze is a business lawyer at Hogan Lovells International LLP. Ms Draheim can be contacted on +49 40 419 93 136 or by email: yvonne.draheim@hoganlovells.com. Dr Schulze can be contacted on +49 40 419 93 136 or by email: hendrik.schulze@hoganlovells.com.

Yvonne Draheim and Hendrik Schulze

Hogan Lovells International LLP