What IP owners & NFT creators need to know

NFTs provide an opportunity for creators to monetise their IP. However, this opportunity comes with several risks, including the use of the IP by a third party in an NFT without the consent of the creator.

Given these risks and the uniqueness of NFTs, IP owners need to rethink their IP protection and licensing strategies. Specifically, brands that have famous trademarks, logos, and other brand identifiers; e-game companies that have unique characters or game art; book, movie and other publishers that have unique characters, and artists who have created physical or digital works must protect their IP from the unauthorised use of NFT creators. IP protection strategies should include specific protection relating to NFTs. For example, brand owners should consider extending their trademark registrations to cover trademark uses and classifications that include NFTs. They may also obtain design patents, where appropriate, to be entitled to all of an infringer’s profits, not just the portion of profits obtained from the use of the design.

When licensing their IP to third parties, such as developers, for use in an NFT, IP creators must ensure that the licensing agreement clearly states the extent of usage of the IP. For example, whether the IP may be modified, to what extent it may be modified, and the number of NFTs that may be created with the IP.

In such cases, there should be a fee-splitting arrangement between the IP owner and the NFT creator, to share the revenue from the sale of each NFT that includes the IP. Additionally, where the IP is being licensed for general purposes, it is important to state whether the IP is being licensed for use in an NFT. Licenses granted for other purposes should expressly exclude the use of the IP in an NFT.

IP creators must be proactive to register their IP and monitor its usage, to identify unauthorised usage by third party creators or developers on NFT exchanges. This is more so as the immutability and anonymity of blockchain transactions may make it difficult for IP owners to enforce IP rights against a buyer of an NFT, whose identity is unknown.