In 2021, Collins Dictionary named “NFT,” the abbreviation for non-fungible token, its word of the year. In 2017, the US-based Association of National Advertisers named AI (artificial intelligence) its marketing word of the year. As the recent rise of the use of both tools is evident, one may wonder whether they can operate together. In particular, the main question for IP rights holders and practitioners currently reads: Does AI illustrate a hurdle or rather a beneficial tool for IP protection in the realm of NFTs?

The (IP) problems behind NFTs so far

In their essence, NFTs illustrate unique, non-interchangeable units of data that can be sold and traded. Those units are stored on a digital ledger using blockchain technology—a system that is already widely known for its use for cryptocurrencies, like Bitcoin.

As NFTs are completely unique and cannot be exchanged like-for-like, their sale and trade has recently gained in importance following the “tokenizing”—or minting of virtual artworks on NFT platforms. Paintings, Internet memes or even tweets have been turned into a token and “collected” by users on digital marketplaces like OpenSea, SuperRare and Myth Market.

Apart from its negative impact on climate due to the huge amount of computing power used to create blockchain assets, the trend of tokenization has been deemed particularly problematic from an IP perspective. For instance, trademarked words, logos, designs or silhouettes owned by brands like Adidas, Hermès, PlayStation, Gucci, Ford or IKEA have been turned or incorporated into various NFTs without the prior approval of the right holder. Copyrighted works like “Mona Lisa”, “Dune” or Spider-Man characters have shared the same fate.

However, as trademark and copyright owners are the exclusive right holders who can use, reproduce or distribute the original and thus also its reproduction as an NFT, anyone else minting and selling NFTs infringes on those IP rights. As the original work or trademark remains unaltered and is being commercially distributed on NFT platforms, an exception to the trademark or copyright infringement on the grounds of explicit statutory provisions or the fair use doctrine appears far-fetched.

A further twist caused by AI?

The relationship between NFTs and IP protection can be further complicated by the interference of AI. For example, AI technology can now be used to create NFTs by entering keywords that are then transformed into art-like images. AI thus allows for the generating of tokens without any coding skills of the users.

In view of the infringement issues described above, another question arises. Owners of IP rights must now be concerned with not only the unlicensed use of their works or trademarks; they must also solve the riddle of who or what is liable. It is conceivable that the AI developer, the entity that owns the AI technology, the users of the software or the AI itself could be held accountable. Courts and legislators may therefore soon need to bring some clarity in order to resolve the prevailing legal uncertainty.

Furthermore, the implementation of AI challenges IP protection with regard to ownership aspects. In the beginning of February, the US Copyright Office decided that only a human can be considered the author of a work. That decision could trigger consequences for digital creations such as NFTs where an AI system outputs the artwork after processing the various codes and algorithms. As the program “does the lion’s share of the work” (as stated in Reardon LLC v. The Walt Disney Co., 293 F. Supp. 3d 963 (N.D. Cal. 2018)), it currently remains uncertain who else “deserves” to enforce the copyright of the NFT.

The potential for AI to prevent IP misappropriation

Although AI may additionally complicate the IP landscape surrounding NFTs, it can also assist NFT platforms in achieving a positive development. For one thing, start-ups are currently creating and optimizing AIs which can detect already existing NFTs that are infringing on the artworks of third parties. For another, IP misappropriation can be avoided prior to the minting of the NFT as well. AI software can be deployed to score similarities and verify the originality of digital works so that NFT creators are required to upload solely original content.

Hence, those bridges between AI and blockchain technology can successfully protect the IP rights holders. Overall, AI can be smartly utilized to reconcile the interests of NFT minters, platform operators and IP right holders.