Thinking of investing in NFTs and wondering exactly what it is you’re buying? Worried that your NFT might be a fake?

NFTs have been launched globally, with releases gaining particular momentum in the retail, sports and luxury goods sectors with a view to boosting customer engagement.

So what is an NFT?

An NFT is a digital certificate of ownership and authenticity which links to a digital or physical asset and is recorded on the blockchain using smart contracts. Smart contracts are essentially computer programs which enable the creation of the token on the blockchain. Blockchain technology is where the token is stored and where the NFT community can track ownership of NFTs. The value of an NFT arises from being non-fungible, which means that each token is unique with a distinct metadata. An NFT is just another way of proving to the public that an asset, or a copy or version of that asset, is yours.

What IP is in an NFT?

If you’re a business creating marketplaces in NFTs or a buyer/investor of NFTs, there may be intellectual property issues to consider.

Most NFTs do not give the buyer ownership of the copyright subsisting in the underlying asset. For instance, the buyer of an NFT linked to a piece of art will not necessarily obtain exclusive control of the artwork, which will be retained by the copyright owner. The scope of a buyer’s rights and what they are permitted to do with the token will depend on the terms upon which the NFT is purchased which may be contained in the smart contract, a deed of assignment or copyright licence, or standard terms and conditions on the NFT marketplace website. Before purchasing an NFT, buyers should understand the details of the contract or licence which will set out exactly what they own and how they can use the underlying asset.

Copyright

NFT buyers should also carefully review what they have acquired to ensure they are not involved in a transaction of a fake or plagiarised work. Unscrupulous sellers might create an NFT and falsely claim to own the copyright in the underlying asset or be the author of the work. Buyers should perform due diligence checks to attempt to verify who is the rightful creator and owner of the copyright in the underlying work.

Trade Marks

NFT sellers should consider registering trade marks that cover (non-) downloadable virtual goods or services, an online community for digital assets and non-fungible tokens, metaverses, and the online world. Businesses may not be able to enforce trade marks registered only for real-world goods and services against a third party creating and using digital goods or services in the virtual world. Accordingly, there are now over 400 registered or pending Australian trade marks that cover NFTs or virtual goods or services in a range of sectors.

Things to consider if you are purchasing or selling an NFT

• If you are a business or individual buying or investing in NFTs, Dentons’ IP experts can conduct due diligence to confirm the underlying asset is correctly and completely linked to the NFT and advise you on exactly what you have purchased.
• If you are a business focussed on the selling of NFTs, or you are developing NFTs as part of your business’ expanding portfolio or products, you may wish to explore how to protect your brand and products from infringement in the virtual world. Dentons’ IP lawyers can assist with filing trade mark applications for NFTs and virtual goods and services, or assigning copyright for works that are the subject of NFTs.
• We can also develop a virtual and augmented reality strategy to help you maximise the possibilities for engaging with and communicating your brands to a new world of customers.

Please feel free to contact us for a confidential discussion.