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How NFTs are Impacting the IP Industry

By June 13, 2022September 19th, 2022No Comments

The digital age has changed the intellectual property landscape. IP is taking new forms and is being applied in new ways. With the additional access and circulation of all-digital IP and traditional IP with digital components, there is an increased risk of theft and fraud. New IP asset classes and digital record-keeping technology are adding security and interoperability to new and old forms of IP. Non-fungible token (NFT) technology can be applied to meet these demands to make the IP industry more dynamic and adaptable.

NFTs are a unique file stored within a secure digital record that cannot be duplicated or altered. In their most high-profile form, NFTs represent pieces of original artwork stored on the blockchain to guarantee ownership and authenticity. It’s like a digital deed or statement of ownership. Even if improperly accessed, it is difficult to steal or duplicate an NFT.

NFTs are used beyond artwork for other forms of digital work, like photographs or literature. This technology has the potential to be applied to other forms of IP as well like trademarks, copyrights, and patents.

The unique potential of NFTs is not without pitfalls. While its model for digital ownership and transfer holds great promise for the future, we are currently in legal “wild west,” where law and governmental policy have yet to catch up. As with anything that substantially transforms technology and the internet, NFTs have the potential to attract criminal activity.

When one “mints,” or creates, an NFT, they are “tokenizing” the digital asset. This means there is an instance or representation of that asset generated on the blockchain. The blockchain is essentially a type of digitally distributed and decentralized ledger of shared information on which an NFT record is created and stored. It is an advanced and secure technology that can be relied on to protect information from digital corruption or malicious intent, as well as provide an accurate and transferable record at nearly any moment.

Questions of Ownership Rights

The core legal issue surrounding NFTs is ownership. NFTs are currently governed under contract law and not property law. This means the US only recognizes them as personal property as far as it is validated under legal contract. While NFTs have value and application in the non-digital world, their immediate and long-term growth will be dependent on whether ownership in the digital world carries the same rights as the physical one.

This question is particularly pressing because a single company, Ethereum, owns most of the NFT infrastructure. And while it would be terrible for Ethereum’s business model not to protect customers’ NFTs or claim ownership of them because it owns the underlying technology, they may have a case to do so, especially if outlined in their Terms of Service. The value of the technology rises and falls on the ability to establish, protect, and transfer ownership between parties. Until these legal issues are resolved, it may hold NFTs back from broader applications, including IP.

Technological Limitations

Also complicating the picture are technical limitations. For larger files, the blockchain simply acts as secure storage for a particular asset access point, such as a link to an alternative platform. Many files are too big to store on the blockchain, meaning that the actual NFT must be stored in a traditional database.

The security the blockchain provides could be, in some ways, considered only as powerful as the traditional server the valued item is stored on. While the technology at the heart of this limitation promises to improve, so will the file sizes. This is particularly true for metaverse applications of blockchain, where future customers will need to quickly and easily access large secure files able to operate with a variety of software. Metaverse advancement could be held back as a result.

NFT Applications for Intellectual Property

Even as these issues take time to resolve, NFTs will continue to proliferate both digitally and in the physical world. Adding NFT technology to IP, and combining it with the ever-improving blockchain technology, could radically change the IP industry.

One area of impact might be in technology licensing. The licensing and use of IP for many industries and technologies can be an arduous process that limits opportunities for patent, trademark, and copyright owners. The blockchain represents an opportunity to increase access to IP across geographical boundaries and their use in a wide variety of research and practical applications.

New business models and monetization strategies will be fostered by the enhanced security and transferability inherent in NFT assets. Contractual stipulations, called smart contracts, have the potential to be hardcoded into digital properties, with these rules then stored and executed on the blockchain. The swiftness with which an IP owner can deploy their technology for use by other innovators accelerates innovation and better protects IP ownership rights, without stymieing additional applications for a given technology.

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