Non-Fungible Tokens (NFTs) from Intellectual Property Law Perspective and Türkiye’s Position

    Celebrating International NFT Day!

    September 20th is officially recognized as International NFT Day. On September 20th, 2017, the term NFT (non-fungible token) was officially coined by Dapper Labs Chief Technology Officer Dete Shirley in the form of the ERC-721 standard.[1] So, September 20th is the birthday of NFT.

    We have heard NFTs more often since 2020, then NFTs boomed in 2021 and have kept place on our agendas for a long time. Despite the drops observed in their market volume in 2023 NFTs are still in the spotlight as numerous global brands are continuing to launch NFT collections and many trademark applications with coverage including NFTs are being filed all around the globe.

    Well, what is NFT?

    NFT is a digital asset that uses blockchain technology and mostly operates within Ethereum. NFT is a digital token that cannot be exchanged or replaced and may represent many tangible objects in the real world, such as songs, artworks, GIFs, virtual game items, videos, cartoons. NFT is technically not the asset itself, whereas it is a metadata file that contains the unique combination of Token ID and contract address. Therefore, NFT sales do not include the transfer of copyright on the work converted into NFT. It only provides the right to use the relevant NFT format unless the parties agreed otherwise for assignment of the rights by meeting formal conditions.

    NFT is highly preferred, especially in the art community, because it functions as a digital certificate/registry through blockchain technology, thus providing transaction security, and it allows transactions to be carried out quickly and without any central authority in the digital environment. On the other hand, purchasers of NFTS mostly want to have a unique digital asset with a collector’s mind and use it as an investment tool.

    NFTs are also very popular in trademark field. It allowed brand owners to sell their virtual products bearing their trademark as NFT and operate in the digital market and virtual universes (metaverse). Moreover, they are also regarded as a powerful tool to combat counterfeiting by authenticating physical products and ensuring transaction security due to the blockchain technology employed. Trademark owners are willing to obtain trademark registrations covering NFTs.

    What is the Legal Status of NFTs?

    Although there is no legislate work concerning NFTs yet, there have been some initiatives of official bodies in Intellectual Property (“IP”) field worth mentioning. In this context to satisfy the high demand in trademark filings covering NFTs European Union Intellectual Property Office (“EUIPO”) published a guideline that sets the main principles regarding goods/service classification for trademark applications covering NFTs (“the Guideline”).

    According to EUIPO’s approach set out in the Guideline, NFTs and virtual goods are proper to class 9 as these are treated as digital content or digital visuals.

    On the other hand, the 12th Edition of Nice Classification, the goods/services list published by the World Intellectual Property Organization, has been updated by adding “downloadable digital files authenticated by NFTs” as a sub-class under class 9.

    United States Patent and Trademark Office (“USPTO”) rejected trademark applications consisted of “Gucci” and Prada” both covering NFT related goods and services in classes 09, 35 and 42 and filed by different individuals after preliminary examination. USPTO, in both decisions, took into consideration that Gucci and Prada are well-known trademarks and evaluated that companies in the fashion industry started to carry out business in the virtual world as well; therefore, consumers perceive physical world’s goods/services associated with the virtual world’s goods/services.

    What is the Courts’ Approach?

    In an environment lacking specific legislations on this area court decisions have shed light on legal questions about NFTs over the past years and it appears that many of them are yet to come.

    Some cases[2] of international relevance have tackled the question of who owns the right to convert a work into NFT format and in some[3] it was assessed that “parties shall not be entitled to sell anything (including NFT format of the works) that they do not own”.

    We observe that many courts across the world including courts in the United Kingdom[4], China[5], Singapore[6] and Spain, have concluded that NFTs could be deemed as “assets which may be subject to property rights” and ordered sanctions like ceasing the sale and transfer of NFTs to eater addresses and the payment of compensatory damages.

    As a very recent development, in the case filed by Hermes against Mason Rothschild alleging that Rothschild has converted globally-known Birkin bags to NFTs and traded them on the Opensea platform with no authorisation, the Court concluded that Hermes’s trademark rights had been infringed as these NFTs cause a likelihood of confusion in the part of consumers.[7] This is a relief for IP right owners by confirming the protection of their rights with respect to real-world goods and services against infringing activities in NFT field.

    What About Türkiye’s Position?

    In Türkiye, NFTs that are defined as “qualified intellectual property deeds” by Digital Transformation Office of the Presidency are neither regulated with a specific legislation likewise the rest of the world.

    However they have also started to be dealt with by Courts and Trademark Office. In fact a Turkish Court has rendered preliminary injunction (“PI”) decision concerning NFTs in order to prevent access to the websites hosting the infringing content and to cease the sale of the portrait of Cem Karaca, a Turkish artist, songwriter and composer in NFT format on the Opensea platform. While the court did not elaborate on the legal aspects of NFTs, the decision is still noteworthy as NFTs were considered a valid “format” by the court for the purposes of infringement cases and can be subject to a PI.

    Many trademark applications covering NFTs are filed in Türkiye as well. Turkish Patent and Trademark Office (“TPTO”) handles such applications like any other trademark application with no reservation. Moreover in a very recent decision TPTO has determined that virtual and online goods/services were similar to physical goods/services and rejected the contested trademark application as per the existing provisions of IP Code.

    These assessments are consistent with the approach of the Courts and IP Offices in other countries.

    Conclusion & Comments

    Despite that any legislation specific to NFTs has not yet been established both in Türkiye and in the rest of the world developments are important as they acknowledge the protection in NFT space by means of general principles and assess virtual and physical goods/services similar or related. We expect that principles that started to be established by Trademark Offices and Courts will be more settled within the following years. In order to better strategize in such environment, we advise registering IP rights with NFT coverages to be able to duly enforce them and paying utmost care to clarify NFT related aspects while commercializing the IP rights to prevent potential risks.

    [4] Lavinia Deborah Osbourne v (1) Persons Unknown (2) Ozone Networks Inc Trading as Opensea decision
    [5] Qice v. BigVerse decision
    [6] Janesh s/o Rajkumar and Unknown Person decision
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