NFTs (non-fungible tokens) may be the hottest of hot topics in art and intellectual property at the moment, and some may be waiting for the trend to burn itself out. But the underlying functionality of NFTs has larger implications for the protection of trademarks and copyrights because of its reliance on blockchain technology. To understand how and why, a basic understanding of blockchain technology is helpful.
Blockchain technology is essentially what it sounds like: a chain of blocks. Each block contains a unique “hash” or code, and any time a block is tampered with, that hash is altered, which affects the subsequent blocks. In practical terms, this means that if anyone along the supply chain attempts to change the information stored in the blockchain, the change is easily detectable. Multiple stakeholders along a supply chain can store information in a block, that block gets passed to the next stakeholder who adds another block, and so on. By the time the consumer receives a digital or physical product, that product is associated with some sort of token–a unique tag, QR code, or RFID chip, for example–that contains or is connected to a tamper-proof chain of data. This collection of data is also referred to as a “distributed ledger,” and the data could include source information, vendor information, care instructions, regulatory documents, or several other types of information the end consumer may need or want. In the real world, it may look like this: a customer scans a QR code which takes the customer to a unique webpage with information specifically about their copy of a physical or digital product. Rights holders also can log on and see each sale or scan of that QR code on the backend. It is important to note that there is not one central blockchain. There are different platforms and also different service providers, so rights holders should research their options before adopting a particular technology.
In the context of NFTs, a creator “mints” each creation with a unique identifier; in practical terms, this means the creator can ensure their attribution information is permanently part of the NFT, and in some cases, royalties may automatically issue when the art is shared or resold. The creator can track transactions and other events related to its NFT through its chosen blockchain provider.
Copyright owners also are adopting blockchain to protect music files and other copyright-protected content. As streaming media becomes the norm, blockchain technology can help protect against unauthorized sharing and also help copyright owners audit their royalties.
Trademark owners also will be able to leverage blockchain technology to protect their rights. For example, where a product bears a unique marking like a QR code and a counterfeiter attempts to replicate that marking, a rights owner could see if someone scanned or entered a fake code that took the customer to one of the owner’s legitimate webpages, and that data would be stored on a blockchain. This function could be useful not only in taking action against a particular counterfeiter but for tracking online marketplaces or geographical areas with elevated counterfeiting problems. This information, in turn, will inform a trademark owner as to where it needs to file new applications and record its rights with the relevant customs authorities for added protection.
There are critics of NFTs and blockchain who say the technologies are overhyped or trendy, and that may be the case with the current wave of high-priced digital art. The underlying functionality of blockchain, though, is likely to stick around and become a heavily used tool in rights owners’ attempts to protect their IP in a world where replication is easier and anonymous infringers are harder to track.