NFT 101 | Protecting NFTs | Are NFTs the new marketing tool or more? | Whether Hong Kong’s Aging IP Law Can Protect Metaverse Activities?

“This will likely shake up the marketing industry in due time – with players that truly understand the space coming out on top”

- Clément Bourcart

?Introduction

?Non-Fungible Tokens or NFTs have been making waves around the internet since the frenzy of Cryptocurrency has picked up in popularity recently.

?NFTs are virtual assets belonging to an owner on the blockchain. They are unique, individualised and could be anything digital ranging from drawings, photos to music. They are “minted” or created, then sold on the blockchain which can be tracked and are governed by smart contracts containing details including rules and rights attached to the NFT. Parallels have been drawn in the buying and collecting of NFTs to that of fine art collection.

?With the growing popularity and attention on NFTs, many are creating NFTs, including businesses for marketing purposes. While NFTs could be an asset to businesses, they could also create potential issues for brand owners.

?NFT as a marketing tool

?NFTs allow brands and businesses to create unique pieces, entice customers, and build brand loyalty. Major brands use NFTs to draw consumers to their brand by creating anticipation and excitement on upcoming products and the idea of ‘limited edition’.

?Coca-Cola’s NFTs aimed to drive anticipation through surprises that could only be unlocked upon purchase. As a result of their successful marketing campaign, Coca-Cola released another set of NFTs targeting consumers who buy into the idea of limited edition and mystery.

?Using consumers’ psychology through ‘limited edition’ McDonald’s issued only 10 NFTs featuring the McRib to create excitement about the temporary return and limited availability of a product in stores. The NFTs were only available to buyers who retweeted McDonald’s invitation. At least 93,000 people retweeted the invitation in three months illustrating how well sought-after the McRib NFT is.

?Consumers’ changing behaviours are affecting business models and brands are leveraging on NFTs to merge traditional marketing with new technology to embrace change and remain competitive.

?Potential problems businesses face

Renowned brands who have yet to explore the NFT marketplace and could risk fighting off potential trademark infringement.

Hermès filed a trademark infringement against Mason Rothschild for the unauthorised use of the BIRKIN trademark where he named his series of NFTs ‘MetaBirkins’. Rothschild misled followers on Twitter and Discord to believe that BIRKIN and his NFTs are related, creating a likelihood of confusion – which trademarks aim to prevent. While a judgement has yet to be passed, Rothschild is refusing to apologise and believe his works are protected by the First Amendment rights as art.

Nike sued StockX for infringement over the sale of unauthorised images of Nike shoes and telling buyers such NFTs would be exchangeable for physical versions on the shoes “in the near future”. Nike’s business reputation has been negatively affected with suspicion over the authenticity of StockX’s NFTs.?

Protecting their NFTs

Businesses who own registered trademarks that cover NFTs or similar goods and services may have an easier route in filing for an infringement. As NFTs are fairly new, they may not have been covered under the relevant classes for protection.

With cases like Hermès and Nike, businesses need to prevent their trademarks from being infringed with the rise of NFTs. Businesses that release NFTs into the market could consider trademarking the name, sign, logo of the NFT. This could protect and help businesses in some ways:

1. Prevents a competitor in the market from registering a similar or same name for their NFT, keeping the NFT brand unique;
2. Increase the value of the NFT through consumer confidence. The value of the NFT is only as high as what consumers deem it to be;
3. Lowers the likelihood of confusion as consumers are aware they are buying a genuine NFT related to the brand.

It has yet to be seen how an NFT infringement has been dealt with, however, NFT marketplaces like OpenSea has indicated that they will “take down works in response of Digital Millennium Copyright Act (“DMCA”) takedown notices and/or other intellectual property infringement claims and will terminate a user’s access… if the user is a repeated infringer”. However, this amounts to low punitive action against infringers. It is also unclear if infringers will be met with further punishment.

Is Hong Kong’s Legislation Equipped to Protect Metaverse IP?

The principal legislation protecting IP rights in Hong Kong includes

(i)???????????the Trade Marks Ordinance (Cap.559) (“TMO”);

(ii)??????????Trade Description Ordinance (Cap.362) (“TDO”);

(iii)?????????Patents Ordinance (Cap.514) (“PO”);

(iv)?????????Copyright Ordinance (Cap.528) (“CO”); and

(v)??????????Registered Designs Ordinance (Cap.522).

These ordinances all share one common thread, namely, criticisms of being largely antiquated. A study by the Government has since come to the conclusion that outdated laws are barriers to innovation.

For example, the existing CO does not contain a general communication right. As such, existing criminal provisions only address unauthorised "distribution" of infringing copies, without taking into account of newer means of communication (e.g., the internet). Communication right has since been updated into laws in Singapore, Malaysia and South Korea with internet service providers in those jurisdictions being obliged to prevent their services from being used in illegal activities. ?

Conclusion

NFTs could be a tool for businesses to grow, but they have also riled up famed brands who fear a potential trademark infringement. Brands who are late in adapting to this developing market could risk trademark infringement.

Those who have explored the NFT market should promptly protect themselves from possible infringements to increase the value of their NFTs which can strengthen consumer confidence in the brand. More brands may join the NFT wave in popularising themselves, using it as a tool for increasing revenue which changes the landscape of traditional marketing. However, those that protect their NFTs so they are worthy to buyers will benefit the most from this new technology.?

In this regard, to truly become a tech friendly incubation jurisdiction, the laws in Hong Kong must also update to the digital age.

Written by:

1. Mr. Joshua Chu, Group Chief Risk Officer, Coinllectibles?
2. Ms. Erin Ching, Deputy Lead, Women Unbounded Mentorship Programme

This article was first published with The Hong Kong Lawyer. To view in original link location: https://www.hk-lawyer.org/content/nft-101-protecting-nfts-are-nfts-new-marketing-tool-or-more-whether-hong-kong%E2%80%99s-aging-ip