Quick 5: Intellectual Property Strategy in Web3

Web3 is being heralded as the future of the internet, where transactions run on blockchains, ownership is decentralized, and participants earn from their contributions to their communities. Instead of what we have currently in Web 2, where we all create content that is monetized by the platforms we are on, Web3 creators will own a stake in the platforms they create and distribute on. For a deep dive, see Harvard Business Review: What is Web3?

If you are a Web3 company (in crypto, NFTs and the Metaverse) or an attorney advising one, here are 5 Web3 things to think about, as you develop your Intellectual Property (IP) strategy. They are also good to know if you are a person who owns, or is thinking about owning virtual assets.

1) No copyright in NFTs

Most commonly released with digital art, digital apparel/ tokens and even music/film, it is easy to confuse NFTs as having or conveying some intellectual property rights.

Some NFTs have rights attached to them by contract, but an NFT is really just pieces of code on the blockchain. It is a separate thing from the object, service or other benefit advertised with the NFT, and is not in itself, an IP asset. Rather, NFTs can validate/authenticate the originality of IP (and real) assets and serve as proof of ownership, subject to the terms that apply.

Meaning: if you want an NFT to represent a legal right like copyright, you will have to make this clear in the terms/conditions of sale of that NFT. For buyers, you want to be clear on what exactly you are getting with your NFT purchase. We’ll talk more about NFTs in future posts.

2) Open Source Software

Did you know that original software source code is protected by copyright from the moment it is written? This gives software authors the exclusive rights to choose who uses their software and how they use it. This is the bedrock of traditional software products like Microsoft Office or antivirus software – the reason it is copyright piracy to “rip” a program from the CD, or get an unauthorised version online.

Companies protect their competitive advantage in their software products by actively enforcing their copyright. Some go as far as applying for software patents, which are not automatic, and only granted if the software is truly inventive. These strategies are still valid today, but may not be appropriate for some web3 projects.

Remember what I said in the beginning about decentralization? With blockchain technology, widespread adoption is important to scale, develop and maintain. For this reason, a lot of web3/ blockchain services run on open source software – software that anyone can view and contribute to/ build on. Open source software is still protected by copyright but because it is designed to be a community effort, the licenses typically have permissive terms. Open source licenses vary, but generally, if you develop software using open source, you may have to release your own software under the same terms and conditions that you received.

3) Trademarks

In the 2023 edition of the Nice Classification for goods and services published by the World Intellectual Property Organization, Class 9 (software goods) provides for: downloadable digital files authenticated by non-fungible tokens [NFTs], downloadable computer software for managing crypto asset transactions using blockchain technology and downloadable cryptographic keys for receiving and spending crypto assets. Class 42 (software services) covers the mining of crypto assets. (Crypto mining and NFTs were just introduced in the 2023 edition).

IP & NFT attorney Eliana Torres, Esq. has been keeping track of brands filing US trademark applications to protect their marks in class 9 as NFTs. So far, this includes Kia, Tarte Cosmetics, Fogo de Chao and Vespa. This could be indicative of their Web3 plans, or simply just defensive registration to prevent anyone else from registering their marks in these classes.

Web3 companies should also protect their trademarks in general, non-software classes relevant to their business. For instance, a DeFi (decentralized finance) company, or a company selling fractionalized ownership of real estate with NFTs should both register in Class 36 which covers financial services and real estate.

4) Design/ Trade Dress Protection

Luxury fashion brand Hermes is currently suing artist Mason Rothschild over “MetaBirkins”, an NFT collection of (or, more accurately for reason #1, attached to) digital furry bags styled after the well-known Hermes Birkin bag. In building their case, Hermes is relying on its Birkin trademark and trade dress protections. Rothschild’s defense is premised on his constitutional First Amendment right to freedom of speech and creative expression.

If Rothschild wins, more artists will be emboldened to make fashion NFTs inspired by real life brands. This may be harder to do, though, with more fashion brands owning their Web3 space and selling their own NFTs like Nike’s Cryptokicks, and Adidas’ Originals Into the Metaverse.

Different countries protect fashion and other design goods differently – copyright, design, trademark rights could apply. You want to know which laws apply in the markets you are playing in, because IP laws apply in all versions of the internet.

5) Web3 Domains

In addition to the usual domain name searches for .com, .co, and other relevant TLDs, you want to extend your search or registration strategy to Web3 domains.

Decentralized transactions on Web3 are powered by wallets on different blockchains. With a Web3 domain, you can share all your wallets on one page (kinda like a Linktree), build a website, or keep track of all your Web3 activity. You can also transfer or link your existing domain to a Web3 domain.

On Ethereum Name Services (ens.domains), you can register .eth domains, and on Unstoppable Domains, you can register with .crypto, .nft, .x, .wallet, .bitcoin, .dao, .blockchain, .888, and .zil.

These Web3 domains are relatively more expensive than the usual .com, .co domains, but they are worth considering, depending on your strategy. For Web3 companies, having a web3 domain communicates that you are a part of the community (e.g. .eth means you have an Ethereum wallet).

According to ENS, over 2 million .eth domains have been registered, and Forbes writes that people have been registering brand names on Unstoppable Domains, in the hopes of reselling them to the brands in the future, when the brands want to register Web3 domains. In being proactive about online brand protection, it may be a good idea for some brands to consider registration, e.g. a crypto payments fintech reserving a .wallet domain, even if they have no imminent Web3 plans.