The rise of NFTs and brands’ quests to protect their intellectual properties

NFTs — unique, non-fungible tokens created in relation to a specific digital asset — have captured a lot of attention lately, but in reality, they’ve been around since about 2014. The once-fringe movement burst into the mainstream in 2021 because NFTs now translate to money. For example, CryptoPunks NFTs were released for free several years ago, but by 2021, some were selling for upwards of $10 million each. In another milestone, Beeple (known as Mike Winkelmann in the physical world) sold an NFT called Everydays: The First 5,000 Days through Christie’s last year for a whopping $69 million, which made him the third-most-expensive living artist in the world. And this is just the beginning.

As with any burgeoning space that involves big names and big money, nefarious opportunists gravitate. In a remarkably short time, counterfeit NFTs have emerged, hoodwinking many unsuspecting consumers and cashing in on the intellectual property of brands and artists alike.

Brands and the growing NFT infringement problem

Companies and individuals are still trying to figure out how to use NFTs to promote their brands. After years of being dismissed as inconsequential, the current momentum behind NFTs took a number of folks by surprise. The effect has been that someone else is profiting off of their assets, such as in Hermes’ case with a Birkin bag or Nike’s fight with StockX, and many NFT buyers don’t realize what’s “real,” or in the case of a brand, what’s been sanctioned or approved by that brand.

Several companies have filed lawsuits to protect their brands from being co-opted by NFT creators, and more are sure to follow, but today there is no clear legal precedent to clamp down on counterfeiters or those that infringe upon a brand’s intellectual property. The only immediate recourse is to request removal of infringing NFTs from marketplaces so that they cannot be sold– and this is very difficult to do because it means brands have to track hundreds, if not thousands of NFTs that may be infringing on their IP rights. Most organizations have no way to monitor all the NFTs being created and sold each day– it’s a massive ecosystem. Because of this, “bad” NFTs are taking over.

Leading NFT marketplace OpenSea recently announced that at least 80% of NFTs it hosts “were plagiarized works, fake collections and spam.” While OpenSea is trying to minimize the severity of the problem, it has only been able to take enforcement action against 3,500 NFT collections every week, or about 0.175 percent of its 2 million total collections. This is not even a drop in the bucket. And when bad NFTs run rampant, they can effectively weaken a person or brand’s control over its image, assets, and overall value. 

Types of NFT intellectual property infringement

There are a number of ways intellectual property is being violated in the NFT landscape today. Here are some of the most common: 

• Counterfeit NFTs: If a brand mints its own NFTs then it is likely that others will look to issue further identical NFTs in order to confuse consumers and profit off of false creations. Given that this is likely to happen most in the collectibles space, it will be important for legitimate NFT projects to consider how consumers can gain confidence that they are purchasing the real thing.

• Infringing NFTs that Include Copyright Work: A brand may not produce its own NFTs, in which case an infringer could create a work that infringes on copyright and then mint an NFT, offering it for sale. In this case, the rights owner may wish to ask the trading platform to remove the NFT from the sale, as an infringement.

Platforms like Opensea and Rarible do state that they do abide by laws such as copyright, money laundering and fraud. In this instance, they will remove the NFT from their platform but the NFT will still exist on the blockchain and could be traded elsewhere.

• Fake and Replica NFT Stores: Copying legitimate NFT trading platforms like OpenSea and Rarible, buyers may be tricked into giving their personal information and potentially funds to a platform that looks exactly like a well-known and legitimate platform. The con is on, with these platforms that prey on unsuspecting people, eager to buy their first NFTs.

• Impersonation: In early 2021, Banksy-style NFTs sold for $900,000. Given Banksy’s anonymity, buyers were not sure if this was the real Banksy or someone impersonating him. It turned out to be the latter. Domain names were registered such as banksynft.com and banksynfts.com, creating the possibility for further scams in the future.

What can be done

Unfortunately, we’ve just hit the tip of the iceberg. It is incredibly hard to prevent one NFT creator from plagiarizing or counterfeiting another NFT creator’s work, given NFT creation does not automatically protect the work in any meaningful way.  Similarly, there are currently no laws specifically devoted to NFTs, so until cases like Hermes’ and Nike’s are settled, there is no legal precedent to clamp down. 

There is also the question of ownership. Suppose an artist who worked on a Marvel film or a Star Wars creation turned some of their work into an NFT. The artist created it, but the MCU or Disney likely would not take kindly to such a move. The artist very likely would be slapped with a copyright infringement suit. But, again, copyright infringement can be fuzzy in the NFT world;  the law is not prepared to deal with NFTs. To counteract, companies may have to change how they work. In the not-so-distant future, for example, expect to see employment contracts evolve to explicitly spell out who can do what in terms of development and sales of an NFT and who owns the rights to specific digital assets and intellectual property.

Outside of such contracts, brands can make use of new, emerging platforms that use AI to spot fake NFTs. These systems analyze text and images to spot even the most minute resemblance of their copyrighted works on the digital work. Such platforms give brands a chance to quickly and easily review NFT listings across a broad range of marketplaces to identify those that violate their rights. Armed with quality data, infringing listings can be removed before an unsuspecting consumer tries to purchase a counterfeit NFT.

Additionally, brands should communicate with consumers to let them know exactly where they can purchase one of their NFTs. By restricting distribution to certain sites, artists and brands maintain some semblance of control. It just gets a bit tricky if an NFT purchaser later decides he or she wants to sell or trade that infringing asset.

The NFT space is rapidly evolving, and as you can see, it is rife with complexities. As more regulation, guidance and protections are put in place, artists, collectors and brands will be able to enjoy this new medium in unexpected ways. It may just require some growing pains to get there.

Mark Lee is the CEO and founder of MarqVision.