NFT and Intellectual Property: Basic Aspects You Should Know

The blockchain technology and NFTs (Non-Fungible Tokens) have become a revolution in the world of intellectual property (IP). In a scenario where regulations are obsolete and transactions are complicated, NFTs and Intellectual Property come together to offer an innovative solution to protect and manage the rights of creators and owners efficiently and globally.

What are NFTs?

The NFTs, or non-fungible tokens, are unique digital assets certified by blockchain technology. Their fundamental distinguishing feature is their uniqueness: no two NFTs are identical, and they cannot be exchanged one for another. This makes it possible to ascertain with certainty who owns a digital asset. In this sense, there is a clear link between NFTs and Intellectual Property.

Certainly, NFTs can represent a wide variety of digital assets, from works of art and memes to tweets and photographs. Their versatility is impressive, making them a powerful tool for creators and owners of digital content.

To better understand NFTs, it is essential to grasp the difference between fungible and non-fungible goods. Fungible goods are those that can be exchanged for one another and whose value is determined by their characteristics. For example, money is a fungible good: a 100-euro banknote is just as valuable as another banknote of the same denomination.

On the other hand, non-fungible goods are not interchangeable, as each has a unique and intrinsic value. A famous painting, like the Mona Lisa, is not comparable or interchangeable with another painting, as each work of art is unique in its kind. Likewise, NFTs are non-fungible, meaning each one has a unique value and cannot be substituted for another.

How These Tokens Work and Their Characteristics: An Approach to the NFT and Intellectual Property Link

In essence, the functioning of NFTs is simpler than it might seem at first glance. Suppose you are a digital artist and wish to sell one of your works as an NFT. The process involves tokenizing your work, which means creating a unique record of it on the blockchain. This ensures that your work is authentic and cannot be duplicated or copied.

Then, a «smart contract» is created, which contains all relevant information about the artwork and the transactions related to it. This contract is executed automatically when an NFT is sold or transferred, guaranteeing the transparency and authenticity of the transactions. Do you understand now why NFTs and Intellectual Property are compatible?

But, although NFTs use the same blockchain technology as cryptocurrencies, they are not the same. While cryptocurrencies are fungible goods and their value depends on market supply and demand, NFTs are unique and their value lies in the singularity of the assets they represent.

Furthermore, NFTs possess several distinctive characteristics that make them ideal for intellectual property management:

They are singular. Each NFT is unique, and its authenticity can be verified through its metadata, stored in the smart contract. Notable examples include unique land parcels in virtual games like Decentraland.
They cannot be divided. Unlike cryptocurrencies, NFTs cannot be divided into fractions. They must be acquired in their entirety, which adds value to the singularity of the asset.
They are scarce and exclusive. Because each asset is recorded only once on the blockchain, NFTs are inherently scarce and exclusive. This makes them attractive objects for collectors and lovers of digital culture.

Relationship Between NFT and Intellectual Property

The intellectual property is a fundamental pillar in today’s society, as it grants exclusive rights to creators over their literary, artistic, musical, and other works. However, the legal and technical structures supporting these rights have fallen behind in an increasingly digital and globalized world. Current intellectual property protection mechanisms, dating back to the 15th century, often prove inadequate in the era of the Internet and blockchain technology. This is where the relationship between NFTs and Intellectual Property is pertinent and relevant.

How can NFTs protect Intellectual Property?

The answer to this question lies in the very nature of NFTs. Indeed, these tokens can not only represent digital works but also act as an immutable and transparent record of ownership. When a creator issues an NFT for their work, a permanent link is created between the author and the work on the blockchain. This means that no one else can claim ownership of that work without the creator’s consent, and any attempt to tamper with the record would be evident.

NFTs can evolve over time thanks to “smart contracts,” which can include specific conditions for the use of the work. For example, an author can specify that their NFT can only be used for non-commercial purposes or that the buyer does not have copyright over the work itself. These conditions are immutable and apply automatically, which eliminates the ambiguity and open interpretations that often plague traditional legal agreements.

Furthermore, the transparency and real-time verifiability of NFTs facilitate the protection of intellectual property rights. Creators can track the transaction history of their works and verify if they are being used in accordance with the established conditions. This gives them greater control over their intellectual property and the ability to take action if infringements occur.

Other Advantages of the NFT and Intellectual Property Partnership

One of the most notable advantages of using NFTs to protect copyright is the simplification of global processes. Currently, if a creator wishes to protect their rights in multiple countries, they must perform individual registrations in each one, which demands significant time and resources.

NFTs accelerate this process by allowing creators to issue tokens that represent their works and, through the blockchain, ensure the authenticity and uniqueness of each work. This minimizes the need for manual registrations and reduces the risks of counterfeiting.

Clarity in contracts and the elimination of “fine print” are other advantages of the NFT and Intellectual Property duo. In the realm of NFTs, all conditions and rights are clearly defined in the token itself and are unalterable. Consider the case of Jack Dorsey, one of Twitter’s creators, who sold his first tweet as an NFT for millions of dollars. He previously established specific conditions that prohibited the commercial use of the tweet. That is, Dorsey retained the copyright to the original tweet. As we mentioned, these conditions are encoded in the NFT, eliminating any ambiguity or open interpretation.

In the case of collections like Bored Ape Yacht Club (BAYC) or CryptoKitties, buyers receive explicit rights to commercialize products related to their NFTs (digital apes and kittens, respectively). These conditions cannot be modified without the consent of all parties involved, thus guaranteeing a fair and transparent transaction.

The Singapore High Court Ruling

Recently, the Singapore High Court issued a landmark ruling recognizing property attributes in NFTs. The case involved an owner of a Bored Ape Yacht Club (BAYC) NFT who used the NFT as collateral to obtain a cryptocurrency loan on the NFTfi platform. The lender attempted to seize the NFT, which led the owner to resort to the courts.

In this regard, the court argued that NFTs are not simply information or code on the blockchain, but also possess the attributes of property. These attributes include the uniqueness and definition of NFTs, the ability to transfer them exclusively, and their appeal to third parties. Furthermore, the court noted that NFTs are assets actively traded in markets, which underscores their importance and value.

Therefore, the Singapore High Court’s ruling sets an important precedent by recognizing NFTs as assets with property rights, which strengthens intellectual property protection and clarity in digital transactions.

Interested in protecting your creations with the NFT and Intellectual Property link? Contact us!

Finally, at ISERN we can advise you to guarantee the protection of your digital assets, establishing clear conditions in smart contracts registered on the Blockchain. Based on this, we have expert professionals in the digital field and, particularly, in the link between NFTs and Intellectual Property. We are also backed by our 100 years of experience in the registration and protection of patents, trademarks, and creations, both within and outside of Spain. Contact us and visit us at any of our 12 delegations in the most important cities in the country!