Smart Contracts Saving IP?

Following the introduction of the internet and social media, opportunities to exploit the ownership of digital content have expanded extensively. The copyright infringement issues, and overall disruption faced by the music and film industry in the early days of the internet are a great example of this. These were the first content industries forced to adapt to the internet in order to protect the ownership of their products. Once this content was readily available on the internet, music and films were quickly pirated and distributed in a matter of seconds. Once this content was downloaded on an illegal website, the music label or film production studio had automatically lost out on remuneration for their product, as well as a potential customer.

After years of developing marketing strategies aimed at enticing consumers to purchase their products and services, these industries eventually adapted to these changes by introducing accessible media libraries and eventually adopting what we now know as streaming platforms. 

It is evident that these issues are slowly vanishing with the help of blockchain technology. Distributed Ledger Technology (“DLT”) has revolutionised the way Intellectual Property Rights (“IPR”) are recorded and managed. The mere transparency, automation and smart contract capabilities found within DLT make it the ideal technology for ensuring that the owner of a product can control the contractual rights that are transferred and associated with the sale of that product.

Existing regulatory and legal environments were not designed to specifically accommodate digital assets, including NFTs. However, existing legislations may apply depending on the token’s characteristics and the activities performed in respect of the token.

As a general rule of thumb, the rights that accompany a digital asset are established by the seller of the digital asset. These tokens then contain metadata that establishes the corresponding asset to which they are bound. Issuers of the tokenised product will own the IPR associated with the underlying asset, and therefore decide what rights to grant the buyer of the product.

In terms of NFTs and in-game avatars found in the Metaverse, if the original creator choses to retain the copyright of the underlying work, they will retain the exclusive right to alter, distribute and sell their work to other people. The purchaser will then receive a token and specific rights that allows for the use and/or resale of that specific copy of the asset. The scope of these usage rights will be determined by the inherent conditions and licence terms attached to the acquisition of the relevant NFT (which could vary). It is for the creator or distributor of the NFT to implement these definitive rights. While NFTs can be recognised as ‘property’, it is usually identified as a transparent proof of legal title to the digital version of the asset. In essence, the holder of an NFT has a unique numerical code that amounts to a token in their wallet, which grants the holder the capacity to transfer this NFT as they see fit. This factual control creates a fundamental link to the asset akin to property rights.

However, this will depend on the terms of sale that are embedded within the smart contract. If the issuer is to be paid a percentage of ongoing payment transactions or royalties, this will also be embodied into the smart contract. As a result, the assignment of these rights must be transferred correctly and include licensing language that coincides with the issuers intended terms of sale.

Blockchain technology ensures that the ownership of a particular tokenised asset is publicly recorded in a transparent manner. In simple terms, if an individual purchases a tokenised product - they will be recorded as the owner of this unique digital asset, and when transferred to someone else, this ownership will be transferred accordingly. In a world full of identity politics whereby the masses are in desperate need to follow the trend, the Metaverse is providing an ecosystem where ownership and uniqueness are indisputable.

However, not all is clear-cut when analysing existing IPR laws within a virtual reality. The metaverse poses an abundance of questions, especially when determining the governing structure of the particular platform and the contractual rights associated to the use of that platform. Businesses will have to manoeuvre carefully when attempting to apply their trademark and patent registrations in the Metaverse. Who governs these registrations and what is the legal jurisdiction for the Metaverse?

In order to exploit the immersive functions of the Metaverse, trademarks and legally protected content will have to behave in a non-traditional manner that allows for imaginary to be displayed and products to be traded within a virtual reality. These issues will have to be guarded via trademark registration policies that can adapt to new products and services. It will also be necessary for brands to pour resources into investigating trademark and copyright engagement and identifying potential infringement risks at an early stage.

Overall, the Metaverse will present challenges and ask questions in respect to IPR and the legal protection and ownership of such information. However, it will also provide an abundance of opportunities for businesses that hold IP to evolve their strategies and become compatible with ecosystems such as the Metaverse. The Metaverse represents the next step in our inevitable integration into digital society and promises a bright future for new types of goods, services, trademarks and patentable virtual reality related technology to be ushered in as the Metaverse and Web3 continue to develop.