Over the past few years, there has been a significant surge in the popularity and adoption of non-fungible tokens (NFTs). These unique digital assets have proven themselves to be great tools for the brands to re-strategize and explore new business models to attract, retain and cater to the “modern” tech-savvy consumers. Popular brands such as Starbucks and Adidas, have jumped on the bandwagon to capitalize on this unique opportunity and commercialize their IPs through the NFTs. Our firm’s Partner, Ms. Meera Chature Sankhari has penned an article focusing exclusively on how NFTs present a great opportunity for IP commercialization. The NFT ecosystem is, however, in its nascence, and the legal frame to govern it still lies in a cradle. Nonetheless, the exponential yet nebulous growth of NFTs has everyone gripped. In this article we track the latest key global developments of the past one year in the NFT space vis-à-vis IP & the related introduction of the guidelines, notifications, etc.
1. EUIPO Guidelines for classification of virtual goods, NFTs and Metaverse, (23.06.2022)
Given the increasing popularity of the NFTs and the metaverse, the European Union Intellectual Property Office (EUIPO) experienced an influx of applications relating to the virtual goods, including the NFTs. As a result, EUIPO released guidelines to classify the goods relating to NFTs and virtual goods, in accordance with the established principle of classification.
- Regarding virtual goods, the EUIPO has clarified that they fall under class 9 as digital content or images. However, the EUIPO emphasizes that a generic classification of “virtual goods” alone lacks sufficient clarity and additional details specifying the content related to the goods are necessary.
- EUIPO has also clarified that NFTs are distinct from digital items therefore, for the purpose of classification, it is necessary to specify the type of digital item being authenticated by an NFT. For example, if the NFT is authenticating a shoe or a ticket, then the classification should include “digital shoe” or “virtual shoe”, “digital ticket” or “virtual ticket”.
- It was notified that the 12th edition of Nice Classification will incorporate the amended classifications to include “downloadable digital files authenticated by non-fungible tokens”. The 12th edition has now come into force and is mentioned in the article below.
2. The Indian Income Tax Act, 1962, amended to include “Virtual Digital Assets” vide the Finance Act, 2022 (30.03.2022)
The Indian Income Tax Act, 1962 now levies taxes the income arising from Virtual Digital Assets (“VDA”) w.e.f. April 01, 2023.
- Section 2(47A) has also been inserted to include for the definition of VDA, which is as follows:
- “Any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
- Non-fungible Token (NFT) or any other token of similar nature, by whatever name called;
- Any other digital asset, as the Central Government may, by notification in the Official Gazette specify.”
- Section 115BBH has been inserted, which allows a deduction of 30% tax on the income arising from transfer of VDA. The definition of “transfer” as provided in the Act, is applicable to the transfer of VDA, whether capital asset or not.
3. 12th Edition of the World Intellectual Property Organization’s (WIPO) Nice Classification system (01.01.2023)
The following additions have been made by the World Intellectual Property Organization, vide its 12th Edition of Nice Classification, amending the specifications of goods and services to include:
- Class 9: “downloadable digital files authenticated by non-fungible tokens [NFTs].”
In addition, goods described as “downloadable computer software for managing cryptocurrency transactions using blockchain technology” in Class 9 was amended to read as “downloadable computer software for managing crypto asset transactions using blockchain technology,” so as to expand the scope of this class to include other blockchain-based digital assets, such as cryptocurrencies, NFTs & the software applications that enable crypto or blockchain related transactions.
- Class 41: “providing online virtual guided tours”. The amendment covers the activities being done in metaverses.
- Class 42: “mining of crypto assets / cryptomining”, broadening the scope to include the mining of the crypto currencies.
4. UKIPO published Practice Amendment Notice PAN 2/23 (03.04.2023)
The UK Intellectual Property Office (UKIPO) released Practice Amendment Notice PAN 2/23 on the classification of NFTs, virtual goods, and services in the metaverse. The notice aims to provide clarity on the acceptable classification and framing of these terms. The UKIPO, like other registering authorities worldwide, has seen an increase in trademark applications related to NFTs and virtual goods and received requests for guidance.
- The UKIPO classifies ‘Virtual Goods’ as Class 9, similar to the European Union Intellectual Property Office (EUIPO), as they consist primarily of data. Accordingly, the term ‘virtual goods’ must be specified in the application.
- Similarly, NFTs alone will not be accepted as a classification term without specifying the asset to which they relate. The UKIPO provides examples of acceptable terms in Class 9, such as ‘digital art authenticated by NFTs’ and ‘downloadable software authenticated by NFTs.’ NFTs can also be used to authenticate physical goods, which can be classified in their respective goods classes. For example, if the NFT is authenticating a t-shirt, that would have to fall in Class 25.
- Regarding services, the UKIPO provides specific terminology for Class 35. For instance, retail services connected with the sale of [e.g. virtual clothing, digital art, audio files] authenticated by non-fungible tokens and.
- Provision of online marketplaces for buyers and sellers of goods and services which are authenticated by non-fungible tokens are included as instances of what can be covered in Class 35
5. International Trademark Association Releases White Papers on Trademarks in the Metaverse and Non-Fungible Tokens, (14.04.2023)
The International Trademark Association (INTA) has released two white papers, titled “Trademarks in the Metaverse: A Report from INTA” and “Non-Fungible Tokens: A Report from INTA,” which explore the future of intellectual property (IP) in uncharted territories. These papers, co-written by over 13 INTA committees, focus on trademarks in the metaverse and NFTs, providing recommendations on how to address the challenges posed by these new digital ecosystems. The papers offer specific recommendations for INTA to guide the global IP community in addressing these issues effectively. This includes providing clear frameworks, defining terms, and suggesting paths for brand owners to establish and protect their rights.
Additionally, the white papers propose advocacy efforts to tackle the challenges faced by trademark owners in this rapidly changing landscape. Such as providing guidelines to courts and tribunals to enable flexibility in enforcing trademark rights in the metaverse; developing educational materials on trademark ownership, licensing etc and recognizing that NFTs and other intangible assets do not neatly fit into existing legal doctrines, such as fair use, artistic freedom, and the first sale doctrine.
Watch out this space for how the Courts around the world have enforced the rights in the digital assets / NFTs and even used the NFTs themselves, in an effort to serve justice.
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