Securities laws have often driven crypto-related policies. But for NFTs, intellectual property rights need to take precedence. Treating all NFTs as financial assets undermines America’s absolute position in intellectual property.
Importance of Intellectual Property in America
The immediate risk posed by a one-size-fits-all approach is to undermine the commercial viability of NFTs. Not only will NFTs evolve the way intellectual property is created, used and monetized, but it will also change how users engage with artists/brands. It is vital that policies encourage and protect artists and brands expanding their portfolios through NFTs.
Intellectual property is an important component of the American economy. According to the US Patent and Trademark Office, industries where intellectual property protection is important, such as manufacturing, broadcasting and artists, account for more than 41% of America’s GDP and one-third of the workforce. According to the U.S. Chamber of Commerce’s Global Innovation Policy Center (GIPC), America’s intellectual property is worth $6.6 trillion, more than the nominal GDP of any other country in the world. 860 trillion yen), accounting for 52% of US merchandise exports.
An effective intellectual property system encourages creators and companies to create new intellectual property and profit from their rights in innovative ways. Those efforts are on the move, with the USPTO requesting information on NFTs last year.
Efforts by industry and artists
In industry, NFTs are crossing chasms, from new R&D efforts, to digital marketing beyond the old ways, to entirely new ways to monetize intellectual property. Nike, Tiffany & Co. and other big names will sell NFTs in 2022, earning hundreds of billions of dollars in revenue. In Nike’s case, sales exceeded $1 billion.
NFTs directly contribute to a company’s bottom line and are transforming the way companies connect with consumers. In the past, fanfiction (fan fiction) has led to cease and desist notices and lawsuits from intellectual property rights holders for infringing acts, but now the American comic giant DC Comics (DC Comics) is working with Palm NFT Studio to get NFT holders to participate in comic story decisions. Through new issuance of NFTs, companies can create a brand’s fan community overnight, and holders can stay engaged with the brand for the long term through exclusive rewards and more.
Artists are also expanding their fan base with fascinating experiments. Digital illustrator Yam Karkai has launched the NFT collection “World of Women (WoW)” celebrating art, expression, inclusion and equal opportunity.
WoW joins prominent talent agent Guy Oseary to sign Reese Witherspoon’s media company Hello Sunshine. She also founded a foundation dedicated to empowering women in Web3.
U.S.-based artists Tyler Hobbs and Dandelion Wist Mané are developing a unique algorithm and a project that invites collectors to become co-creators of NFTs. Launched QQL. In the second half of 2022, when the NFT boom was over, the collection sold out and recorded sales of nearly $ 17 million (about 2.2 billion yen). Demand for innovative, intellectual property-based NFTs may not end in a short-lived boom, he said.
Enforcement of Intellectual Property Rights
Creators are already exercising their rights through copyright and trademark laws in entering the Metaverse. For example, Yuga Labs, which was recently valued at $4 billion, sued copyist artist Ryder Ripps for trademark infringement. .
In the case between Nike and StockX, Nike alleges that StockX infringed its trademark by creating NFTs without permission.
On the other hand, the Creative Commons license (CC0), which allows unlimited reuse of works, is gaining popularity.
The US intellectual property system not only supports the growing commercialization of intellectual property by NFTs, but NFTs are also tools for enforcing rights. Writs using NFTs have been issued, and use cases for counterfeiting are under development.
However, we do not recommend using NFTs and the smart contracts used to transact them like traditional digital rights management tools, such as software that prevents you from copying your music and sending it to your friends.
You can right click and copy and paste the image associated with the NFT. That doesn’t mean you won’t be able to access all of the experiences that verified holders earn, nor will NFTs retain their value.
Retrieving an image from an NFT is no different than having a signed copy of a keepsake without proof of authenticity. Above all, it may violate the rights of creators.
Not all NFTs are intellectual property focused. Last year saw the rise of financialized NFTs, where borrowers use NFTs as collateral and projects offer high yields to “investors.” These may be subject to lending, securities trading and other financial regulations.
U.S. Securities and Exchange Commission (SEC) Chairman Gensler has taken the stance that most convertible tokens are securities. A similar overarching view of the NFT market from the SEC and state securities regulators would dampen the momentum of intellectual property-driven NFTs.
Regulatory restrictions on securities will be imposed because of the technology they use, not because of the purpose of the NFT. Transferability of NFTs may be severely limited.
Don’t leave it to the SEC
Cramming NFTs into the realm of securities discourages companies and creators from taking advantage of new technologies, and runs counter to the economic interests realized by the US intellectual property system. According to GIPC, an economy with effective intellectual property protection, like the current US, is 70% more likely to produce innovative results and 40% more likely to attract venture capital and private equity.
Moreover, securities laws are not a suitable framework for consumer protection. As with any emerging industry, scammers are waiting to take advantage of new entrants and buggy beta tools.
During the height of the NFT boom in 2021, many projects emerged with grand catchphrases and roadmaps, but promises remained unfulfilled as entrepreneurs rag-pulled their funds. Such incidents must be prevented, and the US Department of Justice has shown that lag pulls can be effectively dealt with by prosecuting several NFT projects.
America has a strong system of consumer protection. Many rights holders already understand the consumer protection laws that apply to their products and services and can adapt existing guidelines, controls and evaluation processes for NFTs.
Rather than letting the SEC take the lead in regulating the NFT sector, the growth of NFTs will incentivize artists, brands, and fans to unlock the potential of NFTs while addressing the damage to consumers and creating a worthy next generation. It should be guided by a pioneering, intellectual property-conscious policy approach.
Otherwise, NFT production will move from the US to the rest of the world before creators and IP owners see what NFTs can do.
Diana Stern: General counsel of Palm NFT Studio.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
| Image: Cam Thompson/CoinDesk
｜Original: Better Policy Can Turn NFTs Into an Intellectual Property Powerhouse
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