Blockchain Legal Resource

The intersection of retail sales and blockchain technology is a current “hot” topic. But what does this actually mean for retailers? Is the time and money needed to invest in new technology worth the cost? What intellectual property (IP) protection is available?

First, a non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a blockchain. NFTs can be associated with reproducible digital files, such as photos, videos, and audio. NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files. The lack of interchangeability (fungibility) distinguishes NFTs from fungible digital assets, such as Bitcoin. NFTs can represent many things, ranging from trading cards to plots of virtual land to digital art to virtual fashion, just to name a few.

Importantly, NFTs often involve the display and/or transfer of various forms of IP, and raise the same types of concerns—e.g., trademark, copyright, and right-of-publicity—as any other commercial endeavor using potentially protected content, including issues related to clearance, registration, licensing, transfer, and enforcement.

The immutable nature of blockchain provides a history of ownership and creation that cannot be tampered with. This is imperative to an IP owner—such as a retailer with a portfolio of patents, trademarks, and copyrights protecting its brand—as it prevents another person or entity from contesting a claim to ownership.

Smart contracts with blockchain technology add a layer of security and can be used by retailers to provide licenses or obtain royalties to IP. Indeed, the addition of smart contracts has increased the utility of implementing blockchain to protect one’s IP. Smart contracts live on the blockchain and perform actions, such as allowing access to the information stored on the block, when certain conditions are met. By using this functionality, a retailer IP owner can grant licenses to users who want to access the IP by accepting that user’s digital signature. Smart contracts can also be utilized to collect royalties from people who are using and accessing IP by establishing a contract.

In addition, blockchain and decentralized systems can help retailers drive efficiency with supply chain and inventory management. Many companies use a blockchain to authenticate, track, or maintain ownership and repair records for their physical products. Blockchain technology can provide retailers with other benefits, too, including reduced costs, increased transparency, and faster transactions. And it can result in improved security by reducing counterfeiting and fraud, issues that commonly arise in trademark litigation.

NFTs serve as a very real opportunity for brands and retailers. A brand—or trademark—is a word, name, symbol, design, or phrase used to identify and distinguish a product or service, and to indicate the source of the product or service. Brands like Pringles and Taco Bell have already issued and sold NFTs as a way to promote their brands and products to younger audiences. More recently, General Mills auctioned 10 digital artworks as NFTs to promote the return of its chocolate-flavored Dunkaroos, a popular snack brand that was discontinued in 2012 in the US.

NFT applications range from authenticating tangible goods to reducing friction in e-commerce to generating new revenue through virtual sales—the possibilities are endless. NFTs have come so far that they are now making their way into physical stores, for example, an NFT gallery with digital wall displays, and physical and digital products for sale. Dolce & Gabbana staged an NFT installation in one of its flagship stores, and Rebecca Minkoff held an NFT exhibition for New York Fashion Week.

Ultimately, as cryptocurrency and NFTs become more and more popular, retailer use of the blockchain will likely become the rule, rather than the exception. Venturing into these new technologies presents issues regarding IP protection. For example, creating an NFT does not itself establish copyright protection in a particular piece of IP. Instead, it provides a verifiable ownership claim to that version or copy. Similarly, companies should consider whether their current IP, e.g., trademarks, cover their brand usage in NFTs. It may be that a retailer will need to file for additional trademarks to claim the relevant classes of goods and services involved with such usage.

Overall, retailers would be wise to begin investing in these technologies, but should be aware that they present questions for brand owners to consider and potentially discuss with counsel prior to taking action.