Sammy Baker

NFTs and Intellectual Property Rights: All You Need to Know

May 5, 2022

The concept of NFT and intellectual property rights has not been fully explored yet particularly because NFTs are recent assets that are still gaining massive adoption and recognition.

Nonetheless, this does not take away the fact that NFTs can be bought and owned which is why some individuals and businesses who are owners of these assets, would want to get IP protection on them.

In this article, we will be looking at the meaning of NFTs and Intellectual property rights, their usage, and how businesses and individuals can protect their NFTs using these intellectual property rights.

NFTs: An Overview

NFTs and Intellectual Property Rights

NFTs are non-fungible tokens that are digital representations of real-world assets ranging from music to art, games, and even tweets.

The term non-fungible simply means that NFTs are unique digital assets in the sense that every single NFT has a unique code assigned to it by the blockchain it was built on.

This is why no two NFTs can be duplicated, a characteristic that differentiates them from cryptocurrencies.

Today, these tokens have gained massive popularity and are now been seen as a major form of investment although they haven’t gained a 100% global adoption.

In addition, most NFTs today, was derived from the Ethereum blockchain and because of this, these NFTs can be exchanged for another as long as they were all built using the Ethereum blockchain.

For instance, you could trade an NFT art in the Ethereum marketplace for an NFT ticket if both NFTs were built using the Ethereum blockchain.

How do NFTs work

Well, it is quite simple when you look at it. NFTs just as has been said earlier, are unique tokens that cannot be duplicated.

In essence, NFTs can only belong to one person at any given time due to the unique ID that is assigned to the owner as proof that they own the asset for that period until they choose to transfer ownership.

This proof of ownership is assigned by smart contracts; a program with predetermined commands tasked with executing the unique IDs which act as proof of ownership to any individual or business who wants to own an NFT.

Individuals who mint NFTs are also in the process grant these smart contracts with the permission to execute the predetermined commands that have been stored in them.

So basically, in minting NFTs, the NFTs go through certain stages that include:

  • Creating a block.
  • Validating information.
  • Recording information on the blockchain.

Once an NFT has been minted and bought by an individual or business, they assume full control of that NFT as they can control its scarcity, easily show proof that they own the NFT, sell it on any NFT marketplace, and even earn royalties from them when sold.

This simply means that the NFT is completely within the control of the owner and the owner is free to do with the NFT whatever they wish to do so long as they remain the sole owners.

Intellectual Property Rights (IPR): An Overview

Intellectual Property Rights are a set of legal actions put in place to protect the inventions and products of artists and inventors.

These rights come in different forms such as filing a patent, registering a trademark, and so on and interested parties can as well apply for any one of these.

Now when it comes to IPR, it varies depending on what is being protected. For instance, services are issued with a trademark, patents are issued to products, and laws are put in place to protect the original ideas of inventors and innovators.

The need for intellectual property rights arose because of property thefts and the fact that a lot of people make use of the ideas or works of someone else without due credit to that person.

For these reasons, intellectual property rights were set up to curb these challenges which is why countries such as the United States take this particular law very seriously.

How to get Intellectual Property Rights

Getting intellectual property rights usually follows certain processes. In addition, certain conditions have to be met for an idea or product to be deemed worthy of being issued an intellectual property right.

Some of these conditions include making sure that the idea or work is truly original and has not been done by someone else previously, products or items that are used by a lot of people cannot be issued an Intellectual Property Right, and so on.

However, when an individual or business is interested in acquiring an intellectual property right, they can do so by filing for patents for the product or service, applying for trademarks or copyrights, or licensing the product to third parties.

It is generally known that trademarks are the most obvious and the most effective form of intellectual property rights because they are categorized by symbols, letters, and numbers which are very obvious and separate the trademarked product from other competing ones in the market.

The interconnection between NFTs and Intellectual Property Rights

NFTs and Intellectual Property Rights

Now you might probably be wondering, how then can NFTs be protected using intellectual property rights?

Well, the answer to this question isn’t far-fetched. To protect NFTs, a licensing agreement is usually used to do that.

A licensing agreement is a legal, written contract that gives one permission to make use of another party’s product or asset under defined conditions.

Some of these conditions are that the asset to be licensed must be thoroughly scrutinized and that the scope of the license is determined.

The scope of the license here means that the license agreement specifies the limits of the license concerning the assets.

For example, using NFTs, if the license agreement states that the NFT can only be used by the owner, it simply means that the owner cannot transfer the NFT to someone else.

Licensing fees are typically charged by the licensor to the licensee for using the assets and the amount to be paid is determined by a set of factors such as the number of assets transferred, the duration of the license, etc.

Points to note

If you own an NFT, you can issue a licensing agreement where you set the conditions for the licensee on how to use the NFT, and all other factors as deemed necessary alongside the fees to be paid as would be discussed and agreed upon by you and the licensee.

Also, there are two types of licensing agreements when it comes to NFTs.

The first one is quite flexible as it allows the owner the right to put up the NFT for sale on any NFT marketplace at their own risk.

In addition, they are also given the freedom to do whatsoever they want to do with the NFT which means the owner can choose to flip it, flaunt it online, or trade it for another as the case may be.

The second one is quite the opposite of the first, as it is called “Asset Transfer Restriction”.

With this type of licensing agreement, the owner or the licensee is restricted from carrying out certain activities with the NFT.

For example, the licensee may not be allowed to transfer the NFT to someone else, may not be allowed to trade it, etc.

The only way for all these to become possible is if the licensor is willing to renegotiate the terms of the licensing agreement to give the licensee the right to do that.

If however, you own an NFT and you are not so sure if you should get an NFT licensing agreement, below are some points to consider as to why getting a licensing agreement is important.

The importance of getting an NFT licensing agreement

Let us take a look at them below:

1. Intellectual Property Protection: When you protect your ownership interest in digital assets, you want to make sure that those assets aren’t lost.

Unfortunately, once you sell or give away your asset, you lose control over its future. That makes it easy for someone else to copy and steal your work.

With an NFT license agreement, you have the right to protect your IP rights.

You get to set the rules about when and where your intellectual property may be sold.

2. Digital Assets: One of the biggest advantages of owning NFTs is that you no longer need to worry about copyright infringement issues.

Once you register your NFT, you can easily transfer and manage the associated digital assets via smart contracts and your copyright is easily provable 

3. Access Control: With an NFT, you can control access to your assets. This could help you prevent unauthorized users from copying them. You can also restrict who has access to which assets.

4. User Experience: An NFT license lets you customize the user experience around your assets.

For example, you can let people use your assets as they see fit; or, you can limit access to your assets so that only authorized users can view them.

5. Security: In addition to protecting your assets, and NFT license helps ensure that your assets remain secure.

By restricting access to your assets, you reduce the likelihood that others can copy them.

Final Note

Getting an NFT licensing agreement is very important particularly if you own an NFT.

This would also allow you to make some money through the licensing fees while still setting the conditions as to how the licensee can make use of the NFT.

In places like the United Kingdom and other countries, NFTs have not yet been considered a product worth issuing an intellectual property right because it is not considered a financial product.

However, this would most likely change in the future as NFTs continue to gain more recognition and growth.

Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice. Please ensure you consult an actual consultant for this before taking any action.