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Will NFTs revolutionize patent law?

Lisa M. Tittemore

Lisa M. Tittemore | Partner, Litigation Chair View more articles

Lisa is a member of our Litigation Practice Group and Trademark Practice Group

NFTs continue to make waves, even as there is much speculation about their long-term future. As we have previously written, non-fungible tokens, or NFTs, present novel challenges and opportunities for intellectual property holders. This article explains how NFTs have been creating new challenges and opportunities specifically in the patent space.

NFTs as tools for transfer of patent assets. NFTs can be used to transfer ownership of patents. The blockchain can be used to create records of patent owners, and the tokens can have self-executing contracts built into them that transfer the legal rights associated with patents upon transfer of the tokens. The use of NFTs to secure patent ownership has been spearheaded by a partnership between IBM and IPwe. (IPwe describes itself as offering a platform for a global patent market.) The companies have partnered to create the infrastructure for a marketplace to buy and sell patents using NFTs. This marketplace is not limited to the sale of patents, and can also be used to establish licensing agreements. The creators of this marketplace believe that it will help companies create and assess the value of patent portfolios.

NFTs for tracking university tech transfer. Universities have been collaborating with IPwe in order to manage their intellectual property portfolios. In July, IPwe launched an Advisory Committee for University Technology Transfer in conjunction with the University of Kentucky, which will focus on patents and NFTs. The committee intends to explore ways to use NFTs in order to aid universities with managing their discoveries and commercializing their intellectual property.

NFTs as tools for fundraising/transferring information relating to patents. Not all NFTs that deal with patents are used to transfer ownership rights. U.C. Berkeley’s auction of NFTs linked to digital patent disclosure documents, including documents associated with research relating to CRISPR-Cas9 gene editing, did not include a transfer of any patent rights. Why might someone buy this kind of NFT? According to Berkeley staff, the NFT is desirable because it “represents something magnificent” (i.e., Berkeley’s CRISPER research). In addition, the sales from the auction will be used to support a good cause, including education and furthering the university’s research.

In situations like this, bidders may engage in these kinds of transactions in order to acquire bragging rights, spend cryptocurrency that can be exploited in limited ways, or because they want to invest in a token that they believe may increase in value over time, especially if it is one of a kind.

NFT-related inventions. Of course, in addition to using NFTs as tools in relation to patents, patents also may be obtained covering myriad uses for NFTs. One notable example, mentioned in our previous article on NFTs, is Nike’s CryptoKicks patent. Upon purchase of a “CryptoKick,” the purchaser also receives an NFT tied to a sneaker that they can transfer if they sell the shoe, thereby verifying the authenticity of the product. Additionally, Nike may allow people that own “CryptoKicks” to create custom shoe designs by digitally “breeding” (combining) the owner’s digital shoe design with another person’s digital shoe in order to create a new design that is a hybrid of the two.

Potential traps for the unwary. With the many innovative uses of NFTs, there are also many challenges and responsibilities that buyers will need to keep in mind. NFTs do not automatically transfer an ownership or license unless a smart contract is associated with the purchase, and it will be the buyer’s responsibility to ensure exactly what they are buying before they bid on an NFT associated with intellectual property.

Additionally, deals associated with patent ownership and licenses may continue to exist outside of the digital landscape. NFTs may give the misimpression that they can be relied upon to guarantee the authenticity of a patent. Thus, owners and potential owners of NFTs will still need to correctly record transfers of ownership that occur outside of the blockchain. Buyers will need either to authenticate the title to the patent or, at a minimum, obtain a warranty of title from the seller, whether by means of a smart contract or otherwise. If they do not, the NFT may be inaccurate and may continue to perpetuate any errors, instead of keeping an accurate record of title to the patent. To this end, Christie’s has added disclaimers to its terms of sale regarding NFTs, reiterating that there is no guarantee of warranty of title or of non-infringement.

Challenges also arise because of the digital nature of NFTs. NFTs can be stolen if hackers manage to exploit security holes in the digital marketplace and get into the accounts of NFT owners. As NFTs exist on servers companies that host them have to be careful to renew the domain names and transfer the hosted NFTs if they believe that their servers may shut down, for whatever reason. If they do not, there is a risk that the NFT, and the intellectual property rights associated with it, could be lost.

Potential environmental concerns. Another concern associated with NFTs -- and with blockchain assets generally -- is that they may need substantial computing power, which can be harmful to the environment. Cryptocurrencies that are used to buy NFTs, like Bitcoin and Ethereum, are secured and verified by complex puzzles that have to be solved by computers making numerous energy-draining operations. The energy used in one year by Bitcoin alone is equivalent to that used by the entire country of Sweden. This makes sense in the context of the demands of computing power generally. Indeed, in 2015, a report of the Semiconductor Industry of America suggested that without new innovation and development, by 2040, the energy required for computing will exceed the estimated world’s energy production.

This problem is only exacerbated by the fact that bitcoin miners are resorting to stealing electricity and using electricity meters that give false readings (which give an energy consumption estimate lower than actual usage). On the other hand, those that advocate for Bitcoin note that the protocol is built to decrease the level of electricity being consumed. Advocates also claim that some miners are tapping into energy that would otherwise get wasted, for example, the abundance of energy created by hydroelectric power in countries with rainy seasons.

Because NFTs are backed up and authenticated by the same blockchain process as cryptocurrency, these are important factors to consider. As the world is trying to evaluate old consumer habits in order to prevent environmental catastrophe, it is worth pausing to consider the massive environmental impact of potential new consumer habits. While these environmental and energy issues are problems that exist with NFTs generally and are not specific to their use in the context of the patent landscape, it is worth considering the potential environmental harm of expanding the NFT marketplace and encouraging more NFTs to be created.

In summary, some novel uses of NFTs in connection with patents – such as the U.C. Berkeley auction of NFTs linked to groundbreaking biotech research – promise both new access to important documents and a new funding source for further research. IBM and IPwe are trying to develop a more efficient marketplace for patent assets. However, there are many things to keep in mind, including verification and energy use,- before we dive headfirst into this new marketplace.

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