The Nike and “JRR Token” cases
Minting and selling digital tokens can raise copyright issues, trademark issues, or both. I talked about copyright issues in a previous post. In this article, I outline the trademark aspects of digital tokens.
Blockchains and digital tokens
You can find a quick explanation of what blockchains and digital tokens (fungible and non-fungible) are in this article.
People use digital tokens for various reasons, including:
- Cryptocurrency. Fungible tokens are used for this purpose.
- Authentication. Some companies use NFTs as an authentication system for their customers, especially for high-end or luxury goods.
- Advertising/Publicity. Companies sometimes distribute collectibles or other branded merchandise as a way of increasing brand awareness. NFTs offer one more way of doing that.
- Revenue. Non-fungible tokens (NFTs) increasingly are sold at auctions. Sometimes a decent profit can be made this way.
Trademarks
A trademark is something that operates as an identifier of the source or origin of a product or service, distinguishing a particular product or service from those marketed by other people or companies.
Many kinds of things can serve as trademarks. Words, letters, symbols, logos, sounds, motions, colors, trade dress (product packaging or design), architecture, etc. – and combinations of them – can potentially serve as trademarks, provided they operate as such.
Functional aspects of a product, packaging or other trade dress cannot be claimed as trademarks. This includes both utilitarian and aesthetic functionality. The presence of a drive-through window cannot be claimed as a fast food company’s trademark. Why not? Because it is not just ornamental; it serves a useful function. The orange flavor of a beverage or chewable tablet cannot be claimed as a trademark because it enhances the consumer’s enjoyment (or tolerance) of the product. That is to say, it serves an aesthetic function. You get the idea.
Trademark protection for digital tokens
Like an identifier of any other product or service, an identifier of the source or origin of an NFT or other digital token may be protected as a trademark, provided it operates as trademark, is distinctive, is nonfunctional, and is not likely to cause consumer confusion.
There are people and companies whose only business is dealing in digital products and services. In addition, a growing number of owners of existing trademarks for non-digital products (such as shoes, books, clothing, and so on) are now marketing digital goods, as well.
For a list of major brands that have filed NFT trademark applications in the United States, check out this Trademark Tote Board.
Some examples of companies that have filed for trademark protection of identifiers of NFTs include Nike, Converse, Mattel, Lion’s Gate, Estee Lauder Cosmetics, Kiss Catalog Ltd. Famous personalities (or their representatives), such as Kobe Bryant and Jay-Z are also filing trademark applications. The New York Stock Exchange has filed an application to register “NYSE” as a trademark for a marketplace for the trading of NFTs.
The most common classes in which digital tokens and services related to them are registered are IC 9 (downloadable software and media); IC 35 (business services), IC 36 (financial, banking, and real estate services), and IC 42 (scientific and technical services). This is not an exhaustive list.
In the United States, a trademark arises by operation of law when a valid mark is used in commerce as a trademark. By “valid mark,” I mean a mark that meets the requirements for one in the United States. It must be distinctive, nonfunctional, not likely to cause confusion about the source or origin of a product or service, and it must be used in commerce as a source identifier.
The JRR Token
The recent WIPO decision in Tolkien Estate Ltd. V. Domain Investments/Matthew Jensen illustrates the interplay of digital tokens and trademark law.
In this case, a Florida resident marketed and offered for sale digital tokens corresponding to a digital currency. He registered “jrrtoken.com” as a domain name for the conduct of this business. J.R.R. Tolkien’s estate filed a UDRP claim challenging this registration. The estate owns the trademark in “J.R. R. Tolkien,” which is registered as a trademark in both the U.K. and the U.S. The website of this domain name resolved to a website at “thetokenofpower.com.” That website included images of wizards, including one which the panel found looked like Gandalf from The Hobbit, and the phrase, “The One Token That Rules Them All.”
The panel found that “jrrtoken,” although not identical, is confusingly similar to “J R R Tolkien,” noting that “[w]hen viewed quickly, the disputed domain name and the . . . trademark look similar.”
The panel concluded that the name was selected for the purpose of creating a false and misleading association with J. R. R. Tolkien and profiting from the author’s reputation and goodwill.
Using a trademark in parody is a protected fair use. The panel here, however, did not regard the use to be parody. It found nothing humorous or funny in the domain name. It was “just a domain name chosen due to its similarities with the Complainant’s trademarks to take commercial advantage of its evocation.” The website was “clearly a commercial venture, which is clever but not humorous.”
Finding that the registration was in bad faith, the panel ordered the domain name transferred to the Tolkien estate.
Nike v. StockX
This month, Nike, Inc. filed a complaint in federal court against StockX, LLC for trademark infringement, dilution and other causes of action allegedly arising out of StockX’s alleged unauthorized use of Nike trademarks to mint NFTs. StockX allegedly claims its NFTs represent physical Nike products that it stores in its vault.
This case demonstrates the importance of the distinction between an NFT and the product it represents. The first sale doctrine normally protects a reseller from trademark infringement liability. For example, if you legally purchase a pair of Nike brand shoes, then you are entitled to resell them at a garage sale without incurring trademark infringement liability. If StockX legally purchased Nike products and is reselling them without altering the labels on them, then the first sale doctrine might shelter the company from trademark infringement liability. Tokens, however, are not shoes.
It is sometimes possible for two different companies to use the same (or substantially similar) marks to market different kinds of goods or services. For example, one company may use DELTA to market airline services; another may use it to market faucets; and still another may use it to market electronics. The same mark, however, generally cannot be used to market the same, similar or related goods or services.
What is a “related” product or service? Basically, it is a product or service that a consumer could reasonably expect a company to expand into selling. For example, a consumer could reasonably expect a company that currently only sells computers to expand into the market for printers and other computer peripherals as well. Even if a company is currently only selling computers, you should expect to be sued for trademark infringement if you use their trademark to sell peripherals.
Expect courts to be called upon to decide whether consumers could reasonably expect a company to expand into the NFT market. That might be easier for the court in the Nike case to determine, if Nike establishes that it made its intention to move into the NFT market publicly known. It might not be as easy for a court to decide this question in other cases. Expect to see a lot more companies announcing their entry, or intention to enter, into the digital token market.
Dilution
It should be noted that it is not always safe to use an existing company’s trademark even for completely different, unrelated goods. If the trademark is famous, then using it in a way that blurs its distinctiveness or tarnishes its reputation is also unlawful. This is known as “dilution.”
Licensing
If you have a great idea for an NFT using characters or other trademarks that someone else owns, consider obtaining a license to use the trademarks. True, you might have to share profits with the trademark owner, but that could be a small price to pay compared to how much you stand to lose if you are hauled into court for violating trademark rights.
Need help with a trademark registration?
Ready to register a trademark? Contact the Law Office of Tom James.