KENYA: UNDERSTANDING NON-FUNGIBLE TOKENS AND RELATED IP CONSIDERATIONS
Adding to the continuing cryptographic developments and innovations, Non-Fungible Tokens (“NFTs”), are here and are gaining traction all over the world. More artists, auction houses, celebrities, musicians, publishers and sports personalities are launching and selling their own NFTs in a bid to monetise and commercialise their works and exploit their intellectual property rights.
Before we get into it, what is an NFT?
A NFT is a unique digital asset whose authenticity can be verified on a block chain ledger. It is a relatively new use of the block chain technology- the block chain documents and tracks transactions, ownership and validity of each NFT. Unlike cryptocurrencies which are fungible (replaceable or interchangeable, i.e. similar to a bank note) and similar in nature, NFTs represent unique digital tokens and are indivisible – i.e. there can only be one NFT for a particular video, tweet or piece of art (hence “non-fungible”).
Still not clear? These different use cases may help:
- Twitter’s CEO, Jack Dorsey, sold his first-ever tweet (“just setting up my twttr”) for USD 2.9million (approx. KES 290 million) (https://www.reuters.com/article/us-twitter-dorsey-nft-eventsidUSKBN2BE2KJ);
- The NBA is monetizing footage of its sporting through NBA Top Shot. One of the most expensive NBA Top Shot sales of a LeBron James dunk sold for USD 250,000 (approx. KES 25 million) (https://nbatopshot.com/);
- Art auction house, Christie’s, sold a digital artist’s NFT for $69m (approx. KES 25 million) (https://www.reuters.com/article/us-auction-christie-s-nft-idUSKBN2B3275);
- Kings of Leon were the first band to release their album as an NFT earning them c.USD2m (approx. KES 200 million) in sales. The band released different types of tokens, allowing fans to choose between buying a special album package or package that included access to live shows
- Closer to home, our own Eliud Kipchoge, auctioned off his career highlights as NFTs earning the world record holder over USD 35,000 (approx. KES 3.5m) (https://www.momentible.io/drops/eliud-kipchoge-191012).
Intellectual Property Rights and NFTs
NFTs have undoubtedly heralded a new way of representing and monetising intellectual property rights (IPRs). What is important to understand is the distinction between the ownership of the NFT and the ownership of the underlying IPRs. The rights granted by the seller of the NFT will depend on the terms of the purchase that will be reflected in the transferred metadata. We discuss below the nexus between NFTs and various IPRs.
Copyright and NFTs: the general rule is that an author or creator of a work retains copyright of their original creations even upon sale. The buyer of an NFT will obtain ownership over the token but not over the underlying copyright (and asset) itself. For example, in the context of digital art, a buyer may be granted certain rights in how it is able to use the work – for example, the right to display and sell the artwork but no right to reproduce. Artists are typically including royalty payments in the terms of sale to ensure that they continue to earn from secondary sales of the artwork.
Patents and NFTs: patentability of blockchain technology, including NFTs is certainly picking up. Nike obtained a US patent titled “System and method for providing cryptographically secured digital assets” allowing the buyer of a shoe to ensure that the shoe is authentic through various methods including the generation of a digital shoe ID code. This is an innovate method that can be used by the brand to prevent counterfeiting.
Trade marks and NFTs: NFTs can be used in various ways with respect to brand names. One use can be the verification of the authenticity of trade marked goods and services by consumers through the relevant block chain. LVMH has recently adopted this strategy as part of its anti-counterfeiting measures and purchasers of LVMH items can trace where that particular luxury item was first manufactured, purchased and even resold.