NFTs are special types of cryptographic tokens that use blockchain technology to securely record and transfer information without needing a central authority. They provide a unique, secure digital title for various digital contents like images, sounds or texts. This title is recorded on a blockchain and includes the token’s details and code that manages transactions, known as a “smart contract”.

In essence, NFTs link a digital or physical asset to a blockchain token, verifying ownership through a digital wallet. Unlike regular cryptocurrencies which can be exchanged on equal value, NFTs are unique and cannot be duplicated or exchanged equally. They have broadened beyond art, influencing sectors like sports, gaming and branding, especially after becoming more popular during the COVID-19 pandemic.

For instance, luxury companies are increasingly offering products in digital form within the metaverse. The primary goal for brands is to gain popularity by reaching targets that differ from the physical world. For example, Gucci created the “Gucci Vault” space where players, creators and the brand come together for a unique experience in the Sandbox metaverse. This space includes an NFT treasure hunt, digital clothing items and fashion accessories available for purchase.

The use of NFTs offers brands a means to guarantee the authenticity and traceability of their products, thus effectively combating counterfeiting. Companies like the French Arianee are at the forefront, offering digital certificates based on blockchain technology.

Therefore, does the growing development of non-fungible token technology jeopardise the effectiveness of legal protection for trademarks?

Absence of legal definition of NFTs by French or European legislators

Although the creation and use of non-fungible token technology are increasingly common, neither the French nor European legislators have legally defined NFTs. As a result, the Higher Council for Literary and Artistic Property (CSPLA) issued a mission report in July 2022 on NFTs, attempting to provide a legal definition of what an NFT is and isn’t, to reduce confusion about this new and complex technology and alleviate legal uncertainty. 

The report initially highlights that NFTs aren’t entirely foreign to French law, as certain articles of the Monetary and Financial Code and the Commercial Code mention non-fungible tokens. However, these articles make it clear that non-fungible tokens aren’t considered currency under the Monetary and Financial Code. 

NFTs are generally defined as digital intangible assets that guarantee rights to their owners. The Commercial Code goes further by indirectly classifying them as “intangible personal property”. Nonetheless, these broad and unharmonised definitions don’t eliminate the legal uncertainty due to the lack of a specific legal framework for NFTs.

The report continues its qualification attempt through a negative approach. NFTs are neither works of art nor supports for artworks, nor even certificates of authenticity. Ultimately, the CSPLA proposes a relatively broad definition of non-fungible tokens. An NFT would be “a title of rights over a token but also over a file, whose purpose, nature, and extent vary depending on the will of its issuer, as expressed by the technical and possibly legal choices associated with the smart contract”. The report stops short of associating NFTs with contracts or simple technical protection measures.

The complexity of this still-new technology reveals the difficulties of linking it to an existing domestic legal framework. However, these legal issues are especially significant, since digitisation and dematerialisation facilitate the massive reproduction of works protected by intellectual property rights.

The growing development of NFTs poses increasing legal uncertainty in copyright, design rights and trademark law. Although NFTs are commonly used to promote brands in the digital world (e.g. the metaverse) or certify brand authenticity, this authenticity doesn’t extend to the NFT’s content. A plausible scenario is an NFT reproducing an existing brand without authorisation.

Thus, the growing development of non-fungible token technology raises concerns about the effectiveness of trademark legal protection.

A borderless technology challenging the principle of trademark territoriality

In the age of the internet and digital technologies like NFTs, traditional concepts of territoriality in trademark law are increasingly under pressure. Traditionally, trademark protection is territorial; a trademark is only protected in the jurisdictions where it has been registered. This principle aligns with the basic rule that the jurisdiction for litigation generally depends on where the infringement occurs or where the infringing party conducts business.

However, the global nature of the internet, and specifically the use of NFTs which are distributed on decentralised networks, challenges these traditional boundaries.

Therefore, how does a trademark, registered in a limited territory, protect itself against the worldwide dissemination of an NFT?

For instance, a French judge can rule on disputes involving foreign trademarks targeting a French public. In fact, the doctrine has defined the “French public” not by language but by the French territory. However, a website merely being accessible in France doesn’t mean it “targets” the French public. Simply broadcasting or displaying the trademark globally, including to French audiences via digital platforms or NFTs, does not necessarily constitute commercialisation in France. Thus, without direct commercial activities taking place within French territory, French judges might not have jurisdiction to rule on such a case of trademark infringement.

While some doctrine contests that the jurisprudential solution refusing to consider the accessibility of a website fulfils the “French public” condition, the solution is justified by the territoriality principle.

Nevertheless, rights holders seek to bypass this principle by expanding the notion of the “French public” because territoriality in the digital age no longer makes much sense.

Class 9 registration limiting the protection of registered trademarks under the principle of specialty

Trademark law’s specialty principle grants a monopoly over the trademark’s use only for the goods and services it was registered for.

There are 45 different classes of products and services listed in the Nice Agreement, grouping the international classification of products and services for trademark registration.

Concerning NFTs, the question arose as to which category of products and services they belong to. Until January 2023, the Nice Classification contained no official entry related to virtual products and NFTs.

NFTs are lines of code on the blockchain, notably containing, within the smart contract, a link to the underlying digital file. These files can be images, sound or texts. Often, NFTs are perceived by the public as virtual images representing works of art or products (such as clothing or leather goods). 

Therefore, should the classification of an NFT within the Nice Arrangement be based on the aesthetic function; that is, the digital reproduction of the product it represents? Or should it be based on purely material considerations related to the nature of the NFT as such; that is, lines of code on the blockchain?

The European Union Intellectual Property Office (EUIPO) addressed this question in its 12th edition of the Nice Classification, effective 1 January 2023. It now expressly allows for the registration of trademarks in class 9 for virtual products and NFTs, insofar as they are treated as digital contents and images. However, the EUIPO specifies that “the term ‘virtual products’ itself lacks clarity and precision, it is therefore necessary to further specify the content to which the virtual products relate” (for example, downloadable virtual products, namely, virtual clothing). NFTs authenticate digital elements but are distinct from them. Similarly, the National Institute of Industrial Property (INPI) has confirmed the classification of NFTs in Class 9.

Clearly, in practical terms, NFTs frequently embody virtual goods linked to apparel (class 25) and handbags (class 18). Given the novelty of this technology and the recent update of the Nice Classification, most owners of trademarks protected under classes 18 and 25 have yet to fully acknowledge the burgeoning presence of NFTs. Their trademarks not being protected by class 9, they cannot, in principle, contest infringements of trademark rights made by NFT developers on their products and services.

Relative weakening of trademark protection due to the global assessment of likelihood of confusion in infringement by imitation

The global assessment of the risk of confusion allows for an appreciation of the similarities of the signs in question on an overall basis, with regard to visual, phonetic, verbal or conceptual similarities.

If NFTs are lines of code, they visually represent products and services thanks to the digital files encoded within these codes. It is crucial to examine the NFT as a whole, which includes not only its computer code but also the digital content it contains. Indeed, the use of an existing brand by an NFT can compromise the main function of that brand: to assure consumers that the products or services come from a specific and reliable source.

Put simply, the comparison must be made between two products or services inherently connected by their function, regardless of whether they fall under different classes. Viewing the NFT in its entirety — accounting for both its technical composition and the digital content it embodies — and by conducting a thorough assessment of confusion risks, the barrier presented by trademark law’s specificity principle can be effectively overcome.

The judge’s decision in the Hermès v. Birkin case clearly illustrates this reasoning: it implicitly suggests that the purchase of an NFT, representing a digital version of a bag, is not motivated by the practical utility of this bag but rather by its symbolic or artistic value. Judges tend to protect trademark rights through the consumer standard without strictly considering the principles of territoriality and specialty, to prevent unfavourable jurisprudence for rights holders who haven’t fully grasped the issues related to NFTs.

Therefore, it is not important that the traditional functions of a bag, such as holding items, cannot be achieved by a digital representation of this bag. What matters is the image that this NFT can represent for purchasers: a digital Birkin bag. The vision shifts from the physical bag to its digital counterpart, capturing the essence of the item in a virtual form.

By considering the NFT as a whole (both its nature and what it represents) and through the global assessment of the likelihood of confusion, the obstacle posed by the principle of specialty in trademark law is legitimately circumvented. 

Conclusion: NFTs, an opportunity for trademark law?

In conclusion, the advent of NFTs presents both challenges and opportunities for trademark law. Recent legal cases, like that of Hermès against Birkin, demonstrate that the legal framework can adapt to protect trademarks while recognising the value of digital goods. NFTs encourage fresh thinking about ownership and authenticity in the digital age, thereby enriching the legal landscape and offering new avenues for brand strategies.