If you have been focused on the pandemic, labor shortages, inflation, increased natural disasters and every other event that has affected the globe for the past 2-3 years, you may have missed the buzz around Non-Fungible Tokens (“NFT”).
Last year, the digital artist Mike Winkelmann, professionally known as Beeple, sold an NFT of his image Everydays: the First 5000 Days for $69,346,250 at Christies. A couple of weeks ago, the Tampa Bay Times reported that a house in Gulfport was auctioned as an NFT and sold for $654,310, or about 210 Ethereum.
Major brands, artists, software and game developers are all trying to capitalize on this technology that relies on the blockchain - a decentralized and secured log on the internet.
I won’t explain the technical aspects of an NFT. There are several articles trying to explain how an NFT proves ownership for anything that can then be transferred and verified through the blockchain. If you have a tough time grasping blockchain technology, you may slap your head in frustration with NFTs. Still, understanding NFT technology should not prevent an appreciation for the technology's value.
From a financial perspective, NFTs are a game changer for creatives. NFTs can be used to track and earn royalties every time their work is transferred from one owner to another. Creatives will always know who owns their work, how much it was sold for, and their cut of the deal.
Outside of art, music, gaming, sports and entertainment, there are already discussions about the immense potential of NFTs to represent physical assets such as contracts, tickets, certificates, medical credentials and more.
Without a doubt, NFTs will challenge the traditional concepts of intellectual property, ownership, contracts, taxes and privacy. Our legislative bodies and courts will be slow to catch up with this innovative technology.
There is already a lawsuit between Nike and StockX related to StockX’s use of the Nike Swoosh in its newly minted NFTs. The opening paragraph of Nike’s complaint says it all:
This lawsuit arises from Defendant StockX’s unauthorized and infringing use of Nike’s famous marks in connection with StockX’s entry into the Non-Fungible Token market. Non-Fungible Tokens or “NFTs” have quickly become pervasive in their use by brand owners seeking to enter the nascent marketplace of virtual or digital products connected to a token on the blockchain. NFTs are commonly understood to be blockchain-based virtual products that can be collected, sold, and traded in the marketplace. They are an exciting way for brands to interact with their consumers in and out of the “metaverse,” and diverse commercial applications of NFTs have emerged throughout the past two years. Far more than a fleeting trend, NFTs are part of the future of commerce. Nike, Inc. v. StockX LLC, United States District Court for the Southern District of New York, Case No. 22-CV-983.
I won’t discuss the details of this case, but I wanted to highlight that Nike’s attorneys made a strategic decision to open the complaint with phrases like “virtual” and “digital” products, “blockchain”, “metaverse” and the “future of commerce.”
The message is clear: This is important, this is big, this is the future, and other companies agree. The NBA, NFL, Coca Cola, Gucci and many others are all entering the NFT market because they see the future and the potential for huge revenues outside of traditional markets.
It will be fascinating to watch the growth of NFTs in commerce and how the law deals with this technology.
~ Florida Cyber Lawyer, Robert Stines, Esq., CIPP