What Businesses Need to Know About NFTs and Intellectual Property Regulations – Trademarks – US

This article was originally written and published in a longer form. American Bar Association
March 22, 2023.

Non-Fungible Tokens (NFTs) tied to IP rights are an interesting innovation that could bring new ways to trade and monetize IP.

However, similar to the classification as an asset class in commercial financial transactions, the uncertainty of the classification as a security remains, which will resolve the issue and provide much-needed clarity towards more uniform legislation. Until then, they will not be actively recruited. Sure, both in the U.S. and abroad.

In the short term, as interest in emerging applications for NFTs remains high, there may be value in issuing limited products that work in the current regulatory environment of the target market and generate earned media coverage. yeah.

NFTs are typically not regulated at the federal level

Currently, an offer to sell one or more NFTs is not directly or expressly regulated by the United States Federal Government unless they are “securities” under conventional law. Howie test,in this case, Securities and Exchange Commission(SEC) may consider NFTs as “investment contracts” and regulate them. However, that may be changing. Many are calling for more guidance from the SEC and additional federal legislation to clarify regulation of NFTs and other digital assets. In July 2022, at the invitation of Senators Leahy (D-Vermont) and Senators Tillis (R-North Carolina), the U.S. Patent and Trademark Office and U.S. Copyright Office will discuss intellectual property matters related to NFTs. We confirmed that we would work on joint research. .

Some states are beginning to regulate NFT sales

At the state level, offerings of NFTs (as opposed to cryptocurrencies) are primarily regulated only under securities laws. Some states have given specific guidance to NFT offerings or have adopted laws that directly apply to NFT offerings.

for example, Colorado enacted legislation clarifying that certain digital tokens are exempt from securities laws. If the digital token is “for consumption”, the token will be registered and the seller will comply with both statutory and agency rules when making sales. Several other bills are pending in states, and more regulation is expected next year, but that regulation could be fragmented.

Regulations are evolving outside the US

The European Parliament’s Committee on Economic and Monetary Affairs recently Regulation of the crypto-asset market (MiCA) aims to provide an EU-wide regulatory framework for certain crypto-assets, but its regulation still needs to be passed by the European Parliament and will not come into force as formulated until 2024. becomes.

Also, depending on the facts and circumstances of the NFT itself, the NFT may not necessarily be covered by MiCA.

The most difficult regulatory challenge is the complexity introduced by different countries’ different approaches to NFT regulation, given the competing aims of NFTs to facilitate digital asset trading in potentially global markets. is.

for example, Howie The test may or may not be a European Union security. Different approaches to the terms of the underlying smart contract associated with a particular NFT and the jurisdictions in which the NFT may be offered for sale determine the analysis of each NFT and its sale status, investment contracts, and the scope of securities. Determined. or other laws of certain countries may create significant risks for seller or buyer.

What the current lack of regulation means for businesses

Operating in an unregulated or less regulated industry presents great opportunities, but also risks. As an early adopter, companies may be able to operate without the cost of complying with onerous regulatory oversight. Good companies can also set standards that are beneficial to them and will eventually be adopted and even codified as industry standards.

On the one hand, operating in a currently unregulated space means that the concept could become illegal or unsustainably expensive as regulation progresses. Additionally, unregulated spaces can be susceptible to fraud and unscrupulous competitors. These bad guys can damage a company’s reputation simply by doing business in that field.

Please contact us Drew Patty, Andrew Coffman or any of its members
Phelps Intellectual Property Team If you have any questions or need advice or guidance.

Published in Landslide, Vol. American Bar Association, 15, No. 3, March/April 2023. Reprinted with permission. all rights reserved. This information, or any portion thereof, may not be copied or distributed in any form or by any means, or stored in any electronic database or retrieval system, without the express written consent of the American Bar Association or the copyright owner. You can not.

The content of this article is intended to provide a general guide on the subject. For your particular situation, you should seek professional advice.