On March 12, the US Patent and Trademark Office and US Copyright Office (collectively the “Offices”) published a joint Report entitled, “Non-Fungible Tokens and Intellectual Property: A Report to Congress.” The Report is in response to a June 2022 request from then-Chair of the Subcommittee Patrick Leahy (D-VT) and Ranking Member Thom Tillis (R-NC). The Report includes:

• a completed study into the current and future applications of NFTs; 
• how intellectual property (IP) laws apply to NFTs and assets associated with NFTs; 
• what industry challenges need to be addressed; 
• how NFTs can secure and manage intellectual property rights. 

The Report included comments requested by the Offices from creators, brand owners, innovators, entrepreneurs, technologists, academics, industry associations, and intellectual property practitioners. 

How we see it: The Report concludes that existing laws are adequate to address concerns related to IP and NFTs and that NFT specific-legislation would likely hurt the industry more than help it by impeding development and innovation of the technology. 

Summary:

Much of the Report details the implications of NFT technology’s impact on IP law, IP rights and the alleged risks NFTs may have on the integrity of those laws and rights. The Report explores NFT’s ability to be minted on to IP that the creator does not own; NFT’s immutability on the blockchain; questions around NFT’s ability to be altered or destroyed should law enforcement deem it necessary; it’s decentralized and anonymous nature which could potentially pose issues for law enforcement. The Report states however, that the biggest concern was the prevalence of “consumer confusion” on NFT IP rights and the legal protections in place after a consumer’s creation, purchase, transfer of an NFT.

Even with this in mind, many commenters stated that they believed current IP laws are adequate to handle NFT-based challenges, such as copyright and trademark infringement, even while stating that these challenges were significant concerns to them. They attributed the problem of consumer confusion largely to the “lack of marketplace standards for clear disclosure by NFT sellers.”Rather, public education initiatives and product transparency were favored and cited to play a more significant role in ensuring awareness and understanding of NFTs.

The opinion by commenters regarding IP law also applies in the context of patent rights as well, with commenters expressing concerns about inaccuracies and fraud while still acknowledging that blockchain technology can help in the management, transfer and licensing of patent rights. Additional findings in the report include an assessment that proposals to use NFTs as replacement or supplemental copyright recordkeeping devices did not demonstrate added value due to the immutability technology of the blockchain, which leave NFTs vulnerable to perpetuating inaccurate records.

The Report also acknowledges NFT potential to enable artists to receive remuneration from downstream resales of their work, but states that they will not be ensured by any US statutory entitlement and instead by the code and policies underlying the NFTs and their provider platforms.

Next Steps: It is unclear how Congress will react to the Report or whether the Subcommittee will convene a hearing. Given the Report’s recommendations, legislation seems unlikely in the near-term to address issues of NFTs and IP.