Trademark infringement through NFTs - Intellectual property enforcement in the virtual world.

Background

The trademark portfolio of football club Juventus FC (Juventus) includes the word trademarks JUVE and JUVENTUS as well as a device trademark consisting of a black and white striped T-shirt with two stars on the chest. The trademarks mainly gained reputation through widespread merchandising activities in various sectors (including clothing, games, accessories etc.) – both online and through brick and mortar stores.

In 2021, a tech-start-up founded the project "Coin of Champions", an online football manager game supported by former and current athletes that is based on NFT player cards. Playing cards in the form of NFTs were offered for sale on an NFT-platform between 7 April 2022 and 4 May 2022. 68 of these NFT playing cards reproduced the trademarks at issue. They show a picture of the former football player Christian Vieri with a Juventus shirt and the club's details. Juventus had initiated preliminary injunction proceedings against the use stating that they had not given their consent. The NFT playing cards generated a profit of over $35,000.

Decision of the Court of Rome (Tribunale di Roma, decision of 20. July 2022, ref. 32072/2022).)

The Court of Rome ruled that, in principle, NFTs could indeed infringe upon trademarks. According to the court, the use of the NFT playing cards for commercial purposes without Juventus' consent constituted not only a trademark infringement, but also unfair competition resulting from the unauthorized use of the trademarks and the unfair exploitation of the advantages associated with them (Juventus was also active in the sector at issue through its merchandising activities).

With regard to the trademark infringement, the court stated further that the mere consent of the player depicted on the playing cards was not sufficient to justify use of the trademarks. The player`s consent could only grant use of the player`s image rights, but not Juventus` trademark rights. The use of the NFTs for commercial purposes also had required consent of Juventus as the trademark owner.

The Court is also of the view that the Juventus trademarks were well-known trademarks as it considered Juventus to be the most successful Italian football team with (one of) the largest number of fans in Italy and abroad. Due to their status as “well-known trademarks” and the broad scope of protection that comes with this status, it was not necessary to consider whether they were registered in relation to “digital objects” or even “digital objects certified by NFTs”.

However, the Court also highlights the fact that the Juventus trademarks were in any event registered in Class 9 of the Nice Classification for “digital downloadable publications”. Hence, there was a similarity between the goods in question anyway. The court emphasized that the scope of protection of a trademark (in particular with regard to class 9) also extended to goods which were not included in the Nice Classification, but were inherent to the goods listed in the respective class. Class 9 thus also included downloadable digital files authenticated by NFTs. The Court of Rome also distinguishes between digital content reproducing a trademark and the digital certificate as such. Both the digital content and the digital certificate were each to be considered as being a trademark infringement in the case at issue. According to the Court, NFTs had their own legal status, which should be assessed separately from their content.

NFTs in the context of German trademark law and the EU Trademark Regulation

From a German (and wider European) perspective, there is still a certain degree of uncertainty when dealing with NFTs under trademark law. For example, it has not yet been conclusively clarified in which Nice classes NFTs can be classified. While the ruling of the Court of Rome indicates a classification as goods in class 9, a classification in class 35 (‘provision of an online marketplace’) or in class 42 (‘user authentication services using blockchain technology’) for the related services might also be possible.

The update of the Nice classes, which came into force on 1 January 2023, explicitly includes the term NFTs in class 9 (‘downloadable digital files authenticated by non-fungible tokens [NFTs]’) and thus provides some more legal certainty. If trademarks are to be used in connection with NFTs, it is therefore advisable to also register them in class 9; in addition to other classes which might be of interest. Otherwise, there is a risk that the trademark might not enjoy sufficient protection in one of its essential fields of application. This applies in particular to trademarks that are not well-known, since the scope of protection of well-known trademarks is already much broader. Under German and European trademark law, well-known trademarks, other than "normal" trademarks, do not necessarily depend on a similarity or even identity between the goods/services for which they are protected and the virtual goods/services in question in order to enjoy protection against NFT infringements. However, how broadly the scope of protection is interpreted has not yet been conclusively clarified by the courts; especially not in connection with NFTs and the metaverse. Moreover, not all virtual goods authenticated by NFTs will fit into class 9. Only material that is downloadable fits into this class. For example, NFTs can also verify real objects and such goods do not belong to class 9.

Regarding a trademark application for services in connection with NFTs, at least the European Union Intellectual Property Office (EUIPO) explicitly mentions in its 2023 draft guidelines (Trade mark guidelines (europa.eu), p. 344, 6.25 “Downloadable goods and virtual goods”) that such trademark applications had to be classified according to the established principles of classification for services. However, the EUIPO (and the Court of Rome) differentiates: NFTs would authenticate (digital) items, but had to be distinguished from them. A trademark application solely for NFTs is therefore not admissible. According to the EUIPO, the specific type of (digital) item authenticated by the NFT had to be indicated. In principle, this seems quite reasonable. Otherwise, a large part of the metaverse, for instance, could be monopolized by a few trademark applications. However, this also means that companies should question in which (digital and virtual) areas they wish to operate through NFTs before filing a trademark application. After all, the list of goods and services cannot be changed once the trademark application has been filed. However, care should be taken to ensure timely use of the ‘NFT trademarks’, as otherwise they could become subject to cancellation proceedings upon expiry of the grace period of use. It is therefore not sufficient to obtain registration for the widest possible scope of protection.

Trademark infringement exceptions

It should also be kept in mind that the use of another`s trademark does not automatically lead to a trademark infringement; neither in the real nor in the virtual world. For example, the use of trademarks for merely descriptive or for identification purposes or as a simple reference usually does not constitute any trademark infringement. Case law regarding the "analogue world" should also be applicable in its principles to the virtual counterpart (see, for instance, German Federal Court of Justice (BGH), judgment of 15 July 2004 - I ZR 37/0, where the BGH decided, with regard to third party spare parts, that one may depict another's trademark and another's product within the scope of one`s own product advertising, provided that the other's trademark and product were only used as an indication of the field of application, i.e. the intended use of one`s own product).

Furthermore, NFTs often create a tension between the freedom of art and trademark rights, but the fundamental right of Article 5(3) of the German Constitution is not without limits. The freedom of art is limited by other fundamental rights and thus also by the property guarantee of Article 14(1) of the German Constitution. The latter also includes trademark rights (German Federal Court of Justice (BGH), judgment of 3 February 2005 - I ZR 159/02). In addition to a number of US cases dealing specifically with the relationship between the freedom of art and trademark rights in relation to NFTs, German case law provides at least a position on similar cases. According to the Federal Court of Justice, the decisive factor to favor one of the fundamental freedoms is whether there is an internal distance between the trademark and the sign referring to it, or whether the purely commercial interest of the party referring to the trademark prevails. If the contents of the disputed sign hardly deals with the trademark, the freedom of art cannot justify an infringement of the trademark rights (German Federal Court of Justice (BGH), judgment of 2 April 2015 - I ZR 59/13). Although the German court decisions have not yet referred to NFTs in this context, they could be applied to them, as the protection of the freedom of art cannot be indefinite in this context. Therefore, an infringement of trademark rights does not always have to be accepted in the case of art NFTs. Still, it has to be assessed in each individual case to what extent the disputed sign authenticated by the NFT is protected by the freedom of art.

Comment

NFTs will play an increasingly important role in a trademark related context; be it regarding the registration of trademarks, the use of trademarks for NFTs, or the infringement of trademarks by NFTs. While the EUIPO has already taken the growing importance of NFTs into account in its draft guidelines, it is only a matter of time before German and other European courts will issue  related decisions. The decision of the Court of Rome is at least a first step into this direction.

So for the time being, it remains to be seen how German courts will deal with NFTs from a trademark perspective. What is certain, however, is that NFTs are already highly relevant and should be on the radar of trademark owners. Especially the protection of trademarks in the metaverse has a great potential, but, as explained, also entails risks. In this respect, an adaptation of the trademark strategy and monitoring is required in order to meet the special challenges of both NFT trading platforms and the metaverse, and ensure comprehensive trademark protection. For example, a first step could be to adjust prior rights and delimitation agreements and agreements on rights of use, e.g. by incorporating clear provisions with regard to the rights of use in the metaverse.

Cryptocurrencies, NFTs and blockchain – these terms influence many conventional areas of law, including trademark law. Our expert lawyers will be happy to advise on the specifics of protecting intellectual property in order to be fit for the virtual future.

 Authored by Yvonne Draheim and Hendrik Schulze.