On the 11th of march 2021, Mike Winkelmann a.k.a Beeple headlined the news by selling a numeric collage “Everydays: The First 5000 days for more than 69 million dollars in a well-known auction house. This sale is unprecedented in the art community because the buyer concretely received a digital file of the collage and the corresponding NFT.
In the past few months, NFT have spread massively and are now used by a wide range of stakeholders, such as Grimes (numeric artist), Kings of Leon (musicians), PSG (football club) or Rtfkt (shoe seller).
1 – What are NFT ?
Non-Fungible Tokens (NFT), are a special type of cryptographic tokens representing something unique. In contrast, a fungible token is an asset that can be paired with multiple other tokens like a 5$ bill is equivalent to 5 coins of 1$.
This unique token is registered, saved and traced through a blockchain as cryptocurrency transactions are.
However, regarding cryptocurrencies, each wallet of both stakeholders of the transaction is updated and the tokens, won or lost, are diluted into the wallet of each stakeholder. The NFT technology uses blockchain to trace and authenticate the exchanges in a decentralised way, but each token stays unique and no dilution mechanism is processed afterwards.
Thus, this technology ensures that a single wallet owns an NFT and it is possible to trace every previous owner of it since its creation, to make sure the NFT depositor matches the beneficial owner.
2 – What kind of rights can be associated to an NFT ?
There are different types of NFT (ERC-721/1155/777) with specific properties and using different blockchains. Today, the most-used norm is the ERC-721 allowing the depositor to specify the rights regarding the NFT freely. Regarding art, NFT acquisition is commonly associated to the ability to receive source files or eventually physical products. For instance, to sell a painting using NFT, the painter can take a picture of the canvas and promise to send it to the buyer of the NFT afterwards.
A huge amount of NFT are registered from websites with predefined contracts. As an example, Makersplace or SuperRare websites offer very restricted property rights transfers, whereas the NFT 2.0 licence version, created by Dapper Labs, allows buyers to make a commercial use out of the NFT provided that the gain is not higher than 100 000$ in annual gross income.
Apart from those simplified contracts, it is also possible to elaborate more precise contracts, like the one established by « Kings of Leon » rock band.
Like so, NFT offer a total contractual freedom and a huge range of possibilities.
3- How can the NFT be used in the industrial property sector ?
Apart from the artistic activities, some industrial developments can be seen as art. For instance, our museums brim with sketches and technical notes on various technical innovations accomplished in history.
Today, industrial developments are often achieved numerically. They are nonetheless historic moments, comparable to art. For example, to protect a new vehicle design, we can use copyright or patent design. These kinds of protections require an originality and are time-limited. When registering an NFT on a patent design, you can capture an image from the source file of the patent design like a Da Vinci sketch. Acquisition of this NFT can attract emerging numeric museums.
Thus, the most important innovations of a company, regarding design, technical functionalities, or marketing approaches, can now be entitled by NFT.
Furthermore, another way of using them could be transferring industrial property rights. Indeed, by elaborating custom contracts, you can put up for sale an assignment or a license to operate a trademark or a patent through the sale of the corresponding NFT. For instance, this solution enables to select a group of stakeholders interested in a technology and selling a patent through an auction mechanism, without going through a third party.
An interesting point of NFTs is the ability of setting up a “resale right”, it means being able to follow the NFT transfer and eventually earning funds for each one. For a sale or an industrial property right exploitation license, this remuneration for each assignment can make a difference.
To demonstrate what NFT future could be, we can imagine for example an inventor elaborating an innovation, protecting it under a patent, then putting up for sale a license to use this patent as an NFT at a fairly attractive price. An investor could then buy the NFT to benefit from the license at a low price, identify the various stakeholders potentially interested in the technology and resell the NFT, and therefore the license, at a much higher price. With the resale right, on the second sale of the NFT, the inventor could get a second remuneration. In this example, the inventor and the investor would get a balanced reward for their efforts, in designing the innovation for one and valuing that innovation for the other.
Of course, NFT have multiple purposes and many of them are not even envisioned yet, but the technology behind NFT seems complementary with existing intellectual property rights.
4- How to concretely register an NFT ?
Concretely, when registering an NFT, a blockchain and a contract type must be picked regarding the depositor’s expectations and concerns. For instance, today Ethereum blockchain is widely used to register NFT thus offers a sustainability to the registration.
However, before version 2.0, this blockchain used a proof of work mechanism to guaranty the security of the exchanges, consuming a lot of electric energy. To take the decision of using less energy, you can use a proof of evidence blockchain, such as ADA blockchain.
Then, you should register :
- a picture or video of the element associated to the NFT, for example, a short snippet showing a virtual machine operation;
- a description of the numeric element, for example detailed information on the asset ;
- a description of NFT transfer rights, for example, the ability to receive a numeric file, a physical object and/or property rights;
- and, eventually NFT selling conditions (fixed price, public or closed auction).
Thus, the most complex step of the filing is to define NFT rights, especially when the NFT targets an industrial property rights transfer. During this step, it may be required to make a specific contract depending on the intended goal and to host this contract so that potential buyers can have access to it.
5- How much does an NFT registration cost ?
The first item for filing an NFT therefore concerns the costs related to the writing of the contract for each NFT, especially when the NFT has a single purpose or targets an industrial property rights transfer. Special attention must be paid to the drafting of this contract.
Then the NFT registration can require payment of taxes, called “gas fee”. Those taxes can be required for each action performed on the blockchain, such as :
- registering an NFT
- creating an NFT collection
- transferring an NFT
- selling an NFT or a collection…
In opposition to the fixed official taxes paid to patent and trademark offices, gas fees are usually computed according to blockchain workload on registration and they must be paid in cryptocurrency, whose stock price fluctuates as well.
The blockchain and NFT registration platform selection influence the costs of those fees.
To prevent those complex taxes, you can find multiple NFT registration platforms online where no gas fees are applied to NFT registration and transfer. These platforms are remunerated by collecting 2.5 to 5% of the selling price of each NFT.
Thus, this technology can bring new purposes, aligned with existing intellectual property rights.
Feel free to contact us if you want any complementary information on how to register NFT.
Gaëtan LASSERE – Partner.