Patents as NFTs: Paradoxical Opportunity

NFTs are the recent excitement of the market, and everybody is curious as to how it will affect our future. Many are investing in NFTs thinking that it will provide similar returns as have the cryptocurrencies (such as Bitcoin) to the early investors. The online market of NFTs (such as opensea) have already listed 100+ million NFTs worth more than 10 billion dollars. The CEO of Twitter, Jack Dorsey, recently sold the first-ever published tweet as an NFT for USD 2.9 million, whereas the digital artist Pak’s creation, The Merge, fetched a whopping USD 91.8 million. The list of similar expensive NFT transactions is long. NFT has widely attracted attention, and its protocols, standards, and applications are developing exponentially. It has been successfully applied to digital fantasy artwork, games, collectibles, etc.


The backbone of NFT and cryptocurrencies is the same, Blockchain. Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. Virtually anything of value can be tracked and traded on a blockchain network, reducing risk, and cutting costs for all involved. Blockchain provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by permissioned network members. A blockchain network can track orders, payments, accounts, production and much more. Because members share a single view of the truth, you can see all details of a transaction end to end, giving you greater confidence, as well as new efficiencies and opportunities.


NFT stands for non-fungible token. Non-fungible is an economic term that you could use to describe things like your furniture, a media file, or your laptop. These things are not interchangeable (like fungible tokens such as dollar and euros) for other items because they have unique properties. NFTs are digital assets with a unique identifier that is stored on a blockchain. NFTs can be used to represent the ownership of unique items and can be backed by assets both tangible and intangible. It has a unique feature that prevents it from being interchanged with anything else. The token portion of NFTs is digital in nature that can be tracked by its unique ID (identification code) from the day of its minting to subsequent owners.


Although, it is still not completely clear how NFT is going to affect the patent ecosystem, some speculations can be made. Currently there are no systems that provide real time information regarding patent ownership. There is always a delay in the publication of information regarding patent assignment. With NFT, patents can be tokenized and blockchain may be used to keep real-time track of patent owners. When a patent is sold and purchased as an NFT, it will get transferred from the previous owner’s wallet to the new owner’s wallet instantly. Also, since the information on blockchain stays untampered indefinitely, the history of all patent reassignments can be easily tracked. However, only an NFT transfer won’t make sense unless it is also supported by a legal contract. One of the most important parts of the blockchain concept is the creation of smart contracts. Smart contracts are contracts in which the terms and conditions are embedded in digital codes. With reference to NFTs, smart contracts can be created which have NFTs embedded within them, such that the NFT transfer takes place after the validation of fulfilment of the terms of the contract.


When it comes to patent licensing agreements, smart contracts can be embedded onto a patent NFT that can store information regarding terms of licensing, period of licensing, area of use, exclusivity or non-exclusivity, and royalty amount etc. Licensing agreements can be purchased for patent NFTs by accepting the terms of smart contracts.


While launching your product into market, patent marking plays a vital role. Patent marking is the method of marking your products with relevant patents that cover the products. Proper patent marking serves as legal notice to an infringer, thereby allowing a patent owner to potentially sue an infringer and demonstrate earlier infringement, thereby obtaining higher monetary damages in a patent infringement lawsuit. Although virtual patent marking does exist, an NFT-based marking utilizing blockchain can be an alternative to reduce the risks (such as tampering and duplication) associated with virtual marking.


While patents are currently regulated jurisdictionally around the world, a blockchain-based patent marketplace using NFTs can reduce the geographical barriers between patent systems. The ease of access to patents globally can also help inventors accelerate the innovation process by building upon others' patented inventions. A partnership between IBM and IPwe has pushed the use of NFTs to secure patent ownership. These two companies have teamed to build the infrastructure for an NFT-based patent marketplace.


All the hype around NFT at this stage gives a hope that it will have some positive impact on patent ecosystem in future, though there are various challenges it needs to address to make it secure and acceptable. The ownership transfer of patents is based on smart contracts which are still under legal scrutiny by legislatures and judiciaries around the world and work is being done to create a legally valid system of smart contracts. Also, there is no current government regulation regarding NFT platforms where creators can sell their work. This results in a lack of uniformity between these platforms and their specific rules and policies. There are no platforms for grievance handling by government at this stage in case of frauds and hacks of NFTs. Most of the NFTs worldwide currently are being sold using cryptocurrencies which have been declared illegal by many countries. Until cryptocurrencies get a legal tender status, patent NFTs can’t be sold freely. Apart from that, if patent ownership transfers or licenses were made but not recorded on the blockchain, there is no clarity on how such conflicts would be handled.


Moreover, NFT minting tends to have huge impact on environment as blockchain processing requires high computing. Keeping those computers up and running creates considerable demand for electricity and a significant impact on carbon foot printing.


While everyone is excited and many are converting their artwork and collectibles into NFTs, the future of NFT for patents is still a conundrum. While there any many who support the use of blockchain for upgrading the patent filing and management systems, the idea of owing a digital art seems worthless to many. NFTs are going to be both opportunity and precarious. At current stage, it is unlikely that NFTs are going to make major changes in patent ecosystem any time soon. First a supporting legal framework around NFTs is needed to back the usefulness of NFTs for patents. Given the technology’s potential and hype the bubble of NFTs doesn’t seem to burst anytime soon.


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