Demystifying NFTs: intellectual property protections with design patents

5 minute read

A non-fungible token (NFT) displayed on the website of NFT marketplace OpenSea is seen through a magnifying glass, in this illustration picture taken February 28, 2022. REUTERS/Florence Lo/Illustration

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June 1, 2022 - In our last article, we discussed the implications of NFTs and how intellectual property rights could be used to protect them. In this article, we will explore the availability and implications of design patent protections for NFTs.

NFTs create a path for intellectual property owners to monetize their intellectual property. This often occurs through licensing, as discussed in the first article in this series. As IP owners brand and license their NFTs and NFTs become more valuable, it will be increasingly important to examine strategies to protect their intellectual property. Could design patents be one such type of IP?

<b>Design patent basics</b>

By law, there are five requirements for design patentability. In the U.S., design patents can be obtained for designs for articles of manufacture (more on that requirement later). Protectible designs must also be novel and non-obvious extensions from prior designs. Finally, to be protected, the design must have some aspect of ornamentality and the design must be original.

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Unlike a utility patent, a protectible design does not need to have a utility or usefulness because the protection in a design patent extends to the ornamental aspects of the design (meaning those parts of the design that are not dictated solely by function). The article of manufacture is the underlying functional item that the design is applied to. As opposed to the design, the underlying article of manufacture must have a function, because it is the role of design patents to protect designs for functional articles.

The difference between a design and an article of manufacture is sometimes confusing. Consider a design patent for a car design, which could have various underlying articles of manufacture, including a full-size car, a mini toy car, or model car. Each of the different articles could use the same design (the car shape), even though the articles themselves are different. Thus, the scope of a design patent depends, in part, on the breadth of the claimed underlying article of manufacture.

<b>Design patents for digital designs</b>

Design patents may also protect logo and user interface designs that are intended for display by computers. In this case, the underlying article of manufacture is the display device. Although outnumbered by their 2D counterparts, the USPTO has issued design patents for three-dimensional designs to be displayed by display devices.

There have been discussions about the possibility of expanding design protection to include other types of articles of manufacture (including projections, holograms, and virtual and augmented reality designs — generally designs that are not limited to display screens), but the USPTO is still studying the issue.

<b>Could NFTs be protected by design patents?</b>

Before answering this question, it is important to emphasize the distinction between the design, the underlying article of manufacture, and the NFT. Recall that the NFT is a certificate that contains information about an associated asset, but the NFT is not the asset itself. In design parlance, the "asset" would likely be the article of manufacture that would have the protected design applied to it. So, the question is not whether you can protect an NFT with a design patent, but rather can you protect the underlying asset that the NFT is associated with. The answer to that question depends on what the asset is.

One thing is clear: Designs must have an ornamental — meaning visual — component to meet the current patent law requirements. If the underlying asset is only a sound, then a design patent would not be able to protect that asset. But, if the underlying asset is a digital design visible on a computer screen, then design protection may be possible.

On a related note, design patents need to be "designed" by an inventor/designer who must be a human. If the underlying asset is something that was not created by a human, then it is also unlikely to be design-patent protectible. Under federal patent law, an inventor must be a natural person and cannot be artificial intelligence.

Design patents may be one of the best ways to defend your NFT from potential infringement because an NFT owner can sue an infringer, and if successful, be awarded the profits that the infringer earned from the commercial exploitation of the patent owner's patented design. Copyright damages provide similar awards for profits that the infringer earned from the commercial exploitation of the copyright owner's work. The Copyright Act also provides for statutory damages. While monetary relief is available in trademark infringement suits, injunctive relief is more likely to be granted, which orders that the infringer cease its unlawful activity.

<b>What can an NFT owner do to protect an NFT with design rights?</b>

Certain rules must be followed by those with a design-patent protectible NFT, so they don't lose the opportunity to patent the design.

Before considering a design patent to protect NFTs, one must ensure that the design is not already in use and that it has not already been patented. If the design has been in use for less than a year, then one may still be able to file for a design patent under certain circumstances. The people who created the design — normally called "inventors" in this context—must also be identified.

Many applicants may also want to consider applying for both a design and utility patent, especially if the look and function of the invention are unique. The important thing to understand is that applying for a design patent for the NFT asset does not foreclose the potential that other IP, including utility patents, trademarks, or copyrights might also be a good idea.

In short, some NFT-protected assets may be protectable by design patents, but the same legal requirements that apply to traditional goods would apply to those NFTs. But some NFTs might be protectable by trademarks and copyright, which we will discuss in the next article in this series.

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.

Elizabeth Ferrill is a partner at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, and is located in the Washington, D.C., office. She focuses her practice on all aspects of design patents, including prosecution, counseling, post-grant, and litigation. She can be reached at elizabeth.ferrill@finnegan.com.

Soniya Shah is an associate at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, and is located in the Washington, D.C., office. She focuses on patent litigation and prosecution and handles intellectual property matters related to electronics and information technology. She can be reached at soniya.shah@finnegan.com.

Michael Young is a partner at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, and is located in the Reston, Virginia, office. He co-chairs the firm's blockchain, NFT, and other digital assets industry group and represents clients across a range of technologies, including wireless tracking, embedded systems, internet of things (IoT), financial technology (FinTech), and crypto assets. He can be reached at michael.young@finnegan.com.