What do William Shatner, Snoop Dogg, Mark Cuban, Tom Brady and patent owners have in common? Now everyone is minting non-fungible tokens (“NFTs”), converting the assets into a token that is represented on the blockchain.
Patent holders use NFTs to manage the ownership and licensing of their patents. Many of these NFTs are embedded in self-executing contracts that give the buyer all the rights in the contract, including the right to sue for infringement.
This new technology presents many opportunities to monetize patent assets while raising regulatory and privacy concerns.
Definition of NFT
Non-fungible tokens, like Bitcoin and other cryptocurrencies, are assets hosted on the blockchain, which is a public ledger that records transactions. NFTs differ from fungible tokens like Bitcoin and other cryptocurrencies in that NFTs are unique assets that cannot be exchanged or divided. Fungible tokens like cryptocurrencies can be exchanged with other cryptocurrencies because one Bitcoin (or another cryptocurrency) has the exact same value as another Bitcoin. NFTs, on the other hand, are more like trading cards. Each NFT is something completely different from another NFT. For example, NFTs can be anything digital, such as digital art or music. A famous example of NFT is one created by Twitter founder Jack Dorsey. Dorsey created an NFT from his first post on Twitter. He turned a static image of his first tweet into a digital file stored on a blockchain, then sold it for more than $2.9 million.
NFT in the patent market
Patent holders now tokenize patents as NFTs by creating NFTs to manage the ownership and licensing of their patents. Recently, Jack Fonss and his technology consulting firm, True Return Systems, listed US Patent #10,025,797 on the NFT OpenSea Marketplace. The Fonss and True Return systems originally asked for 2,250 ethereum (“ETH”), which was worth (when listed) approximately $9 million. The patent is now listed for 1,250 ETH, which is currently roughly equal to $3.7 million.
IBM has also recently taken steps to commercialize patents such as NFTs. IBM has partnered with IPwe to create a platform powered by IBM Blockchain. The IPwe platform enables members of the patent community to participate, transact, buy, license, finance, sell and trade patents.
Some players in the patent space believe that tokenizing patent assets will allow patents to be more easily sold, traded, traded, or otherwise monetized. Many also believe that tokenization will provide greater transparency and make transactions simpler and more profitable. They also point out that NFTs may provide an opportunity for fractional ownership of patent assets, allowing smaller investors to purchase pieces of patents as NFTs. Tokenization of patent assets can also provide an avenue for patent owners to raise funds for litigation.
Additionally, because blockchain data cannot be deleted, the technology can help automate royalty collection methods and keep records of revenue associated with various patent assets.
Patent tokenization can also be useful for collecting data on prior art or patent families. For example, many patents have been subject to post-grant procedures, such as inter parte reviews (IPRs), reissues, or reexaminations. Tokenization could help collect and maintain data related to the prior art presented and considered in these various proceedings.
Potential Issues with Patent Asset Tokenization
There are some potential concerns with the representation of patent assets as NFTs. For example, the chain of title is very important for patent assets. If patent assets are freely traded or taxed through blockchain technology, how will these transactions be represented before the various IP offices? In the United States, if the assignment, grant, or transfer of a United States patent is not registered with the United States Patent and Trademark Office within three months after the date of transfer or before the date of a subsequent transmission, then the previous unrecorded transmission is null. against any subsequent buyer or mortgagee. 35 USC § 261. Therefore, transfers of patent assets on a blockchain may be void if they are not also registered with the appropriate intellectual property office.
Because NFT technology is in its infancy, there are few laws or regulations dealing with it. Therefore, there is a significant risk with the transfer of patents as NFTs until the technology and the law are further developed.
Privacy is another concern with the use of NFTs to manage patent assets. Confidentiality of royalty streams, license terms, and patent purchase agreements is often of paramount importance in patent transactions. Because NFT technology is new and largely untested, it is unclear how confidentiality issues will be handled by blockchain platforms.
Finally, there is also concern about whether fractional sales of NFTs (including patents) could be classified as an investment product that qualifies as a security interest and subject to SEC regulations.
Patent trading as NFT is an innovative concept and it will be interesting to see if this concept proves to be a practical solution for managing patent assets in the long term.