NFTs: a new tool for promoting pharmaceutical brands or a legal minefield?

In this co-published analysis, Sunstein’s Lisa M Tittemore and Natalie A Salas dive into the metaverse and explore what NFTs could mean for pharmaceutical brands.

The push to digital/virtual is inexorable. The expanding digital/virtual world opens up many new innovations and developments, and one of the latest generating significant buzz is NFTs (non-fungible tokens). We have written about NFTs in connection with other kinds of IP (copyright and patent) Here, we discuss the implications of these new digital assets for trademarks and assess some of the opportunities and challenges of NFT use for brand owners, and for pharmaceutical brands in particular.

An NFT is a one-of-a-kind ‘token’ that is linked to a digital asset, for example digital artwork, digital music, branded product for avatars, video clips, and tickets/access to VIP experiences. These are recorded on the blockchain, a digital, decentralised and (so far) secure public database shared across a computer network. Blockchain technology has been in use for many years, including in connection with cryptocurrency, and now a new use is evolving in the form of NFTs. The most common blockchain used in relation to NFTs is the Ethereum blockchain (which uses a specific Ethereum domain naming system).

‘Non-fungible’ refers to the fact that the digital asset has a unique value. NFTs can be purchased with cryptocurrency (eg, Bitcoin), and more recently use of credit cards is becoming an option. NFTs can also be traded on open marketplaces (eg, OpenSea and Rarible) or branded marketplaces (eg, as offered by Mattel).

NFTs act as certificates of ownership, receipts of purchase, or as actual property. As such, a number of brand owners are now creating and selling NFTs linked to proprietary digital content in order to promote their brands and develop new sources of revenues/licensing. Several companies have linked also their physical products to an NFT for authentication purposes.

For example, luxury retailer such as SAKS.com LLC, which wishes to ensure it can maintain premium pricing for physical inventory and retail store operations, links its physical products to digital NFT authentication certificates. NIKE has also taken a lead and associated certain products to NFTs.

Since the NFT boom began last year, there has been a reported surge in trademark applications filed with the USPTO referencing NFTs. Between August of 2021 and January 2022, the USPTO saw a 552.17% increase in NFT-related trademarking filings. Many of these applications contain NFT-based language in the descriptions of their goods and services. For example, Saks.com LLC applied for registration of SAKS for a long list of goods and services, including but not limited to “digital media, namely, digital collectibles, digital tokens, non-fungible tokens (NFTs) and digital art; Non-fungible tokens (NFTs) and other application tokens; non-fungible tokens used with blockchain technology; non-fungible tokens used with blockchain technology to represent a collectible item; non-fungible tokens featuring collectible images and videos”. (See US Serial No. 90789965). NIKE has applied to register the mark CRYPOTKICKS, among other marks, in connection with things like "crypto-art and application tokens”.

We are not aware of any similar applications filed with the USPTO by pharmaceutical companies, although just recently -- on 28 February 2022 -- CVS Pharmacy Inc filed an application for a number of marks, including CVS, for goods and services including “downloadable virtual goods, namely, a variety of consumer goods, prescription drugs, health, wellness, beauty and personal care products and general merchandise for use online and in online virtual worlds… downloadable virtual goods, namely, crypto-collectibles and non-fungible tokens (NFTs); downloadable image files containing artwork authenticated by non-fungible tokens (NFTs)”.

Given the surge of NFT use by global fashion and footwear brands, and these recent trademark applications, it is reasonable to consider the potential for use of NFTs in relation to pharmaceutical brands. Similar to the NFT authentication process for luxury brands described above, NFTs could, in theory, be used to authenticate pharmaceutical products. Pharmaceutical distributors and group purchasing organizations could use NFT data uploaded by manufacturers to streamline the authentication process and potentially help reduce the amount of counterfeit drugs offered on the black market.

Presently, a number of pharmaceutical companies use the MediLedger database to communicate with trading partners and to authenticate their products. MediLedger is a blockchain-based network that allows pharmaceutical manufacturers to maintain data regarding products on one database that is accessible to all trading partners. MediLedger enables authorised trading partners (specifically licensed wholesalers and dispensers) to scan a barcode on prescription medicine, and get a verification response back. Whether an NFT-based alternative might develop is still an open question.

Although use of NFTs for authentication of certain types of product seems promising, there are general efficiency and financial concerns associated with NFTs. Similar to other digital assets on the blockchain, NFTs need a substantial amount of carbon energy to make even the smallest transactions. According to a report by The New York Times, “the creation of an average NFT has a stunning environmental footprint of over 200 kilograms of planet-warming carbon, equivalent to driving 500 miles in a typical American gasoline-powered car.”

There are also high fees for minting, buying and selling NFTs. Minting an NFT refers to the process of turning a digital file into a crypto-collectible or a digital asset on the blockchain. When it comes to minting or transacting NFTs, owners have to pay for the computing energy required to validate transactions on blockchain. Though there has been a big push in the last year for the creation and widespread use of eco-friendly blockchain platforms, this is not yet a reality.

In the meantime, like with any new technology, brand owners will need to monitor their brands within the blockchain. For example, after discovering the sale of NFT versions of their comic book characters, DC Comics sent a letter to all of their freelance artists warning them that sales cannot be made without their authorisation. The letter noted that DC Comics is currently developing its own NFT platform. Some NFT platforms have already created formal processes for submitting intellectual property takedown requests, while others have yet to provide any. While international enforcement of trademark rights is already complicated enough, those challenges are further exacerbated on the blockchain, where infringement can be anonymous and decentralised.

On a related note, brand owners may find that their names have already been taken on the blockchain domains controlled by companies like Ethereum, Unstoppable Domains, and Handshake. There is no centralised dispute resolution system for blockchain domains as there is for ‘regular’ domain names. Some blockchain companies provide for a “reclaim” policy - for a fee.

In summary, the lack of regulation within the NFT marketplace creates a foreseeable hesitancy among corporations who are considering whether and how to join the NFT marketplace. Even so, there is no doubt that brand owners in the pharmaceuticals industry, as well as others, need to stay up-to-date on this developing technology.

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