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Non-Fungible Token (NFT)

NFT (non-fungible token) – A digital certificate of ownership made of a non-fungible token (i.e., not interchangeable, contrary to a Bitcoin for instance) associated with metadata providing descriptive information about the token (for instance, a photo with the name of the photo and its author and the type of file). Metadata (e.g., a photograph, a multimedia file, a text) then constitutes the asset of the NFT which can grant a value, especially financial, to the latter.  

From a technical standpoint, NFTs are spread out through a smart contract on a blockchain – most of the time Ethereum – which guarantees the traceability of every transaction without any intermediary and prevents any modification of the certificate.  

In theory, any physical or digital item can be turned into a NFT provided that the latter does not infringe any intellectual property rights (in particular any copyright or trademark) and/or any other prior proprietary rights owned by a third party.  For example, the artist Mason Rothschild has turned the reputed Birkin handbag manufactured by the French luxury Maison Hermès into 100 NFTs called “MetaBirkin” without the prior authorization of the Hermès.  Hermès has lodged a complaint against Rothschild based inter alia on the ground of the infringement of its prior trademark “BIRKIN”.  In a decision issued on February 14, 2023[1], the US District Court of Southern district of New York has ruled that the NFT MetaBirkins, even in the digital world, was creating a likelihood of confusion and therefore was infringing Hermès’ prior trademark and awarded Hermès for USD 133,000.

With regard to the gaming industry, NFTs have also been developed over the past years.  In 2015, Spells of Genesis would indeed have been the first video game to introduce NFTs within the gameplay[2].  Players were indeed able to collect cards to be granted with NFTs rewards.  Then, in 2017, the video game CryptoKitties took a further step by launching NFT characters (namely cats) and one of them was even sold for $170,000[3].

Since then, some publishers have tried to integrate NFTs into video games to enhance the game experience.  Indeed, insofar as each NFT is unique, it gives players a feeling of exclusivity and rarity.  In 2021, Fortnite has thus collaborated with the Maison Balenciaga to design skins for four avatars: as a result, players were able to purchase Balenciaga NFT skins and accessories, whose colors were evolving throughout the game[4]

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NFTs have been particularly developed in the video game industry because they are usually tradable.  They indeed contribute to monetizing the players’ skills and assets by creating revenue streams for players through a new phenomenon called “play-to-earn”.  Basically, instead of buying in-game assets that are useless outside the ecosystem of the game, players can purchase or even earn NFTs by progressing through the gameplay, like in the Afterland video game[5].  Then, NFTs can sometimes be traded in other games or can be cashed out either in the game or outside on third-party marketplaces dedicated to buying or selling NFTs, such as Opensea or Rarible, like in the Axie Infinity video game[6].  However, access to “play-to-earn” video games is sometimes restricted when publishers compel players to pay before playing the game which will eventually generate revenues for them.

At another level, many gamers have criticized the introduction of NFTs in video games due to the lack of quality of some video games which prioritize gain when introducing NFTs instead of enhancing the gaming experience and the graphics. Some have also highlighted the high negative impact of the blockchain on the environment[7]


[1] See the decision issued by the US District Court of Southern district of New York on February 14, 2023 (https://cases.justia.com/federal/district-courts/new-york/nysdce/1:2022cv00384/573363/145/0.pdf?ts=1676470251).

[2] See Spells of Genesis’ website (https://spellsofgenesis.com/).

[3] See “Someone paid $170,000 for the most expensive CryptoKitty ever”, The Next Web, September 5, 2018 (https://thenextweb.com/news/most-expensive-cryptokitty).

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[4] See “Balenciaga Brings High Fashion to Fortnite”, Epic Games, September 20, 2021 (https://www.epicgames.com/site/en-US/news/balenciaga-brings-high-fashion-to-fortnite).

[5] See “The Future of NFTs in E-sports”, Medium, May 26, 2023 (https://medium.com/wax-io/the-future-of-nfts-in-esports-1b3f1dcaf54f).

[6] Axie Infinity video game became very popular in the Philippines where it generated revenues sometimes superior to the minimal wage. See “Some Axie Infinity players amassed fortunes — now the Philippine government wants its cut”, Rest of World, September 30, 2021(https://restofworld.org/2021/axie-players-are-facing-taxes/).

[7] See “The Environmental Impact of Blockchain Technology”, NASDAQ, May 30, 2023 (https://www.nasdaq.com/articles/the-environmental-impact-of-blockchain-technology).

Author

  • Étienne Nicolet

    Étienne Nicolet is a French attorney at law admitted to the Paris Bar in 2017. He advises and represents French and foreign companies in matters related to intellectual property (trademark and design law as well as copyright law and patent law) and unfair competition, as well as new technology and data protection matters. Étienne Nicolet also focuses on matters related to entertainment law and gambling regulation. He handles matters both as an advisor and a litigator. Étienne Nicolet is member of the French association APRAM (Association des Praticiens du Droit des Marques et des Modèles) dedicated to supporting trademarks and related intellectual property.

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