How Blockchain domain names could become the next online property boom

This article was first published on 14th February 2023 at the ManagingIP website.

A new frontier is opening for brand owners in the legislative ‘Wild West’ of blockchain domains, say experts from Zacco in the third article of a four-part series exploring the issues that are frequently raised by companies

The previous articles in this series analysed the complexities involved in entering the European market from abroad with regard to trademark registration and enforcement, as well as how companies can manage IP challenges through, for example, intellectual property search service models. The latest article looks to the future and suggests what issues brand owners should already be considering.

Future-proofing IP

The metaverse and Web3 are widely seen as the next iterations of the internet, with non-fungible tokens (NFTs) and blockchain domains purported to be an integral part of this emerging landscape. Companies are increasingly asking how they can future-proof their IP in the face of this uncertain and rapidly developing situation.

Kristian Elftorp, an attorney at law and one of the regional managers for Digital Brands at Zacco Sweden, suggests that it is important to review the lists of goods and services related to existing and planned trademark registrations to ensure that they cover both the advertising and sale of virtual goods, if relevant.

“Zacco has recognised an increase in online infringements across these new spaces, so implementing proactive monitoring of both the metaverse and NFT marketplaces can often be a good idea; to identify, mitigate, and remove brand abuse wherever possible,” he says. “From the patent perspective, an increasing number of inventions will have some connection to virtual worlds, so it is worth speaking with a patent attorney to explore what may or not be patentable from a metaverse or NFT perspective.”

Opportunities and risks

The metaverse represents new income opportunities for brand owners, but some are already playing catch-up in terms of the creation of NFTs relevant to their IP.

“As the metaverse and Web3 expands, IP rights will find many opportunities to develop new revenue streams, such as digital ‘shopfronts’ selling digital and real-world goods and services,” Elftorp says. “Many international brands have started to expand their protections to the virtual world but those who are still considering how to secure their brands in this new digital space are increasingly finding that related NFTs have already been created using their, as yet unprotected, designs and trademarks.

“While it might be possible to enforce rights via traditional routes by, eg., claiming similarity between goods and services or by having an extended scope of protection for well-known marks, it will be more difficult unless sufficient protection covering virtual worlds has been sought beforehand.”

Blockchain domain registration

This creation of NFTs related to brands, and a jump in registrations of blockchain domains related to their existing IP, indicates a trend similar to that seen in the 1990s when .com domain names were registered en masse by third parties. However, Elftorp is sceptical as to whether this is truly the case.

“It is safe to say that the equivalent .eth domain for any semi well-known trademark has already been registered, but we don’t yet know if these will become as valuable as the .com boom 20 years ago,” he says. “There are numerous potential suffixes, and while .eth is one of the most popular, there are also .nft, .crytpo and .blockchain, among many others, so it is still up for debate which will become the most prominent.”

“The nature of blockchain also means that ownership is often anonymous, so registered blockchain domains may actually belong to legitimate trademark owners, but evidence suggests this is unlikely to be the case.”

Another significant feature of blockchain in terms of IP is that blockchain domains are not governed by the Internet Corporation for Assigned Names and Numbers (ICANN), which raises questions with regard to the possibility of enforcement or transfer to legitimate IP rights holders.

Knud Wallberg, a partner at Zacco Denmark and an expert in digital law and rights, explains that “there is currently no standard equivalent to DNS [a domain name system] that redirects a user from a text address to an IP address. Neither is there an equivalent governing body, such as ICANN, so each registry is governed by their own rules.”

“Anyone with the funding, skill, and technological capability can start their own blockchain domain; some will become popular while others disappear. Any party can develop an identical domain name that sits on a different blockchain technology so the potential for ‘naming collisions’ is high, and will remain so until industry standards are aligned.”

“For now at least, enforcement options are limited, but brand owners can still register related domains, and it is relatively cheap to establish and maintain a blockchain domain portfolio, if the domains related to your brand are still available, of course.”

Trends in the NFT market

The NFT market grew from $100 million in 2020 to $22 billion in 2021. Companies are increasingly struggling to know what to protect in this regard, and how this can be achieved as the internet evolves. Zacco is assisting many companies with identifying blockchain domains that can still be purchased, with most choosing to wait and see which will become the most popular before deciding if they will develop the domain or let it go.

A challenging economic climate featuring rising inflation, surging energy prices, and supply chain issues related to multiple global factors appears to have affected the appetite for NFT acquisition. Indeed, Niclas Jonson, the Zacco Digital Brand regional manager for Denmark, Germany and Norway, suggests that the boom in NFT sales throughout 2021 has scaled back significantly and the value seen that year is not an accurate reflection of where the market sits today.

“As interest in NFTs drops, we see a downward trend in their value,” he says. “The market has been impacted by the same global shocks that we have seen elsewhere and people are simply more reluctant to spend money on virtual products for use within the metaverse, or as investments.

“Having said that, there has been a noticeable increase in virtual experiences. The public may be more open to exploring virtual worlds rather than spending larger sums on visiting real-world equivalents. Until we begin to see the metaverse begin to enter public use, and the NFT markets stabilise, this unpredictability will remain.”

Legal certainty helps to foster market stability and the question of whether, and how, to regulate blockchain remains highly debated, with many arguing that the existing legal frameworks are insufficient to regulate this area and that legislators are playing catch-up.

Niclas acknowledges that “there are many who share a belief that the blockchain should remain unregulated as this was an important underlying factor in its development. Having said that, some companies are pushing hard to create industry standards and ecosystems, as well as to develop case law.”

“For now, some of the organisations are part of a shaky alliance, but the results of their work may well underpin the foundation for more formalised dispute resolution or ownership transfer procedures. Until then, blockchain domains remain a legislative ‘Wild West’ and there is still a lot of catching up to do on the part of both brand owners and international patent and trademark offices.”

How Zacco is assisting organisations with securing and enforcing their brands online

With online infringements taking centre stage in recent years, companies are catching up to the need to monitor and enforce their IP rights in online marketplaces, on social media and, increasingly, across the emerging Web3 and metaverse spaces. Digital branding has moved beyond traditional geographic borders, and Zacco has the expertise and international outlook to secure against rights infringement, either physical or digital, wherever it occurs.

As one of Europe’s leading IP firms, Zacco’s online brand protection services are an area that complements and expands the traditional protection offered by patents and trademarks. Zacco can work on the monitoring and removal of infringing content, fraudulent accounts on social media and counterfeit goods from major online marketplaces. The firm can assist with DNS support and security, the acquisition and protection of blockchain or other domain names, and providing legal assistance in domain name disputes where necessary.