Patents on NFT? No, NFT on patents!

Patents and innovation are closely linked. Patents can boost innovation by granting a legal monopoly over certain technology, and inventors may be willing to invest more time, money and creativity into their inventions if they can do this in anticipation of being rewarded with such monopoly on their invention. Furthermore, patents boost future innovation because the technology protected by a patent will be made publicly available and can be used by everyone once the patent protection term expires. However, patents may even hinder innovation, because technology and its further-development could be blocked by existing patents.

Thus, it is no surprise that the patent scene regularly discusses new technologies and phenomena, like NFTs (Non Fungible Tokens – for further information see here). Let us leave aside the question of whether existing patents on NFT-related technology can hinder the development and use of NFT technology as such, but turn to the question of NFT on patents.

NFT on patents

The worldwide patent system is based on registers (patent registers) operated by national and international authorities (patent offices). Authorities on the one hand examine patent applications to determine whether they are eligible for patent protection. On the other hand, they also act as clearing bodies for recording licences, pledges and ownership changes in the registers. The latter function either becomes overly burdensome (some registers require notarised/legalised transaction documents before they record any changes in the register), or less secure (some registers have only declaratory effect, and some recordals may turn out to be incorrect and need to be corrected).

While use of NFTs seems limited when it comes to the question of how to examine and grant patents, there could be use cases for NFTs knocking at the doors of patent offices when it comes to tracking transactions related to granted patents. If you want to tokenize your patent portfolio, you theoretically may transfer your interest in patents to a third party without having to involve the patent offices. And this seems to be getting real now: Earlier this year IPwe and IBM announced plans to represent patents as NFTs to create the infrastructure for representing patents as NFTs and storing the records on a blockchain network. Accordingly, "the tokenization of IP should help position patents to be more easily sold, traded, commercialized or otherwise monetized and bring new liquidity to this asset class for investors and innovators" (see press-release on ibm.com). Indeed, the first NFTs in patents are already available for purchase – if you are interested in buying a piece of blockchain-related technology you may want to look at the platform OpenSea.

Open questions

However, currently substantial open legal issues remain when shopping for patents in the crypto world (to name a few):

• How can you ensure that the initial NFT owner indeed held sufficient title in the patent? You would have to verify this with the patent registers (which are still operated by the patent offices, thus still "old-school" – and they bear uncertainties as to the accuracy of the details as mentioned above).
• How to record your ownership-change in the respective registers? You will need to present documentation as required by the respective registers. It will likely take some time until authorities will accept NFTs as proof of an ownership transfer.
• When enforcing patents: How to convince a court that you are the true owner of the patent if you are not (yet) recorded in the respective registers? You would again have to come up with old-fashioned ownership documentation like properly signed assignment agreements.
• What if you want to legally challenge the validity of a past transaction? In the NFT-world a transaction cannot be undone – you again may have to rely on "real-world" remedies and try to drag the patent out of the blockchain again.

What the future holds?

Of course, once the system develops further (and with the involvement of Big Blue let's assume that this time may come soon), patent offices may well enter the game and facilitate the use of NFTs to document transactions related to a patent. Such scenario could for example involve a verification step by the patent office by which the true patent ownership of the NFT creator is confirmed – and for newly granted patents the patent office may even mint the NFT by itself and provide the applicant with the private key together with the registration certificate. Any further transactions could then be directly on the blockchain and the register would only reflect the status of the NFT and update automatically once it changes (likely, governments will still want to include an override function to be able to set the record straight, if legally required). It seems unlikely that such system will be implemented on an international scale soon, but maybe some more innovative countries will jump on the train at some point.

author: Michael Woller