Mainland China currently has no specific legislation regulating NFTs, including their IP aspects. This means that China's general IP laws are applicable to NFTs, amongst which the most relevant are the Trademark Law and the Copyright Law, under which many graphic or other types of art works (e.g., avatars, digital images, videos, music) linked to an NFT will be treated as works of fine art.
Generally, and absent any agreement to the contrary, under Chinese law, the IP rights (e.g., copyright) in the IP-protected items linked to an NFT remain exclusively with the author or owner of the underlying IP asset, and a license is needed to mint an NFT embodying an IP protected item. This means that buyers of NFTs must tread carefully. The very limited nature of the IP rights of an NFT owner is often overlooked, while it should be an essential consideration when acquiring NFTs.
This was illustrated recently in a copyright case before the Hangzhou Internet Court whose judgment was handed down on 22 April 2022, which is considered to be China’s first court case involving NFTs. The case revolved around the sale for RMB899 (US$135) on the BigVerse platform of an unlicensed NFT embodying a cartoon of a tiger getting vaccinated. The cartoon was created by the artist Ma Qianli and licensed exclusively to a culture commercialization company named Shenzhen Qice. Qice brought a contributory copyright infringement lawsuit against the BigVerse platform based on that sale. In its judgment, the Hangzhou court firstly confirmed that the unlicensed sale of an NFT embodying a copyrighted work constitutes a copyright infringement. Importantly, given the fact that a digital work was sold through the Internet, the court specified that in this case, the sale violated the copyright owner’s right of dissemination through information networks and not its distribution right, so that the doctrine of exhaustion of rights (i.e., the copyright is exhausted after its first sale/publication) is not applicable to the sale of NFTs. Furthermore, the court also considered the BigVerse platform a network service provider rather than a mere content provision platform, based on the characteristics of NFTs, on the platform’s business model (charging transaction costs for each NFT sale) and on its ability to verify the identity of the sellers and the characteristics of the NFTs sold. On this basis, the court rejected the BigVerse’s argument that it was only obligated to provide a "notice-and-takedown" system, and instead considered that the platform had a duty to establish a set of proactive intellectual property review measures to review the copyright ownership status of the NFT works sold. Since the platform had not done so, the court found it liable for contributory copyright infringement and granted the claimant damages of RMB4,000 (approximately US$600) for economic losses and reasonable enforcement expenses. The court also ordered the destruction of the infringing NFT by sending it to an inaccessible address (also known as "burning" the NFT). The judgment in this case is groundbreaking as it clarifies many copyright law aspects of NFT trade in China. An appeal was filed against this judgment with the Hangzhou Intermediate People’s Court, and the appeal proceedings remain pending at present.
As to China's Trademark Law, it impacts the minting and use of NFTs in three ways:
firstly, while there are no published Chinese cases on the topic to date, the minting and use of NFTs containing third party trademarks would likely be considered trademark infringement, provided the trademark owner holds a valid registration for the real-world equivalent of the NFT (e.g., handbags, clothing) or for related goods in the digital sphere (e.g., downloadable image files, computer software for encryption, security tokens). Moreover, such use would also likely be considered unfair competition under China’s Anti-Unfair Competition Law. This means that, similar to the situation under the Copyright Law, acquiring an NFT using or displaying a trademark does not automatically imply obtaining the ownership of, or even a license to use such trademark;
secondly, brand owners generally face an uphill battle when trying to register trademarks for, or including the word "NFT" in China. This is due to the presence of a large number of pre-existing Chinese trademark registrations for the mark "NFT" as a standalone mark in most classes of goods and services in the Chinese trademark register, and also due to the likelihood that China's National IP Administration ("CNIPA") may consider the word "NFT" descriptive. A potential strategy to increase the chances of success here would be to add distinctive elements such as the applicant's pre-existing registered marks or a distinctive logo; and
finally, brand owners wishing to improve their trademark protection in the NFT sphere should proactively extend their trademark protection to the classes of goods and services most relevant to NFTs: i.e., Classes 9, 35, 36, 41, 42 and 45. It should be noted that an attempt in China to register a mark for "NFTs" per se is likely to be rejected by the CNIPA, as it does not yet form part of the current list of standard goods and services in China. Instead, a first attempt should be made to register the mark for the closest standard goods (e.g., "downloadable image files" in Class 9). Brand owners may also consider filing international registrations through the Madrid Protocol designating China, in which case the CNIPA generally takes a more flexible approach in examining the non-standard goods or services items relating to NFTs. Looking forward, the 12th edition of the Nice Classification, which has entered into force on 1 January 2023, explicitly contains an NFT-related category of products in Class 9, namely "downloadable digital files authenticated by non-fungible tokens". However, the CNIPA chose not to adopt this category yet in 2023, so that Chinese trademark applications still have to designate the closest standard goods (e.g., "downloadable image files" in Class 9) .