Intellectual Property
Note: Data in this section last updated May 28th, 2022
What is NFT IP?
In the NFT world , “IP” refers to the recording of intellectual property rights – such as patents, trademarks, copyrights, goodwill, internet domain names, customer lists, employment contracts, etc… -- on a blockchain.
Although this is one of the smallest categories of the NFT market at 1.4% or ~$400M, it has enormous potential given the value of IP in the United States alone is estimated at over $6 Trillion.
Why is tokenizing IP important?
For most of human history, our most valuable assets have been “tangible” – physical goods that we could use to create value. This includes everything from the earliest tools, to equipment in the first factories to the complicated manufacturing machines we use today.
With the advent of the internet and resulting transition to a service-based economy, however, “intangible” assets (e.g. patents, brand names, contracts, etc…) became more valuable. Indeed, intellectual property now represents over 90% of the market value of the S&P 500.
Intuitively this makes sense -- the brand name of Nike is much more valuable than any machine, and rights to Spiderman, Batman or Baby Yoda are much more valuable than almost any piece of real estate.
Unfortunately, the legal frameworks surrounding the creation and enforcement of intellectual property rights have not caught up with the technology and rely on armies of lawyers and paper contracts to track ownership, determine rights and facilitate payments. This creates a system that is expensive, opaque, difficult to enforce and illiquid.
NFTs provide an opportunity to turn intangible intellectual property such as patents, trademarks copyrights and even employment contracts into programmable assets that are stored on a blockchain. This will likely create dozens of new uses cases for IP and greatly improve the efficiency of the market.
Indeed, tokenizing IP can lead to:
Lower Costs: Creating the contracts to record intellectual property rights often requires a team of lawyers and enforcing them relies on an entire industry. Recording IP rights on a blockchain, however, is instant and greatly reduces the need for intellectual property contracts and lawyers, making transactions much cheaper
Irrefutable Provenance: There’s no standardized database that records all the owners of a piece of intellectual property to ensure everyone is paid. In addition, even if one can find the owners of a piece of IP, ownership percentages and rights are often recorded across dozens of contracts (or not recorded at all), making them difficult to track. Tokenizing IP can create an a unified, immutable log of all stakeholders, making it easier to ascertain exactly who owns what and how much they should get paid
Ease of Use: Licensing approvals can by automated, allowing holders to instantly grant permissions to users who agree to preset terms and conditions. Payments can also be streamlined with subscription models or smart contracts that execute automatically when certain conditions are met
Contract Standardization: Global intellectual laws for IP are relatively weak and inconsistent. For instance, it’s quite difficult for a Western company to combat pirated software in China, India or Brazil, and the opposite is often true as well. With NFTs, there is no need to rely on third-party legal systems to enforce these laws, because all rules are encoded in the blockchain itself and executed via smart contracts (as they say in cryptoland, “code is law”)
Liquidity: There is no market for intellectual property, and it can only be valued by appraisals (which are costly and inaccurate) or corporate acquisitions (which are infrequent). NFTs allow for the create of “IP markets”, where things such as patents, copyrights, trademarks, brand names, etc… can be traded in real-time
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