The constant technological evolution and the digital transformation of society have posed new challenges in the field of intellectual property. In this context, non-fungible tokens, known by their acronym as NFTs, represent certificates of ownership backed by the blockchain. These tokens are tied to specific digital assets, ranging from works of visual art and music to collectibles of all kinds[1]. The distinctive feature of NFTs lies in their ability to verify and ensure the unique ownership of each digital asset, using an unalterable record that certifies its origin.

The impact of NFTs today is of such a magnitude that, according to a report by Forbes in 2021, the NFT market exceeded $23 million[2]. This innovative technological trend has sparked great interest in Ecuador. An example of this is the collaboration between Pilsener and Cervecería Nacional, which led to the launch of the first NFT in Ecuadorian soccer, the “Golden Goal.” In the digital environment, the most violated intellectual property rights tend to be trademark and copyright rights. Trademarks face constant threats of infringement and unauthorized use, since the ease of replication and distribution online makes it more difficult to control their proliferation. Likewise, copyright is affected by the spread of digital piracy, in which protected works are shared and distributed without authorization, harming both individual creators and large companies.

The protection and defense of these rights have become crucial in the digital context, requiring effective measures at both the legal and technological levels to combat the violation of intellectual property online. One of the most high-profile cases regarding this type of violation of intellectual property rights in the digital environment was when the lavish fashion brand Hermès sued the artist Mason Rothschild for creating a series of NFTs known as “MetaBirkins”, which reproduced the brand’s iconic Birkin bag with “artistic” modifications. Hermès argued that these items diluted its trademark and could have confused consumers. Following a trial, the Court found that Rothschild had infringed Hermès’ trademark rights and ordered him to pay $133,000 in damages[3]. This decision has generated debates about the nature of NFTs and their relationship to Freedom of Expression protected by the First Amendment of the Constitution of the United States of America.

This verdict established a significant precedent in the intellectual rights dispute and NFTs. Despite this, it should be noted that OpenSea, one of the largest NFT marketplaces worldwide, in January 2022 acknowledged on its official Twitter account, currently known as X, that approximately 80% of recently created NFTs violate intellectual property rights[4]. This figure reflects the alarming situation of violations that are occurring in this digital environment, evidencing the inefficiency of platforms to control the content that is published daily.

Ecuadorian legislation on intellectual property allows sanctioning the unauthorized use of intellectual property rights protected in the digital scope of NFTs. Although these tokens use blockchain technology, are acquired through cryptocurrencies, and represent a new digital asset with unique characteristics, it is imperative to highlight that they are not exempt from legal control. This is due to the fact that NFTs are promoted in different marketplaces that, despite being aimed towards new digital markets and using cutting-edge technology, they can be subject to intervention by the competent authority in matters of intellectual property, particularly in this case, the National Intellectual Rights Service (SENADI). In this context, it is legally possible to take action against unauthorized use through administrative channels.

Administrative procedures have been established, such as guardianship, which grants holders of intellectual property rights the possibility of taking legal action against those who infringe upon their rights, through the unauthorized marketing of their digital assets. At this point, it is important to make it abundantly clear that the objective of the protection is to immediately cease the commission of the infringement and not the comprehensive compensation for damages caused to the owner, since to do so, the affected party must initiate a separate civil action.

Ecuadorian legislation offers the possibility of applying various specific precautionary measures depending on the nature of the infringement. These measures include the suspension of infringing activities, the blocking of web content and the suspension of website services in cases of alleged violation of intellectual property rights[5]. In cases of violation of intellectual rights in new digital environments, the measure that SENADI should order would be the blocking of the content of the NFT. In addition to the application of measures, financial penalties proportional to the damage caused are imposed in the event of a violation, ensuring that violators face significant economic consequences.

It is recommended that, before filing an administrative protection, the possibility of deterring the alleged offender through alternative conflict resolution methods be explored. These alternatives include sending Cease and Desist Letters, or inviting them to go before an authorized Mediation Center. Furthermore, if the terms and conditions of the marketplace allow it, the application of a “take down notice” could be considered, among other options. Depending on the particular circumstances of each case, these alternative measures could prove to be more effective, as they are cheaper and take less time. Finally, and in the event that these measures do not produce the desired results, the filing of an administrative protection order could ultimately be considered.

[1] Ana López Rodríguez, “International judicial jurisdiction in disputes related to non-fungible tokens (NFT)”, Spanish Journal of International Law 2, (2022), 300-301.

[2] Nina Bambysheva, “This industry generated $23 billion during 2021 and they claim that it is only the beginning”, Forbes Ecuador, accessed March 22, 2024. https://www.forbes.com.ec/innovacion/esta-industria-genero-us-23000-millones-durante-2021-aseguran-comienzo-n11231.

[3] Zachary Small, “Hermès Wins MetaBirkins Lawsuit; Jurors Not Convinced NFTs Are Art”, Times New Roman, accessed March 1, 2024. https://www.nytimes.com/2023/02/08/arts/hermes-metabirkins-lawsuit-verdict.html

[4] OpenSea. Twitter, X, accessed October 12, 2023, https://twitter.com/opensea/status/1486843202959122433?s=20&t=Uz27rcUxiwvXzA__jp5W YQ

[5] Article 565, Organic Code of the Social Economy of Knowledge, Creativity and Innovation, [COESCCI], R.O. Supplement 899 of December 9, 2016, last amended R.O. D/N of January 21, 2022.

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This publication contains information of general interest and does not constitute legal opinion on specific issues. Any analysis will require legal advice from the Firm.