Clifford Chance

In its decision dated 19 July 2022, one of the first ever issued in this regard, the Court of Rome granted Juventus Football Club S.p.A. ("Juventus") with an injunctive relief against Blokeras S.r.l. ("Blokeras") ordering the latter to immediately cease any conduct of minting and marketing Non-Fungible Tokens ("NFTs") which unlawfully used trademarks owned by the football company (the "Injunction").

In 2021 Blockeras launched the project "Coin Of Champion", a digital card, based on NFTs, whose marketing and/or dissemination was supported by past and present athletes, and offered it for sale via the BINANCE NFT platform. In this project, Blockeras marketed cards reproducing the image of a former Juventus player, wearing the Juventus shirt showing the name of the football team.

Blockeras managed to obtain the former player's consent to exploit his image, but failed to obtain consent from Juventus, as holder of the wordmarks "JUVE" and "JUVENTUS", as well as the figurative mark consisting in the vertical black and white striped shirt with two stars on the chest.

With the Injunction, the Court of Rome upheld Juventus' request, finding that Blokeras' minting and marketing of NFTs constitutes an infringement of Juventus' well-known trademarks, as well as unfair competition conduct. Among the elements considered in the Injunction, the Court noted that, besides the "well-known" nature of Juventus' trademarks, Juventus:

•  is engaged in widespread merchandising activities in various sectors (clothing, accessories and games) both online and in-stores;
• has also registered the trademarks for products that are inherent to downloadable electronic publications in Class 9 of Nice Classification; and
•  has become active in the field of crypto games or blockchain games, i.e. online games that are based on blockchain technologies and on the use of cryptocurrencies and/or NFTs.

In addition, the Court emphasised the fact that Blokeras' project entails a secondary market of the NFT cards, generating profits for every subsequent circulation of the NFT cards.

All the above elements contribute to the risk of confusion, in the sense that the average consumer might believe that Blockeras' NFTs were created and endorsed by the Italian football club, or in any case with its consent.

What is an NFT and how does it work?

An NFT is a digital identifier, similar to a certificate of ownership, that represents a digital or physical asset. As a non-fungible asset, an NFT is unique and non-interchangeable, thus has its own unique value. An NFT is a cryptographic record of ownership for a unique item that is encoded into a blockchain. It records who owns something, but is not itself the same thing as that item.

In a nutshell, an NFT relies on the following technologies:

• blockchain: a decentralised digital ledger that uses cryptography – such as data encryption – to enhance the security and permanence of transactions;
• NFT marketplace: a website where one can create, sell, and buy NFTs – similar to other online platforms that allow users to conduct business with each other (e.g., amongst many others, www.opensea.io, www.binance.com, www.rarible.com);
• digital wallet: a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions and allows users to execute transactions.

To create, or "mint", an NFT, the creator uploads a digital file, such as an image, photo or piece of music, to a marketplace. The marketplace executes a code to create a unique identifier – the NFT – and adds it to a blockchain, which verifies, stores, and tracks it. Once created, the NFT can be sold, destroyed or kept as a record indicating ownership.

Buyers purchase NFTs with digital currency (i.e. cryptocurrencies).

NFTs can only convey ownership (or rather, possession) of the token itself. As outlined by software engineer Molly White, "With NFTs, the thing you've bought does not tend to give you ownership of the underlying item (image, game asset, etc.) in any way you would normally transfer physical or digital art".

NFTs typically contain links to an asset hosted elsewhere. The NFT doesn’t convey ownership of the copyright, storage, or usage rights to the asset itself. As White explained, when someone buys an NFT, "They've paid to have their wallet address etched into a database alongside a pointer to something. I wouldn't say they really ‘own’ anything at all".

NFTs rely on smart contracts, a computer code that automatically executes a transaction when stipulated conditions are met. For example, a smart contract could stipulate that the original creator will receive a percentage of all subsequent sales of the NFT (as was the case for Blokeras, which, pursuant to the terms of the smart contract, was – and still is – entitled to receive a fee equal to 1% of the purchase price for each subsequent sale of the NFT on the secondary market).

Generally, Web3 services like Opensea and Rarible rely on users' authentication through a wallet; this means that it is not necessary to provide an email or other personal information to buy and sell an NFT. Nevertheless, Binance, that is, the primary marketplace on which the Blockeras' Juventus NFT were sold, adopts KYC procedures to identify registered users upon the exchange. This means that, in principle, the users who purchased the NFTs from Blokeras and those who subsequently purchased them on Binance were identifiable.

Moreover, sales on web3 marketplaces are stored in the same public distributed ledger (the blockchain), but it is not possible to retrieve the personal information linked to the wallet that has signed the trade. However, centralised web3 service providers (like Opensea and Rarible) can still adopt protective measures to disable the trade of a specific NFT by, for example, blacklisting the wallet addresses that own them (the blockchain is public and it is quite immediate to retrieve the wallet address owning a given NFT on a blockchain). This happened, for example, in January 2022, when Opensea froze the sale of 16 NFTs on its platform. The NFTs in question were reportedly stolen, according to tweets by Todd Kramer of New York’s Ross+Kramer art gallery.

Notable elements in the Injunction (and its enforcement)

Based on the above, it is highly significant that the Court concluded that NFTs can in principle be a form of use (and, if not authorised, an infringement) of a trademark. Very pragmatically, the Court reconciled "the thing you've bought" with the "underlying item". In a way, Blockeras also seemed aware of this intertwinement when it managed to obtain the athlete's consent to use his image, thus making the lack of similar consent from Juventus particularly evident.

Further notable elements may arise in the enforcement phase of the Injunction.

The Injunction include orders to Blockeras to:

• cease any further production, marketing, promotion and offering for sale, directly and/or indirectly, in any manner or form whatsoever, of the NFTs, as well as of any other similar NFTs; and
• withdraw from the market and remove the NFTs and the digital content associated therewith or products in general covered by the Injunction from every website and/or from page of a website directly and/or indirectly controlled by it on which such products are offered for sale and/or advertised;
• pay a penalty, in case of any delay in complying with this order or any breach of the Injunction, of EUR 500.00 for each day of delay or for every breach.

It would be interesting to see how such orders may be effectively enforced. While it may be sufficiently clear how to enforce the order connected with future NFTs, more envisaging an effective withdrawal of the NFTs already minted and circulated is more complicated: not all the exchanges adopt protective measures to disable the trade of specific NFT; and even assuming that in this case the exchange has these measures in place, the exchange is not party to the proceedings and on this basis may refuse to freeze the wallet addresses and comply with the Injunction.

In addition, once traded, the NFT is not at the disposal of the original issuer; assuming that the identifying the new holder is possible (and it is not always technically possible), the new holder is a third-party vis-à-vis the Injunction.

Juventus cannot rely too much on the penalty to ensure compliance of the Injunction either, to the extent that Blokeras may in principle argue that it cannot control any use of the NFTs by third-parties.

The mere fact of the Injunction potentially makes the NFT appear even more "unique". Paradoxically, this may result in an increase of its value. The profits made by the issuer could in principle be subject to disgorgement in the proceedings on the merits that may follow the Injunction, as profits deriving from the infringement of IP rights. But, again, only the profits made by Blokeras, as original party to the proceedings. Any further third parties holding an NFT, assuming that they are successfully identified, would have to be summoned separately if Juventus wished to capture their profits.

Conclusions

While the Injunction is certainly of great relevance in trying to extend the legal protection of IP rights in the NFT space (and this is certainly an important statement to be considered in the new metaverse era), it may not be possible to enforce the Injunction very effectively due to the peculiarities of NFTs, which appear intrinsically incompatible with the current legal framework. The Injunction also shows that these incompatibilities cannot be sufficiently addressed by courts only, giving more arguments to those pushing for the intervention of the national (if not European) legislator on this matter.