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NFTs are unique and digital, but are they good for the wine industry?

Commentary

Karen Frank is an intellectual-property law partner with Coblentz Patch Duffy & Bass LLP in Napa. Her practice include copyright, trademark, domain names, unfair competition, right of publicity, branding and advertising, privacy, and the Internet.

For the most part, nonfungible tokens, or NFTs, are merely a new medium for existing content. Many of the intellectual-property legal issues raised by NFTs are the same issues faced by content owners by any medium, and especially the same issues that arise with each new technological innovation.

An NFT is a one-of-a-kind, unique digital asset. An NFT represents something else, in some cases something from the real world, such as artwork, images, music or other items, and in other cases, digital works.

As NFTs started out somewhat as part of the Wild Wild West, many creators focused on the excitement of the new medium, without paying much attention to ownership of the underlying content.

But like all new media and channels of distribution, whether it be broadcast television, cable television, the Internet, digital distribution, audio or digital books, social media and now NFTs, the essence of the value is in the CONTENT being distributed. And someone owns that content.

For trademark owners in the wine industry, NFTs present risks and opportunities.

The primary risk is in appropriation by unauthorized persons of a winery’s trademarks. The early NFT rush saw FT creators taking all sorts of existing content and creating and selling NFTs. This could include trademarks, logos and other identifying content of a winery or grape producer. Trademark owners should monitor NFTs as they monitor media to ensure that their trademarks or copyrighted content are not being used in an infringing manner, or to imply an endorsement of another party where none has been given.

The opportunities in NFTs extend to the areas of authentication, brand awareness, and additional revenue sources.

An NFT can represent a trademark itself. Because each NFT is unique, and only the owner or licensee of a trademark can legally use it, an NFT can serve as a very useful brand identifier to identify the source of goods and services, and as an authentication tool to combat counterfeits.

NFT example: Luxury products makers

Luxury goods manufacturers and retailers may mint different numbered NFTs tied to versions of their products and use NFTs to authenticate the goods. The NFT may be integrated directly into the physical product through an RFID chip or a QR Code. The NFT is transferred to the buyer at the same time as the product.

Product producers can provide an NFT Certificate of Authenticity (“COA”) with the sale of physical products. One art dealer’s NFT Certificate of Authentication provided this:

“Our NFT Certificate of Authentication allows for the COA on your physical fine artwork to live in your blockchain wallet as a non-fungible token, for not only safekeeping and digital permanence, but for the ability to own a smart contract form of the COA. Using revolutionary technology, this non-fungible token records the purchase date, the artist’s name, the work’s title and medium, an image of the physical work, as well as the year of creation and where it was produced”.

Mondavi Winery partnered with artist Clay Heaton to create a collection of limited edition wines in porcelain bottles and issued NFTs to authenticate the wine, to act against counterfeits. NFT purchasers got a physical bottle of the wine upon purchase of the NFT.

In addition, brands are embracing NFTs as desirable assets in and of themselves that promote the brand and its activities.

NFT example: Taco Bell

Taco Bell created NFT artwork of its tacos — "NFTacoBells" — which sold out in 30 minutes, some for over $3000. The brand awareness program included a halo effect: proceeds from the sales went to the Taco Bell Foundation and its scholarship programs.

Dole Foods offered a set of NFTs designed by artist David Datuna. The 5-part NFT set sold for more than $100,000, with funds going to Boys and Girls Clubs to combat food insecurity.

AMC Theaters issued more than 86,000 Spider Man NFTs to loyalty program members in connection with the release of the Spider-Man: No Way Home movie in late 2021. Some of the NFTs traded for more than $1000.

Norwegian Cruise Lines issued a series of 6 NFTs featuring designs by the artist who designed hull artwork for two of NCL’s newest ships. Starting bid price was set at $2500; proceeds were to be donated to Teach For America. The auction winner would also receive a balcony stateroom on one of the new ship’s inaugural voyages.

Marriott partnered with three artists to create three different NFTs based on travel experiences for its Marriott Bonvoy travel loyalty program. They debuted their NFT program at the Art Basel art show, where NFT winners also received 200,000 Marriot Bonvoy points.

Some brands are minting NFTs for their value as a new revenue stream.

NFT example: Budweiser

Budweiser launched its The Heritage Collection NFTs in November of 2021, including 1936 unique digital designs of beer cans to commemorate the year Budweiser created its first can. 1,900 Core Heritage tokens were priced at $499. The other 36 were Gold Heritage tokens that went for $999 each. All sold out in less than an hour.

Dolce & Gabbana launched an NFT collection during Venice Fashion Week that sold for nearly $5.7 million. Owners of the NFTs also received physical versions of the items represented, plus exclusive access to future D&G events.

Nike acquired RTFKT, a major digital sneakers and collectibles creator. The digital sneakers can be used in video games, and can also be tied to physical versions of a shoe. The project included a creative element, as virtual shoes could be digitally crossbred with other virtual shoes to create original versions that may be turned into real-world shoes.

Adidas launched an NFT collection called Into the Metaverse, as a collaborative project between Adidas Originals, GMoney, Bored Ape Yacht Club, and PUNKS Comic. Adidas also bought a Bored Ape named Indigo Herz and dressed it in a custom Adidas-branded tracksuit. The project sold 30,000 NFTs for around 0.2 ETH, or about $765 each. The NFTs sold out in a matter of hours and Adidas made $22 million.

The metaverse and NFTs present brand owners, in the wine industry and elsewhere, with opportunities to extend their brand awareness, and explore new revenue streams.

Commentary

Karen Frank is an intellectual-property law partner with Coblentz Patch Duffy & Bass LLP in Napa. Her practice include copyright, trademark, domain names, unfair competition, right of publicity, branding and advertising, privacy, and the Internet.

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