Trademark protection in blockchain domains | Knowledge
Businesses that own trademarks should reserve their trademarks with blockchain naming systems. The risk of blockchain domain name infringement is real and remedies are limited at this time. This makes it important to protect the intellectual property rights of preventive companies within the blockchain ecosystem.
1. Context
Blockchain is a decentralized technology, in that each node (or computer) in the network has access to the entire transaction register. Every transaction is traceable and unforgettable. In this ecosystem, blockchain naming systems (similar to traditional domains, such as .com or .ca) allow companies to more easily identify their wallet to receive or send payments using a simpler address than the alphanumeric sequence usually assigned to that wallet.
Registering your name with a blockchain naming system has significant benefits in terms of marketing and consumer engagement.
These names are similar to traditional domain names. However, they are linked to a blockchain via a non-fungible token (NFT). The name itself is therefore an NFT. To date, the two main suppliers of naming systems are on the blockchain Unstoppable domains (.CRYPTO, .NFT, .BITCOIN, etc.) and Ethereum naming services (.ETH).
Expected risks
Cybersquatting
Blockchain naming systems assign names through a smart contract. This consists of an automated contract that allows registration of a name if certain predefined conditions are met. At the time of registration, there is thus no supervision or procedure to verify the applicant’s legitimate right to use the requested name.
Unfortunately, this method favors “cybersquatting” practices, allowing a third party to register a trademark name in a blockchain naming system before the trademark owner does so. By doing this “cybersquats” this third party name. When the trademark owner wants to register a name that contains their trademark, it will be impossible to do so. During this time, the registration holder will be free to enter into transactions, contracts and receive payments from consumers on the blockchain. This therefore poses a major risk not only for consumer confusion, but for direct fraud.
Furthermore, since the names exist in a decentralized environment, it becomes difficult for any authority to intervene directly with the provider of the naming system. Internet Corporation for Assigned Names and Numbers (ICANN) guidelines and monitoring within traditional DNS servers are not currently applicable.
However, it seems that the most popular blockchain naming systems are managed by individuals. Although there is no formal mechanism for a trademark owner to oppose and / or have an infringing name removed directly from the naming system provider, a court may consider holding the naming system administrators liable for infringement, especially if the situation is brought to their attention and they fail to respond.
Similarly, Canadian case law has repeatedly recognized that the use of a domain name including a trademark may constitute trademark infringement under Trademark Act. In Canada, therefore, a trademark owner is not completely without recourse.
Anonymity issues
Transactions on the blockchain are done using a pseudonym. Thus, the majority of the transactions are virtually anonymous, as it is practically impossible to link the pseudonym to the holder. In addition, it is important to remember that domain names on the blockchain are NFTs, which by their nature only provide indirect ownership. The holder of the domain name is not the owner of the domain name, since they are not its creator, but only the user. Any right of appeal against the holder can prove to be ineffective since it is difficult and costly to identify such a holder on the blockchain to pursue legal action and possibly demand compensation or carry out an injunction.
Still, a trademark owner can try to ask the court to order the naming system vendor to disable the link between the infringing name and a blockchain or even “burn” NFT at the root of the name. At present, we are not aware of any decision in Canada that has placed such an order in a trademark or other infringement case.
3. Option for trademark owners
Faced with the limited options currently available and the great breadth of domain management, the most effective solution to protect your brand is to reserve your brand name as well as all of its variants with relevant name system vendors. At this point in the development of blockchain technology and activities, registration should be considered for each blockchain on which the company is likely to have operations or presence in the short to medium term. A broad coverage strategy is advisable to anticipate business growth and hedge against any opportunity cybersquatting.
If you have any questions, the Fasken team can support you and advise you on the strategy you should use.
