Web3 technology has introduced new opportunities for digital asset ownership in the gaming sector. Players can own non-fungible tokens (NFTs) and other in-game assets, allowing them to create, trade, or transfer digital assets across different games or platforms. This creates unique intellectual property (IP) challenges for players, investors, and members of the Web3 gaming community.
Open-Source Licensing Risks and Monetization Challenges
Blockchain projects may rely on open-source software (OSS), which introduces specific compliance risks and monetization challenges. Mismanagement of OSS licenses can lead to accidental IP infringement or even require companies to disclose proprietary technology.1 These issues become more complex when blockchain companies build user experiences (UX) around OSS, which may be critical to their monetization strategies. OSS licenses often contain terms that can conflict with business objectives, especially when users expect ownership rights over digital assets like tokens or collectibles. Selecting and managing OSS licenses carefully is essential to prevent entangling proprietary assets or user rights with open-source obligations.2 Investors must carefully evaluate how well companies monitor their licensing practices to avoid potential IP issues that could disrupt operations or lead to costly legal disputes.
Defining Digital Asset Ownership
In blockchain gaming, “ownership” of NFTs usually applies to the digital token itself, not the underlying IP rights of the item it represents. For instance, purchasing an NFT of an in-game item may grant ownership of the NFT or a license to use, display, or trade the NFT, but not of the item’s design, functionality, or IP (e.g., the underlying copyright of the original work used to create the NFT).4 Clearly communicating these limitations is essential for companies to avoid misunderstandings with users and prevent potential disputes. Investors should scrutinize how companies define asset ownership and educate users to reduce legal risks associated with unclear IP rights.
Data Security and Ownership Concerns
Transaction data, especially in blockchain-based ecosystems like Web3 based games, holds substantial value for companies, whether for analytics, monetization, or strategic decision-making.5 However, blockchain’s decentralized structure, and the public accessibility of OSS, introduces significant data security and privacy concerns. Companies may face particular regulatory scrutiny if potentially proprietary or sensitive transaction data is exposed. Additionally, trading and revenue-sharing activities involving digital assets may be classified as securities and be audited by tax authorities, adding additional layers of complexity. Ownership rights over digital assets, especially on cross-border platforms, require careful assessment to ensure compliance with IP and data protection standards.6 Investors should assess whether companies have protective measures in place to secure transaction data and mitigate risks of third-party claims that could impact the asset value, regulatory compliance, and operational stability.
Future-Proofing IP in a Rapidly Changing Landscape
As blockchain standards and regulations evolve, Web3 gaming companies must adapt their IP protections to maintain compliance and safeguard their assets. New innovations and legal standards can impact the value of IP in cryptocurrency, underscoring the importance of proactive IP strategies.7 Investors should look for companies conducting regular IP audits and updating protections to stay aligned with industry shifts and regulatory developments.
Conclusion
Investing in blockchain-based companies requires navigating unique IP challenges. By thoroughly assessing how companies handle digital asset ownership, open-source dependencies, jurisdictional hurdles, data protection, and IP adaptability, investors can better understand the risks and growth potential in this dynamic industry.
At Caldwell, our extensive experience in gaming and cryptocurrency ensures that clients are prepared to address ownership and jurisdictional challenges in blockchain investments. Our team stays up to date on evolving standards and regulations, providing clients with proactively strategies to confront potential IP issues.
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Footnotes
1. Gaming and law: What businesses need to know. Norton Rose Fulbright. (2023, October). https://www.nortonrosefulbright.com/en/knowledge/publications/b703108e/gaming-and-law-what-businesses-need-to-know
2. Sung, H.-C. (2018). When Open Source Software Encounters Patents: Blockchain as an Example to Explore the Dilemma and Solutions. 18 Journal of Marshall Review of Intellectual Property Law, 55. https://repository.law.uic.edu/ripl/vol18/iss1/3/
3. Gatto, J. (2018, May 1). Legal issues with blockchain-based crypto games and Collectibles. Law of The Ledger. https://www.lawoftheledger.com/2018/05/articles/blockchain-games/legal-issues-with-blockchain-based-crypto-games-and-collectibles-2/
4. McKinney, S. A., Caiazza, A. B., Sutanto Shen, M. A., Chan, J., & Andrews, W. (2022, February 10). Video game NFTS: Top Legal Considerations for developers. Wilson Sonsini Goodrich & Rosati Professional Corporation. https://www.wsgr.com/en/insights/video-game-nfts-top-legal-considerations-for-developers.html
5. Mukaddam, F. (2021, October). NFTs and Intellectual Property Rights. Norton Rose Fulbright. https://www.nortonrosefulbright.com/en/knowledge/publications/1a1abb9f/nfts-and-intellectual-property-rights
6. Sterling, A. (2023, August 17). What Are the Legal and Regulatory Issues With Blockchain? Doubloin. https://www.doubloin.com/learn/regulatory-issues-blockchain
7. Zheng, L. (n.d.). Intellectual property law and the challenges of nfts. Harvard Undergraduate Law Review. https://hulr.org/fall-2022/ip-law-and-the-challenges-of-nfts