Trademark Protection in Blockchain Domains

Brand-holding companies must reserve their brands with blockchain naming systems. The risk of counterfeiting of blockchain domain names is real and remedies are limited at this time. Thus, it becomes essential to preemptively protect the intellectual property rights of companies within the blockchain ecosystem.

1. Background

Blockchain is a decentralized technology, in that each node (or computer) in the network has access to the full record of transactions. Each transaction is traceable and tamper-proof. In this ecosystem, blockchain naming systems (similar to traditional domains, such as .com or .ca) allow, among other things, companies to more easily identify the wallet to receive or send payments using a simpler address than the alphanumeric sequence usually assigned to this wallet.

Registering your name with a blockchain naming system has significant marketing and consumer engagement benefits.

These names are similar to traditional domain names. They are, however, linked to a blockchain via an NFT. The name itself is therefore an NFT. To date, the two main providers of naming systems on the blockchain are Unstoppable Domains (.CRYPTO, .NFT, .BITCOIN, etc.) and Ethereum Name Services (.ETH).

2. Anticipated risks

a) “Cybersquatting”

Blockchain naming systems assign names through a smart contract. This is an automated contract allowing the registration of a name if certain predefined conditions are met. Thus, at the time of registration, there is no control or verification procedure of the legitimate right of the applicant to use the requested name.

This method unfortunately promotes “cybersquatting” practices, allowing a third party to obtain registration of a brand name within a blockchain naming system before the brand owner. In doing so, this third party “cybersquats” the name. When the owner of the mark wants to register a name containing his mark, it will be impossible for him to do so. During this time, the record holder will be free to enter into transactions, contracts and receive payments from consumers on the blockchain. This therefore poses a great risk not only of consumer confusion, but of outright fraud.

Moreover, the names being in a decentralized environment, it becomes difficult for any authority to intervene directly with the provider of the naming system. ICANN policies and oversight within traditional DNS servers are currently not applicable.

However, it seems that the most popular blockchain naming systems are administered by individuals. Although there is no formal mechanism for a trademark owner to object and/or have an infringing name removed directly from the naming system provider, a court could consider holding the administrators of the naming infringement officials, particularly if the situation is brought to their attention and they do not respond. Similarly, Canadian case law has repeatedly recognized that the use of a domain name that includes a trademark may constitute trademark infringement within the meaning of Trademark Law. Thus, in Canada, a trademark owner is not completely without recourse.

b) Anonymity issues

Transactions on the blockchain are done under a pseudonym. Thus, the majority of transactions are almost anonymous, because it is practically impossible to link the pseudonym to the holder. Furthermore, it is important to remember that domain names on the blockchain are NFTs, which by nature only confer indirect ownership. The holder of the domain name is not the owner of the domain name, since he is not the creator, but simply its user. Any recourse against the bearer could prove ineffective because it is difficult and expensive to identify such a bearer on the blockchain to initiate legal proceedings and possibly claim damages or execute an injunction.

Even so, a trademark owner could attempt to ask the court to order the naming system provider to disable the link between the infringing name and a blockchain or even “burn” the NFT to the root of the name. At this time, we are not aware of any decision in Canada that has made such an order in a trademark or other infringement case.

3. Alternative for trademark owners

Faced with the limited possibilities currently available and the great latitude in the management of domains, the most effective solution to protect your brand is to reserve your brand name and all its variations with the relevant naming system providers. At this stage in the development of blockchain technology and activities, registration should be considered on every blockchain on which the company is likely to have operations or a presence in the short to medium term. A broad hedging strategy is advised to anticipate business growth and guard against any possibility of cybersquatting.

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