18

It is undisputed that ‘[f]iling (or re-filing) trademark registrations embracing goods and services related [to] the metaverse, online world, digital art, and NFT to protect your trademarks in the online world may result in better protection’. [65] Importantly, however, the registration of trademarks is carried out in Sri Lanka based on the international classification of goods and services. In terms of Section 106 (1) (d) of the IP Act, an application for registration of a mark shall inter alia contain ‘a clear and complete list of the particular goods or services in respect of which registration of the mark is requested, with an indication of the corresponding class or classes in the international classification, as may be prescribed.’ Notably, however, Sri Lanka is not a party to the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks. [66] Yet, Sri Lanka ‘follows in substance the classification recognized therein’. [67] In fact, Regulation 16 of Intellectual Property Regulations No. 01 of 2006 [68] incorporated the international classification of goods and services embedded in the Nice Agreement. [69] Although the Regulation in essence incorporated the 2006 version of the Nice Agreement, the National Intellectual Property Office (NIPO) of Sri Lanka as a practice follows the latest version of the so-called Nice Classification, albeit the legitimacy of such adoption could be in question. As such issues fall outside the remit of this paper, it is apposite only to consider how the NFTs-related goods or services can be designated in a trademark application in Sri Lanka.

19

Until the 12^th edition of the Nice classification was adopted in 2023, it suffered from not having NFTs-related goods or services specifically listed in the classification. [70] The problem of not having a particular item specifically listed in Nice Classification is that on the one hand, it gives broad leeway to the national offices to adopt divergent approaches in accommodating or refusing to accommodate applications designating such goods or services; and on the other, it creates legal uncertainty in trademark registration disputes, especially where the similarity of goods or services of the marks in question is challenged. [71] However, even before the 12^th edition of the Nice Classification was introduced, taking cognizance of the sudden upsurge in the number of trademark applications seeking registrations for Metaverse and NFTs associated goods and services; ‘the European Intellectual Property Office (EUIPO), which has responsibility for EU trademark registrations, issued guidance on its approach to classifying virtual goods and NFTs’. [72] The EUIPO stated that NFTs fall under Class 9 of the Nice Classification list.  It further stated that: ‘[f]or the Office, the term non fungible tokens on its own is not acceptable. The type of digital item authenticated by the NFT must be specified. Services relating to (…) NFTs will be classified in line with the established principles of classification for services’. [73] Thus, examples of acceptable specifications include: ‘“downloadable music authenticated by NFTs” in class 9 [and] “providing an online virtual environment for trading virtual art and virtual art tokens” in class 35’. [74] It appears however that in issuing this guideline, EUIPO took inspiration from the proposed revision to the Nice Classification.

20

The 12^th edition of the Nice Classification which became effective on the 1^st of January 2023, for the first time, referred to the term NFTs. It includes the specific item- ‘downloadable digital files authenticated by non-fungible tokens [NFTs]’ in class 9. This is undeniably a much-needed extension of the Nice classification in the digital age. Notably, however, the wording of the new item is premised on the cardinal principle that the NFTs are distinct from their underlying assets. [75] It has been remarked that:

“Only the content linked to the NFT is included in the classification, not the NFT itself. So the code sequence itself cannot be registered, as it is neither a good nor a service. Protection as a computer program is also rightly to be denied to the individual token. In this respect, it is consistent to tie in the content linked to the NFT when expanding the classification.” [76]

21

This could be the reason why the classification is silent about NFTs linked to physical assets. The idea is perhaps that when an NFT is authenticating a physical asset as opposed to a digital asset or digital artwork, it can be protected by the existing categories of goods to which the particular physical asset belong for the reason that it is not the NFT that is deemed relevant for trademark registration purpose but the underlying asset. But this posits the question of whether the existing classification of physical goods can adequately ensure protection for the phenomenon of ‘phygital NFTs’. [77] It could be argued that the Nice Classification should be further expanded to incorporate ‘phygital NFTs’ as owners of trademarks used in relation to phygital NFTs will find themselves in the vexing situation of not having a definite class in which they can file the relevant trademark applications. [78]

22

Although no mention has been made of the NFTs-related services, it has been observed that ‘they will be classified in line with the established principles of classification’. [79] Needless to say, this is controversial. In fact, the Court of Justice remarked in IP Translator [80], the purpose of the registration system, part of which is the Nice Classification, is that “economic operators must be able to acquaint themselves, with clarity and precision with registrations or applications for registrations made by their actual or potential competitors and thus to obtain relevant information about the rights of third parties.” [81]

23

The most intriguing question remains, of whether a trademark registration for the physical goods would automatically extend to the corresponding virtual goods tokenized by NFTs. At this juncture, it is of paramount importance to draw the distinction between digital artwork and virtual goods; both of which can be tied to an NFT. For example, in Hermès Int'l v. Rothschild  [82], the Court recognized that ‘an NFT could link to a digital media file that is just an image of a handbag or could link to a different kind of digital media file that is a virtual handbag that can be worn in a virtual world’. [83] Whilst the degree of similarity between a physical commodity and a mere digital artwork representing the physical commodity may be too low to exclude this possibility; the question that has frequently been posed is whether the degree of similarity between a physical commodity and its virtual counterpart is sufficiently high to automatically extend a registration of the former to the latter.

24

The following excerpt highlights this point:

“For example, while the sale of physical fashion items both in the real world and via metaverse is likely to be protected by the trademark registration for “clothing” in Nice Class 25, the question for fashion brands intending to sell virtual goods via the metaverse is whether virtual versions of the clothing could also be covered by Class 25 or whether this might require additional trademark registrations in other goods and services classes. Again, this question is rather important for smaller, less established brands in particular, as well-known brands are more likely to be able to rely on their already established reputation and therefore can claim cross-class trademark protection.” [84]

25

Although ‘the Nice Classification in registration disputes must not be decisive for deciding similarity between the products’ [85] it gives indications that can be used in the assessment of identity or similarity of goods/services. It has been pinpointed that:

“(…) Nice Classification provides significant guidance when deciding [similarity between the products], in particular in registration disputes where the products of the conflicting marks are documented, for the senior trademark as part of the registration certificate, and for the junior mark as part of the application. In infringement disputes, the EU trademark legislation stresses the influence of the products for which the senior trademark is registered.” [86]

26

Even in Sri Lanka, the Nice classification serves more than a pure administrative function. The examining officer of the NIPO relies on the Nice Classification when conducting the requisite trademark database search to determine whether the mark under examination conflicts with a mark already filed or registered with the NIPO. So, the criticism that ‘the new version of the Nice Classification provides no answer as to what extent digital goods can be confused with their real counterparts from [a trademark] law point of view – for example, whether the digital handbag is similar to the physical handbag’ [87] cannot be easily ignored. Perhaps, had there been no omission on the part of the Nice Classification to specifically categorize ‘virtual goods’ under a particular class, this anomaly could have been avoided. Classifying it under class 9, for example would have provided the necessary guidance to the examining officers and the courts. For instance, the EUIPO and USPTO guidelines have explicitly provided for ‘virtual goods’ in class 9. [88] On the contrary however, it can be argued that ‘downloadable digital files authenticated by non-fungible tokens’ categorized under class 9 does cater to both digital artwork and virtual goods and that the question of whether a digital good associated with an NFT is similar to the corresponding physical good is now an issue for ‘substantive law’. [89]

27

There is no doubt that prospective registrants of goods associated with NFTs will benefit from the addition of the new item ‘downloadable digital files authenticated by non-fungible tokens’ to class 9 of the Nice Classification. As NIPO of Sri Lanka by practice follows the latest edition of the Nice Classification, a person seeking registration for NFTs-related goods in Sri Lanka will definitely benefit from this extension. Nevertheless, there are still gaps in the classification vis-à-vis the categorization of NFTs-related goods or services both at the global and domestic levels. Until a solution is reached at the international level, some guidelines can be issued by the Minister on these murky classification issues. As per Section 204 (2) (b) of the IP Act, the Minister is vested with powers to make regulations in respect of inter alia the classification of goods and services for the purposes of registration.

28

The ambiguity concerning the similarity between the physical goods and their corresponding digital goods can have a serious impact on opposition matters, infringement suits and nullity actions, if the claimant is required to establish ‘likelihood of confusion’ under such action. It is trite law that ‘[i]n addition to similarity between the sign and the mark, the similarity of goods and services for which the signs are or shall be used must also be taken into consideration for assessing likelihood of confusion’. [90] Whilst it was highlighted in the previous discussion that the Nice classification is silent on the point whether a virtual good could be considered similar to its physical counterpart (perhaps, rightly so), it is pertinent to look at whether the traditional tests for assessing similarity between goods and services espoused by the judiciary throw any light upon the issue. One of the most widely accepted tests on the assessment of similarity between the goods or services is to be found in the EU case, Canon KK v Metro-Goldwyn-Mayer Inc. [91] where the European Court of Justice laid down a non-exhaustive list of criteria to be considered [92]:

“In assessing the similarity of the goods or services concerned, all the relevant factors relating to those goods or services themselves should be taken into account. Those factors include, inter alia, their nature, their end users and their method of use and whether they are in competition with each other or are complementary.” [93]

29

The multifactor test introduced in Canon is considered to be less strict [94] than the test laid down in the UK case, British Sugar plc v James Robertson & Sons Ltd. [95] The view has been expressed that ‘[t]his liberal approach to similarity of goods should make it easier to demonstrate actionable confusion, and consequently will reduce the number of situations in which [trademark] owners will have to tolerate others from sharing their marks.’ [96] Nonetheless, extension of this test to the assessment of similarity between physical goods and their virtual replicas does not seem to yield desirable results for the trademark owner, as the very nature, end users, methods of use and marketplace of NFTs-related virtual goods would naturally be different. For instance, the excerpt below highlights the peculiar and distinct nature, marketplace and consumer base of virtual garments which stand in stark contrast to those of the physical goods:

30

Fashion companies can now reach new audiences that don’t typically interact with brands in physical formats, stay ahead of the curve with younger consumers, monetise their digital assets in communities accustomed to paying for premium experiences, and test which designs are most attractive to users, so that they may subsequently direct their productive efforts towards those who buy designs for their avatars. [97]

31

To elaborate this point further, where the physical clothing is compared with the virtual garment tokenized by an NFT, it is self-evident that the nature of the goods juxtaposes with one another- one being a physical asset, the other a digital manifestation embodied in an NFT. Their end-users are different, as the coveted luxury garments are often purchased by luxury customers and the virtual garments are presumably purchased by gamers, collectors or crypto enthusiasts. [98] The idea has in fact been expressed that ‘[t]he target market for these NFTs is not necessarily fashionistas. In many cases, buyers of virtual garments are investors interested in their fashion value (…).’ [99] The method of use of the goods would be different as virtual clothing would be used to dress an avatar or as a collectible. ‘It will mean creating a completely new relationship with clothes. Fashion [in its traditional sense] has been considered a highly hedonic category that needs to be touched and worn to be fully enjoyed. The tactile experience has been considered very important [with regard to materialistic outfits]’. [100] Contrastingly, virtual clothing does not evoke similar sensations in consumers. At the same time, the two products can hardly be said to be in competition although in rare situations they could be complementing each other. [101] This is because the physical bags are sold in traditional markets or e-commerce platforms [102] whereas NFTs are sold in the crypto or NFT marketplaces. Thus, the application of the multi-factor test seems to go against any finding of similarity between the physical goods and their digital twins.

32

Another murky issue is the similarity between digital artwork embodied in NFTs and their physical counterparts. Even if one concedes that the Nice Classification provides some guidance on the assessment of similarity between digital artwork authenticated by NFTs and their corresponding physical goods by the sole fact of classifying them in distinct classes, (except in situations where the concerned physical goods also fall under Class 9), it may still be necessary to gauge the proximity between these two types of goods by resorting to traditional criteria, especially in trademark disputes involving third parties. In Hermès Int'l v. Rothschild, where the defendant Mason Rothschild created digital images of faux-fur-covered versions of the luxury Birkin handbags of plaintiffs Hermès and titled these images "MetaBirkins" and sold them using NFTs, the plaintiff inter alia claimed trademark infringement under the Lanham Act.  [103]Interestingly, it has been observed that:

“What may prove tricky for Hermès is showing that the physical goods it is known for are so closely related to Rothschild’s digital MetaBirkins that consumers are likely to assume they originate from the same source. There are obvious differences in the products each party sells; the most glaring of which is that Hermès sells luxury tangible goods while MetaBirkins are intangible NFTs that only exist on a blockchain. At first glance, it may appear that MetaBirkins are the furthest thing from any product that Hermès sells, regardless of the name, but as more and more brands venture into the Metaverse, the likelihood of Hermès winning this argument increases.” [104]

33

As pointed out in the above excerpt, the similarity between a physical good and a digital artwork representing such a good appears to be very remote at least at the first glance. But, in this case, Hermès has already produced evidence of actual confusion on the part of consumers about Hermès's affiliation with Rothschild's MetaBirkins collection. [105] Interestingly, the application of the multi-factor test to determine the similarity between phygital goods associated with NFTs and their physical counterparts would not be easy, yet, would be less challenging than applying the test to virtual goods or digital artwork tied to NFTs. However, when one takes into consideration the unconventional nature of NFTs, one is made to ponder whether the traditional tests of assessing similarity between goods and services are apt and fitting in the context of NFTs. [106]

34

Evidently, the assessment of similarity between goods and services becomes important where a statutory provision embodies the specialty principle. In fact, when one looks at the scheme of the IP Act of Sri Lanka, it appears that several sections of the IP Act are based on the so-called specialty principle in trademark law. The principle of specialty denotes that ‘trademarks can only be protected in relation to the same or similar goods or services covered by their registration or use.’ A limited exception to this principle is envisaged in the case of well-known trademarks. Thus, Section 104 (1) (a) of the IP Act denies registration to a mark that is misleadingly similar to a mark that is registered or filed by a third party for identical or similar goods or services. Similarly, Section 104 (1) (b) of the IP Act denies registration to a mark that is misleadingly similar to a mark used earlier in Sri Lanka for identical or similar goods or services. In like manner, Section 104 (1) (d) first limb, refuses registration to a mark that is misleadingly similar to a mark well-known in Sri Lanka for similar goods or services. Furthermore, Section 160 (2) of the IP Act stipulates that ‘any act or practice carried out or engaged in, in the course of industrial or commercial activities, that causes, or is likely to cause, confusion with respect to another’s enterprise or its activities, in particular, the products or services offered by such enterprise, shall constitute an act of unfair competition’. Therefore, when applying these sections, the courts or the NIPO will have to ascertain inter alia the similarity between the concerned goods or services. However, the ostensible lack of harmony that persists between traditional criteria for assessing similarity between goods or services and NFTs-related products or artwork leave room for ample legal uncertainty.

35

The principle of exhaustion which is recognized in both USA [107] and EU denotes that the trademark owner’s exclusive right to control the distribution of a trademarked good ‘does not extend beyond the first sale of the product and that the resale by the first purchaser of the original article under the producer’s trademark is neither trademark infringement, nor unfair competition’. [108] It must be noted however that exhaustion occurs, only with respect to the ‘goods’ which bear the trademark and which have been put on the market by the owner of such mark or with his consent. It by no means vitiates or transfers the trademark ‘right’ itself. [109] This is why, without Nike’s permission, one can sell old Nike sneakers at garage sales, yet cannot manufacture and sell Nike-branded shoes. [110] But most importantly, exhaustion doctrine encapsulates the idea that where trademark rights have been exhausted after the first sale of genuine trademarked goods by the trademark owner or with his consent, resellers not only enjoy the freedom of reselling, but they are also free to use the trademark in advertising that brings the further commercialization of the goods to the attention of the consumers. [111] The Court of Justice of the European Union recognized this principle in Parfums Christian Dior SA and Parfums Christian Dior BV and Evora BV case. [112] The court observed that:

“If the right to prohibit the use of his trade mark in relation to goods, conferred on the proprietor of a trade mark under Article 5 of the Directive, is exhausted once the goods have been put on the market by himself or with his consent, the same applies as regards the right to use the trade mark for the purpose of bringing to the public's attention the further commercialization of those goods. (….) If the right to make use of a trade mark in order to attract attention to further commercialization were not exhausted in the same way as the right of resale, the latter would be made considerably more difficult and the purpose of the 'exhaustion of rights' rule laid down in Article 7 would thus be undermined.” [113]

36

The complex issue that arises in the context of NFTs is whether the use of an NFT by a reseller of genuine trademarked goods for the purpose of authenticating such physical goods, is tantamount to a mere exercise of the trademark owner’s exhausted right to attract attention to further commercialization. However, the answer to that question depends on how one would characterize an NFT. It follows that, if an NFT can be relegated to ‘an advertising tag’ on the physical goods legitimately purchased, then such use may not amount to trademark infringement. Yet, according to the court, what would be protected in terms of the exhaustion principle is the ‘reseller's legitimate interest in being able to resell the goods in question by using advertising methods which are customary in his sector of trade’. [114] Therefore, even if one considers an NFT as a mere advertising tag in this instance, the question remains whether its use constitutes an ‘advertisement method that is customary in the relevant sector of trade’. The ensuing legal confusion undoubtedly reflects the friction between technology and law.

37

Furthermore, the court pinpointed in Parfums Christian Dior SA and Parfums Christian Dior BV and Evora BV case that the defence of exhaustion cannot be invoked ‘where there are legitimate reasons for the proprietor to oppose further commercialization of trade-marked goods, especially where the condition of the goods is changed or impaired after they have been put on the market’. [115] The court construed the term ‘legitimate reason’ to include even ‘damage done to the reputation of a trademark’. [116] Thus, it is axiomatic that the ability of the NFT owner to rely on this defence is further curtailed by the so-called legitimate interests of the trademark owner. Thus, the extension of the exhaustion doctrine to NFTs-related matters is a daunting task.

38

An equally confounding issue is the applicability of the ‘nominative fair use defence’ to situations where the NFT is used merely for the purpose of authenticating a physical product. Nominative fair use is a judge-made doctrine that allows the use of a trademark by a [non-owner] to describe the trademark owner's goods or services if that use does not cause consumer confusion. [117] Hence, ‘use of a mark to identify the mark holder’s product or service, rather than the secondary user’s is nominative fair use’. [118]

39

A three-part test has been developed in the USA case New Kids on the Block v. News America Publishing, Inc., [119] for evaluating nominative fair use: (1) whether a product or service can be easily identified without using the trademark; (2) whether the mark is only used so much "as is reasonably necessary" in order to identify the product or service; and (3) whether the user of the mark can do anything that, in combination with the use of the mark, would imply that the trademark holder endorsed or sponsored the use. [120] The issue that crops up in the context of NFTs is whether the use of an NFT to authenticate genuine products of the trademark owner can be justified on the ground of ‘nominative fair use’. The answer however depends largely on how NFTs are characterized. Even then, the NFT owner might find it challenging to establish that the use so contemplated by the NFT does not exceed the limitation imposed by the second criterion. The second criterion, in essence, involves ‘an evaluation of whether the use was unreasonably excessive in the context of an otherwise legitimate use’. [121] Aaron Schwabach, for example, states that the use of the Volkswagen logo (rather than merely the name) to advertise the repair shop’s services would not be insulated against liability on the basis of nominative fair use as such use would be deemed as “more than reasonably necessary to identify the service”. [122] Despite the perplexing legal issues that emanate from the extension of the defences of exhaustion and nominative fair use to the NFTs authenticating physical assets; one must understand that protecting the resale market is of singular importance. [123] This principle would apply equally to the resale market involving NFTs. It has also been highlighted that:

“It has been repeatedly acknowledged that the producer of a good cannot prevent others from using the good’s mark to truthfully describe the good. This basic belief is the foundation for both nominative fair use and first sale defenses, and “reflects the simple insight that anybody should be free to refer to goods and services by their brand names.” [124]

40

In the ongoing case of Nike Inc. v. StockX LLC, [125] the USA courts will be compelled to wander into this hazy legal terrain. The case involves Nike filing a lawsuit against StockX, the operator of an online resale platform that sold NIKE sneakers amongst other things, on the ground that “[w]ithout Nike’s authorization or approval, StockX is ‘minting’ NFTs that prominently use Nike’s trademarks, marketing those NFTs using Nike’s goodwill, and selling those NFTs at heavily inflated prices to unsuspecting consumers who believe or are likely to believe that those “investible digital assets” (as StockX calls them) are, in fact, authorized by Nike when they are not’. [126] StockX contends however, ‘that each of its Vault NFTs is tied to a specific product, such as a pair of Nike sneakers it bought second-hand from its rightful owner, which is being sold on its marketplace’. [127] Furthermore, StockX ‘opines that Nike’s complaint ignores “settled doctrines of trademark law, including the doctrines of first sale and nominative fair use,” and argues that their NFTs are more like claims tickets, title trackers, or receipts than products’. [128] However, an interesting feature of this NFTs-related reselling scheme is that ‘[t]he purchaser will not get possession of the sneakers unless the purchaser gives up the NFT (StockX calls this “redeeming” the NFT)’. [129] But the crucial question is whether StockX’s use of the NFT embodying the NIKE trademark can be justified in terms of the doctrine of exhaustion and nominative fair use. The view has been expressed that:

“Together, First Sale and Nominative Fair Use are why the product-receipt distinction matters: A new product, including a virtual product bearing another entity’s trademark, cannot be offered for sale without permission from the mark’s owner, whereas a mere receipt (which could take the form of a physical piece of paper, an email, or a digital token on a blockchain) requires no such permissions.” [130]

41

Thus, according to this approach, the applicability of the two defences will depend on whether an NFT is characterized as a ‘product’ or ‘receipt’. However, as already highlighted, the deep-rooted problem of the characterization of NFTs is wrapped in controversy and is manifested by the definition muddle of NFTs. Apart from the bizarre nature of NFTs, their incredible commercial value also adds to the complexity of the problem. For example, it has been commented that an ‘NFT is the actual thing being purchased, and it is the valuable item in an ownership and “ownership” sense’. [131] Hence, ‘the NFT obviously is separate in value as indicated by the pricing of the sneakers alone vs. the pricing of the Vault NFT, and the NFT is a different item because you cannot possess both the NFT and the sneakers’. [132] Specifically, with regard to the NIKE scenario, It has been pointed out that ‘this price disparity suggests that, at least in the mind of some consumers (….) there was confusion about whether Vault NFTs were merely a means of authenticating and demonstrating ownership of physical sneakers or were a unique asset with a value distinct from their physical asset counterparts’ [133]. Notably, ‘[i]f Vault NFTs are determined to be separate assets, then StockX’s argument that it is protected against Nike’s claims of trademark infringement by the first sale doctrine becomes more tenuous’. [134] Although when one looks at the NFT architecture an NFT hardly qualifies as an independent asset, when one considers its extremely high commercial value, designating an NFT as a mere receipt or ticket would seem to be a misnomer.

42

In any event, treating this question as simply a problem of nomenclature is an oversimplification of the issue. Finding a proper definition alone will not be dispositive of this problem, as one also needs to look into more intricate issues such as whether the legitimate interests of the owner of the trademark warrant the invoking of the doctrine of exhaustion or whether the criteria used to evaluate nominative fair use justify the use of the principle. However, where the Sri Lankan legal landscape is concerned, the problem appears to be even more complicated. The law relating to trademark exhaustion in Sri Lanka is laid down in Section 122 (b) of the IP Act. The said Section states as follows:

Section 122 -The registration of the mark shall not confer on its registered owner the right to preclude third parties –

(b) from using the mark in relation to goods lawfully manufactured, imported, offered for sale, sold, used or stocked in Sri Lanka under that mark, provided that such goods have not undergone any change.

43

Unfortunately, it is not at all clear from this provision whether this Section recognizes national or international exhaustion. In the absence of clear statutory language, the term ‘lawfully imported goods’ can even encompass goods lawfully purchased by third parties from markets outside the national borders. Based on this interpretation, the argument can be advanced that Section 122 (b) of the IP Act does recognize ‘international exhaustion’. Yet, as the term ‘lawfully imported’ is not defined in the IP Act and there is an absolute dearth of judicial precedents delineating its scope, this interpretation is open to debate. [135] Thus, the controversy stemming from this ambiguous statutory provision can raise problems where the product which is authenticated by the NFT is in fact a parallel import. In such a case, the creator of the NFT cannot legitimately rely on the principle of exhaustion if Section 122 (b) does not recognize international exhaustion. Conversely, however, if Section 122 (b) is construed as allowing parallel imports then the NFT owner can rely on the principle of exhaustion in such a situation, provided other legal impediments are successfully removed. By way of contrast, the particular scheme of exhaustion embraced by certain other jurisdictions has sometimes been judicially or statutorily affirmed creating legal certainty. In the EU for example, the courts have confirmed the applicability of the principle of regional exhaustion. [136] Even with regard to the USA, it has been acknowledged that it ‘follows a system of international exhaustion with respect to trademark law and trademarked products’. [137]

44

It is appropriate at this juncture to also mention the anomaly which pervades the nominative fair use defence paradigm in Sri Lanka. There is no explicit recognition of the nominative fair use defence in the IP Act. However, other than Section 122 (b), the only provision which contemplates a diminution of the legal rights granted to the registered trademark owner is Section 122 (a) which provides as follows:

45

The registration of the mark shall not confer on its registered owner the right to preclude third parties – (a) from using their bona fide names, addresses, pseudonyms, a geographical name, or exact indications concerning the kind, quality, quantity, destination, value, place of origin or time of production or of supply of their goods and services, in so far as such use is confined to the purposes of mere identification or information and cannot mislead the public as to the source of the goods or services [138]

46

But a cursory reading of this provision reveals that it seeks to curtail the rights of the trademark owner on the basis of descriptive fair use rather than nominative fair use. It protects third parties who use registered trademarks for the purpose of designating the kind, quality, quantity, destination, value, place of origin or time of production or of supply of their goods and services. This clearly juxtaposes with the nominative fair use defence which protects third parties who use the registered trademarks to reference the trademark owner’s products or services. [139] If the courts in comparative jurisdictions display a receptive mindset towards the defence of nominative fair use in NFTs-related matters, the non-recognition of the defence both in terms of the IP Act and judicial precedents in Sri Lanka can be extremely prejudicial to the owners of NFTs. Contrastingly, in the USA, under the law of trademark infringement nominative fair use is judicially created, whereas, under dilution law, the defense is statutory, established by the Trademark Dilution Reform Act [140] of 2005. [141] In a similar vein, the referential use defence which is the EU counterpart of the nominative fair use doctrine, is statutorily embedded. It is recognized in Article 14 (1) (c) of the EUTMR No. 2017/1001. [142]

47

Another grim issue is the enforcement of injunctions and certain other remedies against the creators of infringing NFTs. For example, a court order demanding the creator of the infringing NFT to remove from commerce or delete the impugned NFT could prove very tricky. In Juventus F.C. v Blockeras s.r.l, [143] the Rome Court of First Instance issued an injunction ordering Blockeras inter alia to ‘withdraw from the market and remove from every website and/or from every page of a website directly and/or indirectly controlled by the same on which such products are offered for sale and/or advertised, the NFTs (non-fungible tokens) and the digital contents associated therewith or products in general covered by the injunction’. [144] However, the infringing NFTs still appear on the relevant blockchain.

48

The reason is that ‘none of the data in the blockchain can ever be deleted -That is by design. Therefore, all [the] data, once exposed cannot be deleted or changed.’ [145] This quality of NFTs is attributable to the so-called immutability of the blockchain technology that underlies NFTs. [146] Nevertheless, several other means are available to the NFT owner to prevent its further circulation. Thus, the view has been expressed that ‘[e]ven though you can't delete an NFT, you can technically "burn" an NFT. Burning an NFT sends the NFT to a null or "burn" address. While the NFT still exists on the blockchain, it is effectively out of circulation and distribution’. [147]

49

In Nike Inc. v. StockX LLC [148], Nike has inter alia sought an order that StockX be required to deliver to Nike for destruction any and all Vault NFTs bearing Nike’s marks. [149] If the court actually grants the relief requested by Nike, the next question is how they can effectuate the destruction of the infringing NFTs. The idea has in fact been expressed that ‘the most practical thing for Nike to do would be to send the NFTs to a so-called burner wallet. .  This wouldn't destroy them but still achieve the same purpose.’ [150] This has in fact been compared ‘to a luxury brand seizing knock-off goods and then sticking them in a secure warehouse and throwing away the key’. [151]

50

Where the Sri Lankan trademark legal regime is concerned, the IP Act offers a blend of criminal and civil remedies to an owner of a trademark. However, several provisions of the IP Act dealing with criminal and civil remedies available to a trademark owner make reference to the term ‘destroy’. For instance, Section 170 (3) (a) of the IP Act which deals with civil remedies for infringement of intellectual property rights recognized under the IP Act states that:

The court shall have the power to order—

(ii) the infringing goods to be disposed of outside the channels of commerce or to be destroyed without the payment of any compensation ;

51

Similarly, Section 186 (5) of the IP Act which provides for criminal sanctions in relation to ‘other offences as to marks and trade descriptions’ stipulates that

“The Magistrate may, whether the alleged offender is convicted or not, order that every chattel, article, instrument or thing by means of or in relation to which the offence has or might have been committed shall be destroyed or declared forfeit to the State or otherwise dealt with as he may think fit.”

52

If the local courts encounter NFTs-related trademark infringement cases in the future, it remains to be seen if the courts will leverage their creativity and interpret the word ‘destroy’ to include ‘burning’ in the context of infringing NFTs.