Trademark Protection Within Blockchain Domains – Trademark

Companies owning trademarks should reserve their trademarks with
blockchain naming systems. The risk of infringement of blockchain
domain names is real and remedies are limited at this time. Thus,
it becomes essential to protect the intellectual property rights of
companies preventively within the blockchain ecosystem.

1. Context

Blockchain is a decentralized technology, in that every node (or
computer) in the network has access to the full record of
transactions. Every transaction is traceable and unforgeable. In
this ecosystem, blockchain naming systems (similar to traditional
domains, such as .com or .ca) allow, among other things, for
companies to more easily identify the wallet to receive or send
payments by using a simpler address than the alphanumeric sequence
usually assigned to that 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 consists of an automated contract allowing the registration of
a name if certain predefined conditions are met. Thus, at the time
of registration, there is no oversight or procedure for verifying
the applicant’s legitimate right to use the requested name.

This method unfortunately favours “cybersquatting”
practices, allowing a third party to obtain registration of a
trademarked name within a blockchain naming system before the
trademark owner does. In doing so, this third party
“cybersquats” the name. When the trademark owner wants to
register a name containing 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 great risk
not only of consumer confusion, but of outright fraud.

Furthermore, since the names are found in a decentralized
environment, it becomes difficult for any authority to intervene
directly with the provider of the naming system. ICANN’s
policies and monitoring 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 oppose and/or have an
infringing name removed directly from the naming system provider, a
court could consider holding the naming system administrators
liable for infringement, particularly 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 within
the meaning of the Trademarks Act. Thus, in Canada, a trademark
owner is not completely without recourse.

b) Anonymity Issues

Transactions on the blockchain are done using a pseudonym. Thus,
the majority of transactions are virtually anonymous, as it is
practically impossible to connect the pseudonym to the holder.
Moreover, it is important to remember that domain names on the
blockchain are NFTs, which by their nature only confer indirect
ownership. The holder of the domain name is not the owner of the
domain name, since they are not its creator, but merely its user.
Any recourse against the holder could prove ineffective since it is
difficult and costly to identify such a holder on the blockchain to
serve 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 to “burn” the
NFT at 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 options that are currently available and
the great latitude in the management of domains, the most effective
solution to protect your trademark is to reserve your
trademark’s name as well as all its variants with relevant
naming system providers. At this point 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
coverage strategy is advisable to anticipate business growth and
safeguard against any possibility of cybersquatting.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.