IP-NFTS and IP Tokens: A Deep Dive

“Innovation is taking two things that exist and putting them together in a new way.”

Our society has continued to find great innovations for whatever problems we face, Blockchain technology has been one of the frontiers in providing modern solutions to traditional problems. IP-NFTs (Intellectual Property- Non Fungible Tokens) and IPTs (Intellectual Property Tokens) are two of the latest innovations that the blockchain tech has given us. These groundbreaking digital assets are rewriting the rules of intellectual property, bridging gaps, and opening up exciting possibilities not just in research but also across diverse fields like art, music, education, and beyond. In this article, we’ll embark on a journey to unravel the intricacies, significance, advantages, risks, and numerous applications of IP-NFTs and IPTs.

What Are IP-NFTs?

IP-NFTs are a fusion of traditional intellectual property and cutting-edge NFT technology. They represent unique, non-fungible tokens on the blockchain, similar to digital certificates of ownership. However, what sets them apart is that they encapsulate full legal IP rights and data access control to various forms of intellectual property, including research, art, music, and more.

Imagine a world where research projects are not shackled by the complexities of grant applications, where artists can securely protect their creations and are not exploited by Labels, and where innovation is not hampered by financial bottlenecks. This is the world that IP-NFTs are creating.

How Does it Work?

Molecule documentation on how to min an IP-NFT

An Intellectual Property Non-Fungible Token (IP-NFT) works by combining the principles of non-fungible tokens (NFTs) with the ownership and rights associated with intellectual property (IP). IP-NFTs are already been used by DAOs in the DeSci space. DAOs like Molecule, Valley DAO, Vita DAO etc have all made use of IP-NFTs to fund some research projects. We will be using this a case study on how it works:

• Creation of the IP-NFT: The process typically begins when an individual or entity, such as a researcher, artist, or creator, decides to tokenize their intellectual property. This intellectual property could be anything from research data and patents to digital artwork or music. They decide to create an IP-NFT to represent this IP on the blockchain.
• Drafting an Agreement (a relevant IP contract): If we’re talking about research data, for instance, a Research Agreement or a similar legal contract is drafted. This agreement outlines the rights associated with the intellectual property, including who owns it, how it can be used, and any potential royalties or compensation for its use.
• Accessing the Blockchain: To create an IP-NFT, the creator accesses a blockchain platform that supports the creation of NFTs. Ethereum, Polygon and so many more are popular choices for this purpose. They need a cryptocurrency wallet to interact with the blockchain.
• Minting the IP-NFT: The creator initiates (or, most times, has a dev) the minting process, which involves generating a unique IP-NFT. During this process, several key elements are recorded on the blockchain:
• Token ID: This is a unique identifier for the IP-NFT.
• Metadata: Information about the IP is embedded in the NFT’s metadata. This can include a title, description, creator details, and more.
• Link to the IP: A link or reference to the intellectual property, such as a URL pointing to a research dataset or a digital file of an artwork, is included.
• Uploading the Research Agreement: The IP creator uploads the Research Agreement (or relevant IP contract) to the IP-NFT. This step is crucial as it legally links the IP-NFT to the terms and conditions outlined in the agreement.
• Assignment Agreement: An Assignment Agreement is created within the IP-NFT, which officially assigns the rights mentioned in the Research Agreement to the IP-NFT holder. This agreement may also specify the target wallet address where the IP rights are assigned. By default, it’s the connected wallet, but it can be different if desired.
• Ownership and Access Control: Once minted, the IP-NFT represents ownership of the intellectual property according to the terms of the Research Agreement and Assignment Agreement. The creator maintains control over the IP rights until the IP-NFT is transferred to another wallet.
• Transfer and Usage: The IP-NFT can now be transferred to other individuals or entities through blockchain transactions. The recipient of the IP-NFT obtains the rights specified in the Assignment Agreement. These rights can include the ability to use, license, or even sell the intellectual property associated with the NFT.
• Monetization: Depending on the terms set in the Research Agreement and Assignment Agreement, the IP-NFT holder may be entitled to royalties or compensation when the intellectual property is used or licensed. These transactions can be programmed into smart contracts associated with the IP-NFT.
• Immutable Record: All the information stored within the IP-NFT, including the Research Agreement, Assignment Agreement, and ownership history, is recorded on the blockchain. This makes it tamper-proof and provides a transparent, immutable record of the IP’s ownership and rights.
• Decentralized Access Control: Access to the IP, as specified in the Research Agreement, is managed through decentralized access control systems. Lit Protocol, for example, manages access control based on NFT ownership.
• Future Access: As long as the IP-NFT holder maintains ownership of the NFT, they can access and utilize the associated intellectual property. The decryption key for the Research Agreement is stored with Lit Protocol, ensuring secure and controlled access.

An IP-NFT functions as a digital certificate of ownership and rights for intellectual property on the blockchain. It combines legal agreements, blockchain technology, and smart contracts to securely represent and manage intellectual property, allowing creators to monetize their work and share it with others in a transparent and decentralized manner.

The Advantages of IP-NFTs

Streamlined Funding: Creators and Researchers no longer need to navigate the labyrinthine grant application process. IP-NFTs offer a direct route to funding, unleashing exciting possibilities for early-stage research.

Community Engagement: IP-NFTs foster direct collaboration with stakeholders and the general public. They empower researchers to engage with passionate communities eager to be part of groundbreaking discoveries.

Control Over Data: These tokens grant creators control over data access, especially science researchers. This is a pivotal element for promoting open science and ensuring research findings reach the right hands.

Innovative Funding Models: IP-NFTs introduce fresh funding and monetization avenues. They allow for fractional ownership of intellectual property, royalties distribution, all meticulously programmed through smart contracts.

Democratizing Control Over Intellectual Property: IP-Tokens

IP Tokens (IPTs) are synthesized from IP-NFTs and play a pivotal role in governing the intellectual property generated by an IP-NFT. They represent an extension of the intricate legal and blockchain-based contracts that constitute the IP-NFT Protocol. IPTs bring together token holders under a common objective: to construct and cultivate valuable intellectual property.

IPT holders become co-governors of this intellectual property pool, participating in unique incentive programs, fostering IP growth and experimentation, and nurturing transformative IP networks.

Imagine the IP-NFT as a pirate ship, housing the treasures of groundbreaking scientific inventions. The ship’s crew comprises DAO (Decentralized Autonomous Organization) members contributing their unique skills and knowledge. IPTs act as the ship’s rudder, strategically directing the vessel and, by extension, the future trajectory of scientific advancements. This paradigm shift empowers patients and researchers, who were previously treated as cargo, to take the helm. As the generators of valuable pharmaceutical data, they now play a pivotal role in governance, ensuring that medical advancements serve the universal good.

Governance Rights

IPT holders exercise governance over the intellectual property pool associated with the IP-NFT from which they were derived. This agreement empowers IPT holders to control the IP licencing process, including determining the parties involved, the terms of IP licenses, and the utilization of proceeds derived from these licences. IPT holders actively influence how IP licenses are managed, ensuring transparency and fairness.

Economic Rights

In contrast to fractional NFT holders, IPT holders, under the standard Membership Agreement, are not inherently entitled to economic benefits. They do not possess a predetermined contractual right to receive proceeds following the sale of an IP-NFT. Instead, IPT holders are endowed with governance rights and must actively participate in voting to determine the allocation of proceeds from IP licenses, sales, and other IP-related activities within their IP pool.

It’s essential to carefully consider the implications before initiating or approving a vote to enable economic rights for IPTs. Such actions could alter the regulatory status of the tokens, potentially leading to new regulatory responsibilities and consequences based on the jurisdiction of token holders.

IP Licenses and Non-Ownership

IPT holders exercise administrative control over the licensing of intellectual property and data connected to their respective IP-NFTs. IP licenses related to IP and R&D data from an IP-NFT must be directed and consented to by the IPT holders associated with that specific IP-NFT. This democratic process ensures an inclusive and fair approach to IP licensing.

Crucially, IPT holders do not possess direct ownership of the intellectual property itself, as it is retained and controlled by the IP-NFT owner. This approach circumvents complexities and conflicts arising from joint IP ownership laws across jurisdictions.

Synthesizing IPTs

The synthesis of IPTs represents a bold step toward democratizing the rights associated with IP-NFTs, distributing them across a community of token holders. This process is facilitated by a smart contract that allows an IP-NFT holder to create IPTs.

However, IPTs are not mere digital tokens; they are memberships, invitations to participate in an intellectual property pool unique to their parent IP-NFT. They embody the community’s collective voice, representing shared decision-making, collaborative governance, and a sense of ownership over the future of intellectual property.

IPT Membership Agreement

The first legal contract governing IPTs is an adhesion contract called the IPT Membership Agreement. Tailored for DeSci (Decentralized Science), this agreement enables novel ways of organizing IP development through IP pooling. IP pool memberships are represented as IPTs and governed by the IPT Membership Agreement.

Smart Contracts

For more technical details about the smart contracts associated with IPTs,you can refer to this documentation.

The Changing Landscape of Intellectual Property

Traditionally, intellectual property, encompassing creations of the human mind like art, music, and research, was protected by national and international laws through patents, copyrights, and trademarks. While these legal frameworks defined ownership and usage terms, the emergence of IP-NFTs has introduced a paradigm shift.

IP-NFTs operate on blockchain technology, powered by smart contracts. These contracts are lines of code that automate transactions, creating a transparent and secure environment for buying, selling, and trading intellectual property. However, this transformation comes with its own set of challenges, primarily due to the lack of comprehensive regulation.

The Advantages of IP-NFTs and IP Tokens

Fundraising Without Boundaries: One of the most compelling aspects of IP-NFTs is their ability to revolutionize fundraising. Researchers, artists, and creators can now secure funding without the hurdles of endless grant applications or the need to create startups. Instead of waiting for the traditional grant approval process, they can turn to IP-NFTs and the power of the crowd.

Direct Engagement and Collaboration: IP-NFTs open the door to direct engagement with stakeholders. Whether it’s patients supporting medical research or a global community of researchers collaborating on open science projects, IP Tokens provide a voice and a seat at the table. This fosters a sense of belonging and participation in the journey of intellectual property.

Empowering Research Sustainability: In the realm of scientific research, IP-NFTs bring about sustainability. Non-profit organizations and decentralized autonomous organizations (DAOs) can leverage IP-NFTs to monetize research, ensuring long-term support and funding. This decentralization shifts the power from centralized institutions to the people who genuinely care about the mission.

Monetization and Financial Tools: IP Tokens empower creators to explore new monetization strategies. Through programmable smart contracts, they can define the terms of use, royalties, and even create conditions for future IP rights. This level of flexibility and financial control was once exclusive to sophisticated institutions but is now accessible to everyone through Web3 and DeFi technology.

Risks Associated with IP-NFTs and IPTs: A Comprehensive Overview

IP-NFTs (Intellectual Property Non-Fungible Tokens) and their associated IPTs (IP Tokens) introduce groundbreaking opportunities, but they also bring with them certain risks that need to be carefully considered. In this comprehensive overview, we delve into the various risks associated with IP-NFTs and IPTs, merging traditional intellectual property risks with the challenges posed by blockchain technology.

1. Risks of Control

Traditional IP Risk: One of the inherent risks in the realm of traditional intellectual property is disputes over control. This can arise due to inefficient IP laws and conflicts of jurisdiction. To mitigate this risk, it’s crucial to have a clear understanding of who controls the intellectual property that you intend to mint into an IP-NFT.

Mitigation Strategy: One way to mitigate this risk is to transfer the IP into a single legal entity co-managed by multiple individuals or entities. For instance, a Series LLC created on Ethereum can set forth clear terms and conditions regarding IP control and house the IP within an IP-NFT. This approach minimizes many of the traditional risks associated with IP control.

2. Risks of DAOs (Decentralized Autonomous Organizations)

Regulatory Uncertainty: DAOs present regulatory risks and uncertainties. Questions arise regarding the legal status of DAOs, such as whether they qualify as general partnerships and how to limit personal liability for participants. Holding an IP-NFT within a DAO may also have implications for DAO token holders.

Mitigation Strategy: To address these risks, liability-limitation mechanisms like DAO wrappers are being explored. Entities like OpenLaw or Wyoming’s DAO legal framework are experimenting with ways to limit liability for crypto wallet holders. Minting Series LLCs or UNAs (Uniform Nonprofit Association) to DAO wallets is one approach. Additionally, guidance from organizations like a16z provides insights into navigating DAO-related risks.

3. Risks of Securities

Securities Laws: There’s a risk that IP-NFTs or their IPTs, if sold in certain ways, could be classified as securities. Securities offerings are subject to disclosure rules and procedural requirements in the USA, EU, and other jurisdictions.

Mitigation Strategy: It’s essential to understand that there is a distinction between the asset itself (e.g., a fungible crypto token or an orange grove) and the offering or sale of that asset. While the asset may not be a security, the offering, such as an initial coin offering (ICO) or the sale of shares of future profits, may be considered a security. Compliance with securities regulations, including disclosure rules and procedural requirements, is crucial. Consult with local legal experts to ensure compliance with securities laws in specific jurisdictions.

In summary, IP-NFTs and IPTs represent a revolutionary fusion of intellectual property and blockchain technology. While they unlock exciting possibilities, it’s imperative to navigate the associated risks effectively. Mitigation strategies, including legal structures and compliance measures, play a pivotal role in managing these risks and ensuring the responsible utilization of IP-NFTs and IPTs in the evolving landscape of intellectual property management.

Conclusion

IP-NFTs, in particular, stand as a beacon of change, where research projects can break free from bureaucratic grant applications, artists can safeguard their creations, and innovation can flourish without financial constraints. They have the power to rewrite the rules of intellectual property, ushering in a new era of accessibility and transparency.

As we’ve explored the intricacies of IP-NFTs and IPTs, from creation and governance to potential risks, it’s evident that these digital assets offer a promising path toward democratizing intellectual property. By giving voice and ownership to stakeholders and creators alike, they empower us to collectively shape the future of intellectual property.