Pikachu caught up in Federal Court matter between Pokémon Company International and Australian gaming platform PokeWorld

The use of non-fungible tokens (NFTs) in the gaming industry has risen in popularity exponentially in recent years, as it allows for unique digital assets to be bought and sold on blockchain platforms. However, with this new technology comes potential risks, specifically in the areas of copyright and trademark infringement.

One issue with launching a game using NFTs is that creators may unknowingly use copyrighted or trademarked content in their game, leading to legal issues. For example, if a game developer uses a popular character or logo in their game without permission, they could be facing a lawsuit for copyright or trademark infringement.

The Pokémon Company International, Inc (The Pokémon Company), a subsidiary of gaming giant Nintendo, has obtained a successful interlocutory injunction against Australian crypto company, Pokémon Pty Ltd (PPL). The interlocutory injunction also was successfully obtained against PPL’s director Xiaoyan Liu.

The interlocutory injunction came about when PPL and Mr Liu threatened to release a range of Pokémon-themed Non-Fungible Tokens (NFTs) without The Pokémon Company’s permission. Specifically, The Pokémon Company claimed they did not grant authorisation for PPL to use their intellectual property, including images in their gaming software.

While the substantive issues in the proceedings are in progress, the interlocutory injunction provides an excellent example of how to act swiftly to protect your intellectual property effectively.

The Interlocutory Injunction

In Australia, an interlocutory injunction is an equitable remedy, a relief that sets out what someone must do or not do or to stop that person doing something. There are various reasons why an injunction would be available, whenever required by justice, and includes preventing the publication or transmission of information or the use or disclosure of confidential information.

In short, an injunction can be interpreted as ‘pending the result of court proceedings’.  An interlocutory injunction needs an initial application to the court, called an ‘interlocutory application’. As a result, a court might grant an injunction order before deciding the substantive issues in the court process.

Generally, the court may award an interlocutory injunction when it believes it is ‘just or convenient’ to do so. In deciding this, the court will generally ascertain the following:

• parties refusing to enter negotiations; and
• Does the inconvenience or injury the applicant would suffer if an injunction were not granted outweigh the potential injury a defendant would suffer if the injunction were granted? (Called the “balance of convenience”).

The Pokémon Company’s interlocutory application relied on section 234 of the Australian Consumer Law (ACL) to bring the application before the court. In support of its application, The Pokémon Company set out the reputation of the Pokémon franchise, noting its success since its launch. The Pokémon Company further declared that it was worried that a considerable number of consumers would be misled, deceived, or were likely to be misled or deceived into believing that PPL, “PokeWorld,” and the NFTs were affiliated with The Pokémon Company and their licenced Pokémon items.

The court considered that The Pokémon Company’s evidence indicated that PPL and Mr Liu’s conduct was designed to mislead consumers into believing that the products, namely the NFTs, were legitimately licensed or otherwise authorised by The Pokémon Company to deal with the intellectual property.

Furthermore, The Pokémon Company was awarded the interlocutory injunction because there was a risk to its reputation if these products continued to be available. That is, it would be difficult to determine the number of consumers who purchased the products under the mistaken belief that what they were buying was associated with The Pokémon Company. Therefore, any ultimate award of damages would be an inadequate remedy.

Mitigating the Risk

To mitigate such risks, companies and businesses should take steps to protect their intellectual property and ensure that any NFTs, or their intellectual property, they sell do not infringe on the rights of others. This may include conducting thorough research to ensure that the content used in the game is original and not infringing on anyone else’s rights and implementing measures to prevent the sale of unlicensed, unauthorised, or counterfeit NFTs.

Additionally, they should be aware of the laws and regulations surrounding NFTs and other intellectual property laws and work with legal experts to ensure compliance. Specifically, as the use of NFTs in gaming continues to grow, developers need to be mindful of these risks and take steps to mitigate them.

On the flip side, those subject to intellectual property infringement by others should implement an intellectual property protection plan that grows and evolves alongside the business. This is especially true for companies whose primary value is intellectual property and branding, as in the case of Pokémon. This has never been more vital than with the introduction of new technologies like as AI, NFTs, blockchain, and cryptocurrency.

Conclusion, the use of NFTs, especially in gaming, brings new opportunities for creators and players, but also poses significant new risks for copyright and trademark infringement. Companies and businesses should be aware of these risks, and take steps to protect their own intellectual property and ensure compliance with laws and regulations.

Hesh Aiyach – Salerno Law