a “system and method for providing cryptographically secured digital assets”
Non-fungible tokens (NFTs) are moving into mainstream commerce, the most recent example being the December 10, 2019 award to Nike of a patent covering NFT-based footwear, both virtual and physical. Nike’s U.S. Patent №10,505,726 — titled, “[a] system and method for providing cryptographically secured digital assets” — describes a system for minting, exchanging, and intermingling cryptographic digital assets in the form of digital shoes, which can each be linked to a real-world physical shoe.
Nike’s system blurs the line between physical and virtual, finding monetization opportunities in both. The use of the shoe in the physical realm may impact the use in the digital realm, and digital shoes may evolve and take on new characteristics and may be cross-bred with other digital shoes. Cross-bred digital shoes may then be manufactured in the real world. Digital shoes may rise and fall in value and be transferred like any other asset, and the real-world value may be influenced by virtual world activity.
The Cryptokick
At the core of the Nike system is a computer-generated virtual collectible known as the CryptoKick, a tokenized shoe identifier that is stored on the blockchain and linked to a virtual shoe.[1]
The CryptoKick may include token data that represents attributes from a companion physical shoe.[2]
While a number of features are disclosed, only a portion fall within Nike’s exclusive patent rights (see the discussion on the claims, below).
Some highlights:
- CryptoKick Tokens may be created at the time of manufacture or purchase and traded as the physical shoes change hands among collectors.[3]
They may be traded on NFT marketplaces and stored in ERC721 wallets referred to as “lockers.”[4]
- CryptoKick Tokens have a genome and can create offspring when mated with other tokens, each with their own ERC721 token or “CollaboKick.” Breeding rights to desirable tokens may be sold or traded.[5]
- “Living Digital Pets” — CryptoKicks may morph or mutate and be rebuilt by a virtual object generator based on information in the NFT. Changes in the virtual shoe may be hastened by attributes of the physical shoe (e.g., age, use).[7]
- CryptoKicks may become real-world shoes.[6]
Owners of CryptoKicks or CollaboKicks that don’t exist in the physical world may be notified when the real-world shoe is manufactured. Past owners of the NFT may also be notified.[8]
- CryptoKick virtual shoes may be used in video games, with the performance of the virtual shoe tying to the physical shoe.[9]
- Stores may host augmented reality “hunts” with prizes that can be redeemed for virtual shoes. Supply of CryptoKicks may be limited to, such as to attendees of an event.[11]
- Virtual shoe tokens can carry fiat and other currencies.[12]
- Token owners may interact and engage with one another in online communities.[10]
NikePlus accounts are linked to users and digital assets, giving Nike access to a deep well of customer data.[13]
Under The Hood
Looking at how Nike implements this system, FIG. 2 of the patent illustrates the process where a consumer acquires a physical shoe and also the CryptoKick associated with the shoe.
For example, a customer purchases a pair of sneakers at a Nike retail store. The technologically savvy customer has pre-registered with Nike, providing their unique owner ID code that is associated with a blockchain-based digital wallet. The purchase of the sneakers initiates the creation of a CryptoKick that will ultimately be transferred to the customer’s digital wallet or “locker.” (Other events are described for generating the digital asset — a manufacturing event, unlocking an access key, etc., but we’ll focus on this one for simplicity.)
Using the CryptoKick Owner ID and CryptoKick Physical ID (48, 50 above), the physical sneaker purchase is linked to the user’s NikePlus account.[14]
The CryptoKick Physical ID may be used to generate a collectible CryptoKick, which includes both the collectible digital shoe 44 and a unique NFT that is identified by an encrypted token key 46.[15]
The NFT may then be generated and recorded on the blockchain with a public encryption key and the CryptoKick Owner ID.[16]
Digital art related to the asset (e.g., an avatar of the shoe, an artist’s rendering of the shoe) may be provided or generated by the user and uploaded to cloud storage.[17]
The encrypted token key 46 shown above is linked to a single CryptoKick object and takes the form of an alphanumeric code sectioned into individual code segments that express attributes of the collectible digital shoe such as model, background, materials, and style, among others.[18]
“Each subset of a code may generally function as a genotype that produces a visual phenotype expression to the user.”[19]
In addition to mutations to these “genes” being possible through real-world or virtual interactions, it is possible to breed or mashup multiple CryptoKick objects to create an offspring CollaboKick, which can likewise be traded, sold, or embodied in a physical shoe.[20]
The Patent Scope and Procedure
In the first of what will likely be several patents covering this subject matter, Nike was able to secure claims covering the core functionality where a sale triggers the creation of a blockchain-based digital asset that includes a digital shoe ID code, with the ability to transfer the asset. The second group of claims covers the CollaboKick system where a progeny digital asset is created based on the features of two assets.
Nike initially sought claims that merely generated and stored the digital asset on the blockchain, without any of the transfer capability, and was rebuffed by the Examiner[21]
With the addition of the transfer limitations, the application was allowed.
Nike was able to secure an issued patent in just 196 days using a fast track process that the USPTO calls Track One, which speeds applicants through the application process in less than one year in exchange for a $4,000 fee (discounts for smaller companies are available). Since the average pendency of a patent application in the U.S. is 29.9 months, the program is attractive for rapidly evolving technologies like NFTs.
Shortly after the application was allowed, Nike filed three continuation applications. The contents of those applications aren’t yet publicly available, but it’s safe to assume that Nike will press for broader claims and also claims covering different features of the system. To be continued.
Four Questions
- When can we have a CryptoKick?
- Will Nike use an open blockchain, providing opportunities for developers ?
If it is not open, will sneakerheads embrace a system that puts control in the hands of one brand? - What are the GDPR and CCPA data ownership implications of Nike’s proposed system?
- In what industries beyond footwear might this type of system be attractive?
References
1. See generally, U.S. Patent №10,505,726 at col. 2, ll. 31–53.
2. Id.
3. See ‘726 Patent at 17:56–59; 18:57–19:15; FIG. 2.
4. See ‘726 Patent at 9:37–42, FIG. 4.
5. See generally, ‘726 Patent at 9:43–65.
6. See ‘726 Patent at 24:15–29.
7. See ‘726 Patent at 10:45–60.
8. See ‘726 Patent at 24:15–29.
9. See ‘726 Patent at 11:1–11.
10. See ‘726 Patent at 15:44–47.
11. See ‘726 Patent at 9:6–9.
12. See ‘726 Patent at 11:29–39.
13. See ‘726 Patent at 17:23–35.
14. See ‘726 Patent at 17:23–35.
15. See ‘726 Patent at 17:56–62.
16. See ‘726 Patent at 8:46–53.
17. See ‘726 Patent at 18:5–32.
18. See ‘726 Patent at 20:33–51.
19. See ‘726 Patent at 8:29–31.
20. See generally, ‘726 Patent at 9:43–65.
21. See U.S. Patent App. Serial №16/423,671, August 22, 2019 filed May 28, 2019.
Authors
Both Authors will be speaking about the Nike NFT patent at NFT.NYC on Feb 20 2020:
1. David Boag
David is an intellectual property attorney in New York City and the founder of BOAG | LAW, PLLC, a law practice that focuses on technology-based IP issues. Born and raised in Buffalo, New York, he studied computer science before turning to law.
2. Jodee Rich
Born in NYC, lived in Australia, New Guinea and Paris
Jodee and his team produce the largest NFT only (non-fungible token) conference in North America — www.NFT.NYC
He is the CEO of PeopleBrowsr and NFT.Kred — a platform for creating and sharing NFTs.
He is a frequent speaker about disruptive change and unlocking human potential, at social media, digital marketing and blockchain conferences.
