NFTs and copyright issues

NFTs or ‘Non-Fungible Tokens’ are digital files having a unique identity that is verified on a blockchain (i.e., it is a unique cryptographic asset that exists on a blockchain)[1]. Copyright law provides certain rights (for example right to reproduce, distribute copies, publicly perform, and publicly display) which are exclusive to the owner of the copyright in a work[2].

Over time, copyright issues have become an important subject of debate with the rising popularity of the NFTs. The following point arises in the context of NFT ownership, the answer to which raises multiple copyright issues:

  • Rights conferred by the NFTs are not fixed and depend upon the underlying contract
  • The sale of an NFT is merely the sale of an entry on a blockchain additive ledger and not necessarily the work itself.
  • Anyone can create NFTs (not necessarily the creator of the original work)[3].

The main issues from copyright are discussed below:

  • Is the copyright transferred to the buyer of the NFT by the seller of the NFTs?

While not in all situation’s copyrights are transferred in NFTs, in certain situations, the seller does transfer the copyright to the buyer of the NFT. This means without an additional license or transfer of copyrights; the NFT holder does not acquire the rights to make and sell copies of the digital artwork[4]. Depending on the mechanism in which the copyright laws are drafted, in some instances, there may be a situation the transfer of copyright online doesn’t comply with all legal formalities. For example, the requirement of the Copyright Designs and Patents Act 1988 (CDPA) of the UK states that copyright assignment has to be ‘in writing signed by or on behalf of the assignor’[5]. In such cases, the sale of an NFT can be accompanied by a contract for sale, deed of copyright assignment or deed of copyright licence, which expressly sets terms for copyright[6].

Usually, the NFT holder just has the token, but this in itself doesn’t confer ownership of the underlying artwork. The purchase of an NFT can, at max provide quasi-ownership interest in certain information or metadata linked to copyright-protected content[7]. Thus, only limited personal non-commercial use is transferred.[8]. There can be an exception to this rule where terms in the NFT’s encoding expressly states the transfer of copyright ownership to the NFT owner along with the sale[9].

Further, there can be situations where the original owner gives the right to create a limited number of NFTs; a creator may grant rights to create a limited number of NFTs associated with a copyrighted work[10]. For example: ‘CryptoKicks’ where Nike could tokenise ownership of shoes by linking an NFT to a physical shoe. This would allow designers/businesses to have control over their shoe design – like limiting the number of copies that can be produced[11].

Rightly said by Mezei et al. unless (a) the transaction is accompanied by contractual stipulations regarding the transfer of the work attached to the NFT that is valid under the applicable national law, or (b) the applicable national law somehow configures an NFT transaction (absent other contractual stipulations) as the transfer of the linked-to work, then the acquirer of an NFT obtains only a right over the metadata pointer to a digital object.[12].

  • Does the seller own the copyright of the work uploaded in the form of NFTs in the digital world?

Often it is noted that people are copying some existing works of others and uploading it on the NFT platform. Many artists have complained that their works are used for creating NFTs without their permission[13]. For example, an artist filed a legal notice with NFT marketplace OpenSea after an NFT of her work was created and listed without her permission, calling it ‘insane and pointless copyright infringement.’[14]. There are examples where even some public domain works of Rijksmuseum in Amsterdam have been turned to NFTs[15]. A similar situation happened with some of the museum collections of the Cleveland Museum of Art and Art Institute of Chicago[16]. Some NFT trading platforms have made stringent regulations for listing the NFTs on their website to avoid such practices[17]. Such conduct of copying the work of others or misrepresentation of ownership over the result is a challenge in relation to NFTs due to the anonymity features of the blockchain, which make it difficult to identify the true owner of copyright in the underlying work of an NFT[18]. Also, the fact that anyone with sufficient technical knowledge and the appropriate tools can generate the own token increases the chances of creation of erroneous ownership claims[19]. In such situations, minting and sale of NFTs give rise to misattribution claims or/and violation of moral rights by the actual copyright owner against the seller[20].

For example, Jack Dorsey’s Twitter tweet, which went too famous, still is owned by Jack Dorsey. Rightly said, ‘The NFT is not the actual tweet or image but metadata – an entry on the blockchain that points to the tweet or art.’[21].

Further, pertinent to mention that there is no separate copyright law that deals with NFTS or digital forms of arts; hence in most cases, the rules that apply to traditional artworks should mutatis mutandis will apply. Thus, a copyright owner should have exclusive rights to make an NFT based on an original piece of artwork because such ‘creation of an NFT can be categorized as a copy or even a derivative of the original work’.[22] What is mainly granted is ‘non-exclusive, non-transferable, royalty-free licence to use, copy and display the art for the purchased moments for personal, non-commercial use’.[23] However, in many situations, a non-copyright owner may acquire the reproduction and distribution rights of the original work.

In all, indeed, based on the discussion in previous paragraphs, it appears Okonkwo is correct to an extent in stating, ‘While the very original idea of the NFT operational platform may have been subject to patent protection, there is little or no copyright that is created here’[24]. Hence, it might be beneficial for the entire Blockchain, NFT and metaverse ecosystem to adopt a well laid down mechanism for enforcement of copyright legislation. Certain other precautions that can be taken in this regard could be[25]:

  • Ensuring that NFT creators own the ownership in the underlying work
  • Adding a copyright licence with the NFT specifying the rights that the purchaser gets in relation to the underlying work
  • Embedding a file with the licence terms & conditions while creating the NFTs

[1]  EU Blockchain Observatory and Forum, Demystifying Non-Fungible Tokens; see https://www.eublockchainforum.eu/sites/default/files/reports/DemystifyingNFTs_November%202021_2.pdf

[2]   Brittany Martin, Thinking of Buying or Minting an NFT? Here’s What You Need to Know (March 22, 2021); see https://www.lamag.com/article/nft-law-copyright/

[3]  Medhansh Kumar, Million Dollar Meme: Non-Fungible Tokens and their Regulations, ssconline (January 12, 2021); see https://www.scconline.com/blog/post/2022/01/12/non-fungible-tokens-and-their-regulation/

[4]  Non-Fungible Tokens, Ownership of Digital Objects, And Copyright, Authors Alliance (April 13, 2021); see https://www.authorsalliance.org/2021/04/13/non-fungible-tokens-ownership-of-digital-objects-and-copyright/

[5]   Andres Guadamuz, Non-Fungible tokens (NFTs) and copyright, WIPO (December 2021); see https://www.wipo.int/wipo_magazine/en/2021/04/article_0007.html

[6]   Lynne Lewis et al., Non-Fungible tokens (NFTs) and copyright law, Bird&Bird (June 02, 2021) see https://www.twobirds.com/en/insights/2021/australia/non-fungible-tokens-nfts-and-copyright-law

[7] Peter Mezei et al., The Rise of Non-Fungible Tokens (NFTs) and the Role of Copyright Law – Part II, Kluwer Copyright Blog (April 22, 2021); see http://copyrightblog.kluweriplaw.com/2021/04/22/the-rise-of-non-fungible-tokens-nfts-and-the-role-of-copyright-law-part-ii/

[8]   Lynne Lewis et al. (ibid 6)

[9]    Eleonora Rosati, Copyright & NFTs of Digital Artworks (March 23, 2021); see https://ipkitten.blogspot.com/2021/03/guest-post-copyright-nfts-of-digital.html

[10]  Anita Sharma, Do Copyright and IP Laws Apply to Blockchain Content?; see https://amplify.nabshow.com/articles/do-copyright-and-ip-laws-apply-to-blockchain/

[11]  Farah Mukaddam, NFTs and Intellectual Property Rights, Norton Rose Fulbright (October 2021); see https://www.nortonrosefulbright.com/de-de/wissen/publications/1a1abb9f/nfts-and-intellectual-property-rights

[12]  Peter Mezei et al (ibid 7)

[13]  A. Dash, NFTs weren’t Supposed to End Like This (The Atlantic, 2-4-2021); see https://www.theatlantic.com/ideas/archive/2021/04/nfts-werent-supposed-end-like/618488/

[14]  J. Purtill, Artists Keep Finding Their Work on NFT Auction Sites – and They Never Agreed to the Sale (ABC News 16-3-2021); see https://www.abc.net.au/news/science/2021-03-16/nfts-artists-report-their-work-is-being-stolen-and-sold/13249408> accessed 27-7-2021

[15]  Andres Guadamuz (ibid. 5); see https://www.wipo.int/wipo_magazine/en/2021/04/article_0007.html

[16]  Peter Mezei et al. (ibid 7)

[17]  Stephen, B., NFT Mania is Here, and so are the Scammers (The Verge, 20-3-2021); see https://www.theverge.com/2021/3/20/22334527/nft-scams-artists-opensea-rarible-marble-cards-fraud-art

[18]  Lynne Lewis et al. (ibid 6)

[19]  Andres Guadamuz (ibid. 5); see https://www.wipo.int/wipo_magazine/en/2021/04/article_0007.html

[20]  Peter Mezei et al (ibid 7)

[21]  Medhansh Kumar (ibid 3)

[22]  Alexandra Fuchs, NFTs and  Copyright Law, JDSupra (Feb. 10, 2022); see https://www.jdsupra.com/legalnews/nfts-and-copyright-law-7361836/#:~:text=While%20NFTs%20are%20relatively%20new,copyright%20of%20that%20new%20artwork.

[23] Kizitaff, Z. and Gambino, D., NBA Top Shot Moments – What are You Actually Buying? (JD Supra 11-3-2021); see https://www.jdsupra.com/legalnews/nba-top-shot-moments-what-are-you-3632095/>.

[24] Ifeanyi E. Okonkwo, NFT, copyright and intellectual property commercialisation, International Journal of Law and Information Technology,29, pg. 296-304 (22 Nov. 2021)

[25] Non-Fungible Token in the IP world – what should you be taking note of? Clarke Kann Lawyers (1 March 2022)

 

 

Comment

The views in all sections are personal views of the author.