Copyright and NFTs

NFTs are a hot topic in many circles. Suddenly this acronym has powerfully erupted in today’s news, and it is the subject of much debate.

But what do we know about NFTs?

An NFT (Non-Fungible Token) is a unique data file that is encrypted using blockchain technology. They are called non-fungible because fungible goods are by definition exchangeable regardless of the specific item such as silver, gold, oil, grain, or the classic example: money.

In the case of non-fungible goods, they are unique one-offs and refer to products that for some reason are not interchangeable with similar goods. For example, they have a notable difference in quality, which will considerably impact their value or usefulness such as diamonds or art.

Why are NFTs valuable?

However, one might wonder, in cases where the NFT is made from previously existing work, why is it considered a non-fungible token if there is already a tangible existing work hence, it is not unique?

The most common type of NFT is composed of two elements: a number known as the tokenID exclusively generated when the token is created; and a contact address. The combination of these two elements makes the NFT unique and linked to a specific asset, most commonly by using its URL. NFTs are, therefore, non-fungible because they cannot be exchanged for an identical item. Other information such as the token’s name or the link where it can be found can be added as well to help identify it.

Any digital work, including physical goods, which can be represented in digital forms, such as a photo, video, or scan, can be turned into a non-fungible token. In NFT’s world, creating is called ‘minting’; anyone can do it.

Since 2017 the NBA has been selling NBA Top Shots, “unique” NFTs of NBA moments, the value of which has exploded. Most recently, on March 2021 twitter’s CEO, Jack Dorsey sold an NFT of his first tweet “just setting up my twttr” for USD 2.5 million.

Mike Winkelmann, also known as digital artist Beeple, created an NFT of a collage of drawings from every single day for the last 13 years auctioned at Christie’s and sold on 12^th March 2021 for the eye-watering sum of almost USD 70 million. Old memes have been selling at auction as well, with the famous meme of Nyan Cat, an animated colourful cat, selling for 300 ETH (the cryptocurrency generated by the Ethereum protocol).

The sales of NFTs have skyrocketed and the media has started to eco this situation and questions have begun to unfold.

What are NFT’s issues with IP law?

One of the main issues is the often widely held confusion of the buyer’s rights when purchasing an NFT. Some may think they acquire the underlying work of art and all its accompanying rights. However, in reality, they are simply buying the metadata associated with the work; not the work itself.

While most NFTs do not involve a transfer of rights, in some instances the seller offers to turn the token into an actual transfer of copyright ownership of the original work. However, it needs to be compliant with the legal formalities required to transfer copyright. For example in UK copyright law the Copyright Design and Patents Act 1988 (CDPA) establishes the need for an assignment “in writing and signed by or on behalf of the assignor”.

The ownership and copyright of the author as well as other IP rights are also being adversely affected by the up-and-coming NFT fever.

Can someone generate an NFT that doesn’t belong to them? This is not just idle speculation. We are already seeing several instances of alleged copyright infringement taking place.

For example, on 14^th January 2022, French haute couture giant Hermès sued NFT artist Mason Rothschild for trademark infringement for depicting bags in his pieces that were very similar to the famous Birkin bag produced by Hermès. Rothschild even named his collection “MetaBirkins,”.

Any individual with sufficient technical knowledge and the appropriate tools can create a token containing the information they wish to enter. This can result in anyone being able to make erroneous ownership claims and add them to the blockchain. This may give rise to uncertainty as to the copyright protection of works.

To stir up this debate, there are even authors, although a minority, who doubt if the selling, reproduction, etc of a work through an NFT is copyright infringement. They interestingly argue that NFT solely contains a URL link to it. It is neither the original work nor a copy of the work but only a tokenized version of it, which does not contain the full work on the blockchain.

As a result, NFT “minting” or “creating” does not involve copyright infringement, as it is not equivalent to uploading, and thus, communicating to the public an infringing copy of the original work that the NFT represents.

The false claim of authorship may just result in infringing the moral right of attribution, rather than economic rights in the work.

In all this ongoing discussion about NFTs, there is still a fundamental question: whether they can be considered property or not.

In a landmark ruling, the High Court of England and Wales in January 2022, considered NFTs as property when granting an injunction in the case brought by Lavinia Deborah Osbourne against Ozone Networks after two NFT artworks that she had purchased, were taken from her digital wallet without her consent. This is the first time that NFTs have been treated as proprietary assets.

On the other side of the coin, NFTs can also infringe copyright, not just be subject to protection. Such is the case of the Third Civil Intellectual Property Court of Istanbul which decided on 21 June 2022 to block access to websites where the portrait of the late artist, composer and songwriter Cem Karaca was used without consent and to prevent the sale of the NFT depicting the portrait.

In this second case, even if this is just a first step, it is noteworthy that the court considered existing legal provisions in determining infringing use, concluding that NFTs are a “format” for purposes of infringement. Therefore, can be considered property and as we have seen in the first case, even intellectual property work.

The treatment NFTs get is different amongst jurisdictions. In the case of US law, for example, the NFTs are considered as a work of authorship and are treated as such in the eyes of the law, meaning that they must be registered before the U.S Copyright Office to be legally protected. The US Patent and Trademark Office in its guidance also discusses NFTs and establishes that “non-fungible tokens (NFTs) are maintained on a blockchain and typically represent digital items and authenticate their ownership”.

On that note, the European Union Intellectual Property Office (EUIPO) has likewise issued a guideline for trademarks relating to virtual goods and NFTs in which they are classified in class 9.

The EUIPO defines them as “unique digital certificates registered in a blockchain, which authenticate digital items but as distinct from those digital items”.

Meanwhile, Spanish legislation anticipated in a very timely manner the developments that technology could bring regarding the new forms of creation of works, establishing in article 10 of Royal Decree 1/1996 on Intellectual Property that all original creations expressed by any medium or support “currently known or to be invented in the future” are subject to intellectual property rights.

Therefore, the fact that a work is created digitally does not mean that it cannot enjoy the intellectual property rights that the law grants it, as long as it meets the legal requirements imposed on all works.

Conclusion

Not all questions have been answered and are many more to come but despite the newfound popularity that NFTs have acquired, it is important to remember that they are subject to IP law.

These are the early days of this potentially destabilizing creation and while their prospective long-term impact on the current IP laws remains to be seen, for now, we can only speculate until more answers can come through the cases as they unfold.