This article has been written by Dipika Chhotwani pursuing a Diploma in US Intellectual Property Law and Paralegal Studies course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction 

In India, Non-Fungible Tokens (NFTs) are at an infant stage, wherein people are still developing and upgrading their knowledge of what they are, how it work, how to monetize them, what platforms they can create them on, etc. While NFT has become a tech tool used for marketing purposes, a new form of asset investment and transfer of the product/service into the metaverse have raised major challenges with regards to Intellectual Property Rights (IPR). NFT has become a buzz in the world and with the witnessing evolution in technology, NFT with artificial intelligence, digitalization of assets, and certain legal parameters come into the picture while creating and selling the NFT with reference to protection and infringement of IPR. Therefore, it is important to stay legally encrypted and aware of the rights of the creator, buyer, or marketplace to prevent any wrongdoing.

Download Now

With the increase of NFTs around the world, it has come across various challenges and their legality across the globe has increased as digital solutions to the digital problems over the blockchain. For instance, in the case of D’Aloia vs. Binance Holdings & Ors. (2022), the UK High Court, has served document proceedings against an unknown person using blockchain technology. That is how the emerging stage of blockchain technology involves legal proceedings and the future of legal matters in the digital world around the globe.

NFT provides new possibilities for businesses and brand owners with relation to their artwork, goods, and services and to introduce their work in digital form in the metaverse to be a whole new playground and marketplace to unlock their scope of making money out of such work in a new tech global era.

Bollywood superstar Amitabh Bachchan’s NFT collection has been sold for a whopping 9,66,000 dollars (Rs 7.18 crore, approx.) for a collectible series inclusive of the poem by his father, Madhushala.

Non-Fungible Tokens (NFTs)

Non-Fungible Tokens (NFTs) are blockchain-based tokens linked to a specific asset, unique digital assets, minted, recorded, and traded specifically on a platform called Blockchain with respect to the fundamental advantage of Ownership and authenticity and with zero possibility to temper the data, which is decentralised among the people and viewable by everyone. NFTs are non-replaceable and non-exchangeable but unique codes stored and protected on a blockchain cannot be copied by anyone.

In other words, NFT is a set of metadata (such metadata also includes the relevant digital asset available online originally or in other media or storage such as the Inter-Planetary File System, also known as “IPFS”) in which data is stored, including a ‘Hash’ (a unique code generated to identify an asset) and previous ‘hash’ if any (its blocks), which is exchanged by way of coding through smart contracts.

 NFT is proof of owning a unique digital version of an asset through a unique identification number linked to it, rather than the asset itself, which has a certain value as a commodity and can be resold at a higher price.

Blockchain

There are instances wherein under-the-table transactions take place and records of the transactions are stored in a database but the same is not reliable due to a lack of access or it can be changed by the admin at any time.

Blockchain is a ledger distributed and shared among a network with decentralised records of the chain and used to make the data immutable. Blockchain is mostly known for creating cryptocurrencies, NFTs, digital decentralised finance, and highly encrypted smart contracts, but it is not limited to that.

Blockchain is a system that is decentralised and shared with everyone who is connected to it, and changing the data is next to impossible. Once the data has been put on the blockchain, there is no way to modify or alter it; instead, to alter any data, one has to add another block, which will be seen in chronological order and immutable, and all the users have collective control over the blockchain.

Blockchain was first introduced in the 1990s and implemented in 2009 by an anonymous developer (Satoshi Nakamoto), who made Bitcoin with the help of blockchain, which created the buzz of cryptocurrency in the world.

For instance, any song, movie clip, painting, virtual gaming, or real-world item and its tokenization, i.e., being owned digitally and converted into digitised form as NFT, such artwork with the proof of its ownership, authenticity, and transparency in a digital token can be tracked down by the public in the form of Blockchain and the transfer record is seen by everyone and visible in the public record.

Intellectual Property (IP) and Non-Fungible Tokens (NFTs)

The spread of NFTs has paved the way for several questions about the most strategic ways to protect Intellectual Property (IP) Rights and its infringements. Any artwork and its legal document for future IP with the smart document enable its legal enforceability and its implementation rounds forth for the document. It is a combination of Legal Documents and Smart contracts. A document stating ownership and contractual obligation of an asset, along with controlling and managing such obligations, restricts access to certain data, IP or other assets of such an NFT and follows the global token standard further, which enables the use of one owing the NFT on blockchain and is enforceable in certain jurisdictions.

In India, currently, there is no such governing law for blockchain, NFTs, or cryptocurrency, as it is yet developing and gaining popularity among the public, covering the grey areas and compliances to make it legally binding and enforceable digitally with global standards.

China issued its first judgement involving NFT infringement in the case of Shenzhen Qice Diechu Culture Creation Co., Ltd. vs. Hangzhou Yuanyuzhou Technology Co., Ltd., a.k.a. “chubby tiger having its shot.”

NFT and its relationship with Intellectual property rights

Non-fungible tokens (NFTs) have emerged as a new and exciting way to represent ownership of digital assets. While NFTs have gained popularity in the art world, they also have significant implications for intellectual property (IP) rights.

  1. NFTs as a form of digital property:
    • NFTs are unique, non-interchangeable tokens that can be used to represent ownership of digital assets such as art, music, videos, and even virtual real estate.
    • By creating an NFT, a creator can establish a clear record of ownership on a blockchain, which provides a decentralised and immutable ledger.
  2. IP protection and NFTs:
    • NFTs can be used to protect IP rights by providing a secure and verifiable way to establish ownership and authenticity.
    • When an NFT is created, metadata associated with the asset is recorded on the blockchain, which can include information about the creator, ownership history, and copyright details.
  3. Digital rights management (DRM):
    • NFTs can be used for digital rights management (DRM) by controlling access to and distribution of digital content.
    • Creators can set permissions and restrictions on NFTs, allowing them to control how their work is used and shared.
  4. Copyright and NFTs:
    • NFTs can be used to enforce copyright laws by providing a clear chain of ownership.
    • When an NFT is transferred or sold, the transaction is recorded on the blockchain, creating a transparent and auditable record of ownership.
  5. Fractional ownership and NFTs:
    • NFTs can be fractionalized, allowing multiple individuals to co-own a digital asset.
    • This can be beneficial for expensive digital assets or when multiple parties want to share ownership and potential profits.
  6. IP licencing and NFTs:
    • NFTs can be used to facilitate IP licencing by creating a secure and transparent framework for licencing digital assets.
    • Creators can grant licences to third parties for specific uses of their work while maintaining control over the NFT.
  7. IP monetisation and NFTs:
    • NFTs can be used to monetize IP rights by allowing creators to sell their work directly to consumers without intermediaries.
    • Creators can set prices for their NFTs and receive royalties on subsequent sales.
  8. IP disputes and NFTs:
    • NFTs can provide evidence of ownership in IP disputes by establishing a clear and verifiable chain of ownership.
    • The transparent nature of blockchain technology can help resolve disputes and protect the rights of creators.
  9. New business models and NFTs:
    • NFTs have the potential to create new business models and revenue streams for creators and IP holders.
    • For example, NFTs can be used to create limited-edition digital collectibles, virtual experiences, and exclusive access to content.
  10. Regulatory considerations:
    • As the NFT market evolves, regulatory considerations related to IP rights, copyright laws, and consumer protection will need to be addressed.
    • Governments and regulatory bodies will need to develop frameworks to ensure the protection of IP rights while fostering innovation in the NFT space.

The relationship between NFTs and intellectual property rights is complex and evolving. As NFTs continue to gain popularity, it is essential for creators, IP holders, and policymakers to understand the implications and opportunities presented by this technology. By leveraging NFTs, creators can protect their IP rights, monetize their work, and explore new avenues for creative expression.

Certain issues that are buzzing with respect to NFT and IPR

How to mint NFT

One needs to select a marketplace, then create a wallet and connect the wallet with the selected marketplace to fund the wallet. Create the work, Fix the Price, and mint the same by paying the Gas Fee and put it on sale with the Terms and Conditions for such NFT with respect to the Terms and Conditions of The Marketplace and then it can be visible to buy on Blockchain for all the buyers.

NFTs and Copyright

Copyright exclusively arises automatically when any original work is created and according to the Copyright Act of 1957, this includes literary work, musical work, dramatic works, cinematographic films, sound recordings, and architecture, which grants protection only to the original work, and is not copied, infringed work or any idea. However, any fair use, such as personal work, research work, judicial proceedings, or reporting, is permitted in copyright, except the usage of such work for commercial purposes, subject to the ambit of fair use under the Copyright Law.

In the landmark case of V. Govindan vs. E.M. Gopalakrishna Kone And Anr. (1954), the Indian courts established a significant precedent regarding copyright protection for original works. The primary issue in this case centered around the protection of small or minor creations under copyright law.

The plaintiff, V. Govindan, was the proprietor of a magazine called “Janasakthi.” In one of the magazine’s issues, Govindan published a short poem titled “Kannappan,” written by a well-known poet. The poem was not registered under the Copyright Act, 1957. Some time later, a rival magazine, “Kerala Kaumudi,” published a slightly modified version of the same poem without obtaining permission from Govindan or the original poet.

Govindan filed a lawsuit against the publishers of “Kerala Kaumudi,” alleging copyright infringement. The defendants argued that the poem was not an original work as it was based on a mythological tale and thus was not eligible for copyright protection. They claimed that only substantial or unique creations could be protected under copyright law.

The Madras High Court, where the case was initially heard, held in favour of the plaintiff. The court recognised that even small or minor creations, such as poems, short stories, or articles, could be protected under copyright law. The court reasoned that the originality of a work lies in its expression, not in the subject matter or idea itself. The High Court’s decision was upheld by the Supreme Court of India. The apex court emphasised that copyright law aims to protect the expression of ideas, regardless of the extent or significance of the work. The court observed that the poem in question exhibited originality in its expression and was therefore entitled to copyright protection. The V. Govindan vs. E.M. Gopalakrishna Kone And Anr. case established the principle that even small or minor creations, if they are original in their expression, are eligible for copyright protection. This decision has had a profound impact on the interpretation of copyright law in India, ensuring that authors and creators receive due recognition and protection for their original works, irrespective of their size or scope.

Who has the right to be an author

The one who originally created the work and created the NFT is the author. However, in the case of collective or joint work, the rights and authority have to be defined by the agreement and smart contract. The creation of any work through artificial intelligence (AI) and putting it on NFT is still a grey area with respect to the authorship and rights, wherein certain factors have to be taken into consideration in the circle of such work and may differ from work to work.

In the case of Thaler vs. Perlmutter (“Thaler”), the US Court, in its Appellate Court, upheld the original decision of the District Court of Columbia that AI-generated work cannot be protected under copyright due to a lack of human authorship. This decision has significant implications for the future of copyright law and the role of AI in creative endeavours.

The case centred around a copyright infringement lawsuit filed by Stephen Thaler, the creator of an AI system called Creativity Machine. Thaler argued that the AI system was the author of a work of art, and that he, as the owner of the AI system, should be granted copyright protection for the work. The lower court, however, ruled that AI-generated works cannot be copyrighted because they lack the requisite human authorship.

The Appellate Court agreed with the lower court’s decision, stating that copyright law requires that works be created by humans in order to be eligible for protection. The court noted that AI systems are not capable of independent thought or creativity, and that any works they produce are simply the result of programming and data input by human creators.

The Thaler decision has been met with mixed reactions. Some experts argue that it is a necessary step to protect the rights of human authors and to ensure that AI does not replace human creativity. Others, however, argue that the decision stifles innovation and creativity in the field of AI-generated art and music.

The implications of the Thaler decision are far-reaching. It is likely to have a significant impact on the development of AI-generated art, music, and other creative works. It may also lead to changes in copyright law, as lawmakers grapple with the challenges posed by AI-generated content.

The Thaler decision is a reminder that the law is still struggling to keep pace with the rapid developments in AI technology. As AI becomes increasingly sophisticated, it is likely that we will see more legal challenges related to AI-generated content. The Thaler decision is just the beginning of a long and complex debate about the role of AI in copyright law.

Ownership of such work relies upon and differs as to the terms and conditions of the marketplace, platform, and group of people. The owner of the NFT work is subject to the agreement and its smart contract.

Does the NFT infringe copyrights and licences, and what rights are transferred with the NFT (and on resale)?

The journey from paper to digital in the global market is fraught with challenges yet important for the future of a changing world and is beyond the limitations of paper. This is the question of awareness with respect to the buyer and creator who puts it on sale at the marketplace and the one who buys it from there before creating or buying it must be careful and attentive towards the terms and conditions of the owner as well as the marketplace with respect to ownership, royalty, resale, reproduction, distribution, commercial usage, derivative works, public display and other rights related to the NFTs. However, the rights related to ownership can only be transferred by an agreement that is legally binding on all the parties and the same can be codified with the NFT through a smart contract that has to be signed by all the parties. Rights can only be transferred using the licence of NFT, which is a legal document stating the contractual obligations and present and future rights of all the parties.

Creators can enter into NFTs licences with the help of lawyers bound by an agreement, putting out the terms and conditions of the agreement to protect their IPR as well as their economic rights to limit or expand the use of their work. Future infringements or mishaps that cannot be predicted in the present scenario or cannot be codified under the smart contract can be put into the legal contract along with the remedies to protect the rights.

Creators minting their NFTs shall be aware of the revenue sharing, royalty program, and other commercial forms with respect to the marketplace and their contract with the originality of the work and non-violation of existing IPR.

Buyers in this scenario shall be aware of whether they are buying the ownership rights of NFT or just a digital asset and their sell/purchase agreement for such NFT. To check the originality of such an NFT, buyers need to check the metadata of the NFT wherein certain procedures are involved and once it is verified that the initial storage manner of such work is correct, the founding team, utility, and roadmap must be checked to avoid any mishaps.

In most cases, the marketplace holds the major rights related to NFTs and can be acquired by them at any point in time and one may lose the utility rights. Therefore, it is advisable to check all the conditions and agreements of such a marketplace before creating or buying any NFTs.

In the case of any resale or copying of NFT, it must be expressly restricted to protect such action in the contract; otherwise, it will protect the digital asset against illegal copying under the Copyright Law.

Most copyright disputes are resolved by Marketplace by taking such NFTs down.

Miramax vs. Tarantino – It was ordered to delete the infringing NFT from the marketplace and pay compensation to the plaintiff for the economic losses.

In Dastar Corp. vs. Twentieth Century Fox Film Corp. (2003), the Supreme Court held that the origin of the product and its sale on its own are important factors and do not prevent the unaccredited copying of an un-copyrighted work.

How is this transfer morally correct

The rights that are being transferred related to the NFT should be flexible enough that they are codified in such a manner that the buyer should use them in some or other way; otherwise, they will become obsolete in the early phase itself. However, the creator shall create a Legal structure of the NFT and specify the terms and conditions in the smart contract or put it out separately. However, in the present scenario, no such basic legal structure has been provided by law for NFTs. In the case of any breach of the terms, one may seek the help of judicial measures.

NFT and trademark

Trademarks are words, phrases, symbols, and designs that identify any brand’s products and services, and infringement of them can lead to legal proceedings.

The growth of the metaverse has undoubtedly raised a new era of Trademark Filing. A new category for Trademarks and their registration in relation to NFT is being used by several Trademark Offices, including the EUIPO and IP Australia.

In the case of Juventus Football Club S.P.A. vs. Blockeras S.r.l., the Court in Italy granted an injunction in favour of the Italian soccer team Juventus against the production and marketing of NFTs and related content created by a third party. The Court of Rome ruled that an existing registration for ‘downloadable electronic publications’ covered the sale of NFTs. 

D.M. Entertainment Pvt. Ltd. vs. Baby Gift House and Ors. (2010)  Plaintiff won and awarded a permanent injunction, held the defendants liable for passing off, and restrained the defendants from selling lookalike toys of pop icon Daler Mehndi, said that it is the exclusive right of the celebrity on his image or personality and the court highlighted Section 29 of the Trademark Act 1999. Celebrity Merchandising is yet to be explored and has a larger scope from a legal perspective in India.  This decision has clarified the rights of the celebrity and its image, name, and other rights with respect to the commercial purpose and its limitations.               

Hermes Int’l vs. Rothschild (2023) In a trademark suit, the jury held the defendant Rothschild liable on the ground of trademark violations – trademark infringement, trademark dilution, and cybersquatting and also gave a decision in favour of the complainant Hermes and awarded $23,000 for statutory damages in cybersquatting and $110000 in compensation for the net profits earned by Rothschild. This is one of the first decisions held in the US for the digital form of NFT and may prove to be influential in the different courts of the world while giving judgements with respect to virtual world cases.

Remedies for intellectual property infringement by NFT

Non-fungible tokens (NFTs) are a new and rapidly growing asset class. With the rise of NFTs, there has been an increase in intellectual property (IP) infringement. This is because NFTs can be used to represent ownership of digital assets, which can include copyrighted works, trademarks, and patents.

Injunctions

An injunction is a court order that prevents someone from doing something. In the context of IP infringement, an injunction can be used to prevent the infringer from continuing to infringe the IP owner’s rights. This could include preventing the infringer from creating, selling, or distributing NFTs that infringe on the IP owner’s copyright, trademark, or other IP rights.

Damages

Damages are a monetary award that is paid to the IP owner to compensate them for the losses they have suffered as a result of the infringement. Damages can be awarded for a variety of losses, such as lost profits, harm to reputation, and emotional distress.

Disgorgement of profits

Disgorgement of profits is a remedy that requires the infringer to give up any profits they have made from the infringement. This remedy is designed to prevent the infringer from profiting from their wrongdoing and to discourage future infringement.

Impoundment

Impoundment is a remedy that allows the IP owner to seize the infringing NFTs. This remedy can be used to prevent the infringer from continuing to use the NFTs and to preserve them as evidence in the case.

Destruction

Destruction is a remedy that allows the IP owner to destroy the infringing NFTs. This remedy is typically used as a last resort when other remedies are not sufficient to protect the IP owner’s rights.

Other remedies:

  • Declaration of invalidity: A court declaration that the NFT is invalid or unenforceable.
  • Rectification: A court order requiring the infringer to take steps to correct the infringement, such as removing the infringing content from the blockchain or transferring the NFT to the IP owner.
  • Settlement: The IP owner and the infringer may agree to settle the dispute out of court, often involving a combination of remedies such as a cease-and-desist order, damages, and/or the transfer of the NFT to the IP owner.

The availability of these remedies will depend on the specific circumstances of each case. However, these remedies can be effective in protecting IP owners from infringement by NFTs.

Conclusion

NFT is likely to begin the race in the metaverse with roles in influential brand image development and monetization out of it but it is still in its developing sphere to its full potential. The possibility of NFTs is limitless and revolutionary and will shape the era of technology in the upcoming years but it is still in its growing stage and constantly growing with business development and replacing traditional tactics. In India, NFTs haven’t caught the attention of the judiciary yet, and answers are still to be found regarding the legality and infringement aspects, which will differ in every scenario with respect to IPR and the tech laws and certain frameworks followed by global standards are still to be created to regulate technology and its remedies. For anyone protecting or minting NFTs, care must be taken to ensure necessary actions have been taken to protect the IP rights and not infringe on any third-party rights in order to stay away from any IP troubles so vigilance and monitoring are highly advisable.

References

RELATED ARTICLESMORE FROM AUTHOR

LEAVE A REPLY

Please enter your comment!
Please enter your name here