This article is written by Maya Dhayalan, pursuing a Diploma in US Technology Law and Paralegal Studies: Structuring, Contracts, Compliance, Disputes and Policy Advocacy from LawSikho. This article has been edited by Prashant Baviskar (Associate, Lawsikho), Ruchika Mohapatra (Associate, Lawsikho), and Arundhati Das (Intern at Lawsikho). 

This article has been published by Shoronya Banerjee.

Introduction

NFT is a Non Fungible Token. The etymology of the word is from the Latin verb Fungi, i.e, to perform or in the “wider sense”, it is interchangeable. Therefore, it is a token that cannot be exchanged, unlike traditional currencies or cryptocurrencies. NFTs are financial and digital tokens having a monetary value which represents an underlying asset. This could be any digital assets like a tweet or any digital work like digital art, songs, music, or even other physical forms like artistic paintings.

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As the name indicates,  

  • It is a token that is made or bought or minted by a person through digital wallets (that can have traditional currencies or crypto coins).
  • It is powered by smart contracts (assign ownership and manage the transferability of the NFT’s). 
  • Conforming to standards (ERC-721) like:

       – TokenID (id of the NFT),

       – Blockchain address (can be seen anywhere using a blockchain scanner),

       – Wallet address (identifies the originator of NFT).

  • On a block chain ledgers Ethereum, Bitcoin Cash,  EOS (the NFTs are initially minted or created here). 
  • They can be bought from third party platforms like Rarible, Mintable, Nifty Gateway, SuperRare, OpenSea which are  stored in a web address called the InterPlanetary File System(IFPS) which  is a peer-to-peer file sharing system.
  • It is linked with the underlying asset or content with cryptographic hashes. Therefore, NFTs can track down the authentic ownership of the underlying asset using its TokenID. 

Can NFTs be brought under copyright?

The definition of Copyright as worded by the World Intellectual of Property Organization (WIPO):

“Copyright (or author’s right) is a legal term used to describe the rights that creators have over their literary and artistic works. Works covered by copyright range from books, music, paintings, sculpture, and films, to computer programs, databases, advertisements, maps, and technical drawings.”

As we know that NFT is a token that represents an underlying asset which should be a literary or artistic work for it to be covered under the copyrights. Therefore, one can infer from the above statement that NFTs per se do not come under the ambit of copyrights but the underlying assets in the NFTs are eligible for copyrights. 

Main players in the NFT domain

Creator

The creator of the NFT of digital/underlying content or an asset must be the creator of the digital/underlying asset or content represented by such NFT. After they sell the NFT to the buyer, they are no longer the owner of the NFT. But they are the owners of the digital content linked to the NFT. 

Buyer/ new buyer

The buyer acquires the NFT from the NFT creator through marketplaces like Rarible, OpenSea, and the like. Therefore, he owns the NFT, who can only have access to the underlying content but cannot own the underlying asset itself.

Copyright infringing party

This party is not the original digital content creator. However,  it copies or replicates others’ digital assets with new NFT and marks it up on the blockchain ledger.

Why do NFTs give rise to copyright issues?

The NFTs only give access to underlying/digital assets, but they do not give complete ownership of those assets simply because one owns such NFTs. But due to the very nature of digital content, it is easy for the infringing party to copy or replicate it. This makes it easier for the infringing party to take somebody else’s work and tokenize it.

What are the copyright issues related to NFTs?

  1. Just because one owns the NFTs, it does entitle him to the full ownership of the digital content linked to the NFTs. They can only have access to view or to listen to the digital/underlying content and this cannot be displayed  in public nor  can it  be replicated. For example, if an NFT represents a physical asset like a sculpture then the NFT owner definitely won’t own the sculpture. Probably what might be unique to him from the sculptor might be instructions regarding the maintenance of that sculpture. Therefore, whatever is being sold is just a digital version of the underlying content/asset and not the content/asset.

 Cent project, a company that offers an NFT service for tweets says:

“Owning any digital content can be a financial investment, hold sentimental value, and create a relationship between collector and creator. Like an autograph on a baseball card, the NFT itself is the creator’s autograph on the content, making it scarce, unique, and valuable.“ 

Hence, NFTs are more like the token through which one owns the signed version of the picture of a painting and not the painting itself. This doesn’t stop the painter from minting NFTs based on different pictures of that same painting.

  1. The buyers of NFTs cannot sue for copyright infringement since they only own the NFTs and not the digital/underlying content linked by the NFTs. Does this mean that an NFT buyer cannot own the digital content? The  answer is yes. The buying and selling of NFTs between the artists/owners of NFT and the buyers take place through smart contracts (digital contract in which the terms of the contract is set in code and this code will create a document in English about the terms of the contract and where there can be clauses for conferring complete or partial or complete ownership).

What could be a workable solution to prevent copyright infringement?

NFTs license agreements

The creators can protect their intellectual property rights and economic rights by coding the NFT license agreements into their smart contracts that automatically execute the terms of the license in all the subsequent resale of the NFTs. These license agreements should set out the rights of the original owner, and the buyer.

 In the NFT License Agreement, the original creators should set a percentage of the subsequent resale value as a profit. For instance, if the new owner sells the NFT , the original owner automatically gets his profit. This is assured on every sale because the original creator’s address is coded into NFTs metadata(that can’t be modified).

One must pay attention to the rights that may be granted by NFTs license agreements. For example, The website of Mike Shinoda, the co-founder and lead vocalist of Linkin Park sells NFTs under the following “NFT Terms”:

“Only limited personal non-commercial use and resale rights in the NFT are granted and you have no right to license, commercially exploit, reproduce, distribute, prepare derivative works, publicly perform, or publicly display the NFT or the music or the artwork therein.  All copyright and other rights are reserved and not granted.”

In the above case, breaching any of the above points would result in copyright infringement.

Cryptographic hash

The cryptographic hash linked to NFT creates a set of codes but one small change that NFT would create a very different set of codes. The platforms that sell NFTs should hash their NFTs metadata and the underlying asset. The artists must insist that the platforms hash NFT and buyers must look out if the NFTs they bought are hashed. This can be beneficial in finding whether the NFT is authentic.

Other ways in which one can get authentic NFTs

– The buyers have to check if the NFTs that they are buying are verified or under “verified collections” from the marketplaces like OpenSea. The verified ones assure that the NFTs displayed are from the original creators and artists.

– The buyers can check the social handles of the artists where they inform if their NFTs are still available. Therefore, assures the authenticity of the origin of NFTs.

– The buyer should understand that owning NFTs does not mean complete ownership of the underlying asset and must read the terms of the contract properly whether it is for public display or for personal use only. 

Conclusion

There is a severe lack of laws governing the NFTs especially when it comes to copyrights involved in NFTs. There is legislation (not yet in force) in the European Union – MiCA (Markets in Crypto Assets) Regulation. It is one of the major steps taken to regulate the financial sector in the growing digital age. It is doubtful whether it will cover the NFTs, let alone the copyright infringement of NFTs. There is no exclusive law for the NFTs in the world whereas there should be at least a global protocol or consensus to control such infringement. Since the NFTs are global in nature, there should be an international community and legal framework to guide and enforce the just, economical, and moral rights of the original creator, new owner, and buyer.

References

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