NFTs: Who’s intellectual property is it anyway?

05 May 2021

In 2014, The J. Paul Getty Museum broke records with their purchase of Edouard Manet’s ‘Spring’ – a painting considered the greatest and final public success of Manet’s career – for $65.1million. The staggering sum was a record price for the French artist’s work, but acquiring it would give what the museum called “one of the top five paintings in its collection.”

“He represents one of the pivotal moments in our history,” said Timothy Potts, director of the Getty museum, at the time of the purchase.

“The subjects he chooses and the way he paints them. He has one eye on the great tradition of the past, but he’s also radically novel and adventurous about what he sees in the future.”

Manet may have been a forward-looking painter, but even he couldn’t have foreseen that just seven years later, an artist known as Beeple would sell his collection of digital art for $69.3million on the Ethereum Blockchain.  The digital collage, Everydays: The First 5000 Days, was bought by Metakovan, the pseudonymous founder and financer of Metapurse, which is the largest NFT fund in the world.

The artist behind the dizzying collage is Mike Winkelmann, an American graphic designer who unequivocally matches Manet’s acclaim as a representation of one of the pivotal moments in history. In fact, The sale positions him “among the top three most valuable living artists,” according to the auction house.

If you don’t think this makes much sense, you aren’t alone.

The latest trend among crypto investors, non-fungible tokens or “NFTs” are taking the internet by storm. From artwork like his to GIFs, memes and memorable moments in sports, companies and individuals are using NFTs to extract value from digital assets, creating the biggest and most expensive collectibles craze since Pokemon cards hit the playground.

Although they aren’t new, NFTs have exploded over the past few months – and Winkelmann has been at the forefront of their rapid rise. These unique files live on the blockchain; they are able to verify ownership of a work of digital art. In exchange for currency, buyers get limited rights to display the digital artwork that the NFTs represent. Through the lens of intellectual property law, the latest internet craze poses the question as to whether NFTs can be protected with IP rights in the same way as physical artwork.

To answer this question, we need to look a little deeper into the technology and how it works.

 

What are NFTs?

An NFT is a non-fungible token. This is a unique cryptographic asset linked to an object. The term “non-fungible” means that the asset cannot be replaced with anything else. This differs from cryptocurrency like Bitcoin, which is by definition a fungible token. If you send somebody Bitcoin and they send one back, it won’t be the same Bitcoin – just as with a ten-pound note. In this sense, non-fungible tokens are like one-of-a-kind trading cards. Most NFTs live on the Ethereum Blockchain.

Ethereum, like Bitcoin, is a cryptocurrency. The blockchain upon which it operates also supports NFTs, unique digital tokens that store extra information on them than pure currency. Some other examples of NFTs include digital horses for a digital horse-racing game, the new Kings of Leon album, NBA trading cards and Cryptokitties, a series of collectable digital cats that players trade. On the surface, it sounds like a fad reserved for Reddit-dwellers with more money than sense.

Perhaps that’s true – for example, the most expensive Cryptokitty sold for 600 ETH, which is now equivalent of $1.3m. However, at its core, this is the same ideology that powers the Art world: work is valued on its creator’s reputation as opposes to the artwork’s aesthetic value. It is for this reason that an NFT of Twitter CEO Jack Dorsey’s first tweet (“just setting up my twtter”) sold for $2.9million to Sina Estav, CEO of Bridge Oracle.

The nature of a token depends on the set of rules that is applied to it by developers. It’s still early days, but innovators are considering ways in which NFTs could be used to solve technical problems. One obvious application is watermarking, where an NFT can be used to verify authenticity of any piece of data. Future applications of NFTs could go far beyond collectible cats or legendary Tweets – they could, theoretically, be used in any scenario where access to a unique object is key.

 

Who owns an NFT? Can an NFT transfer copyright?

As it stands, there is little to no consistency in the rights and terms being granted to NFT owners. As a cryptographic asset, NFTs have their own “smart contracts” that govern how they can be used, and the rights granted to an owner. The IP rights granted by an NFT depend on the contract, this will vary with each token.

Some licences grant the owner of a non-exclusive ‘moment’ the right to “use, copy and display” the art solely for “personal, non-commercial use,” “as part of a marketplace,” or “as part of a third-party website or application.” If you purchase a Cryptokitty, the terms within the smart contract do grant you commercial use, as long as this use doesn’t result in you earning over $100,000 in gross revenue a year.

As such, and as with all copyright assignments, ownership will only transfer if the ownership of rights is expressly provided for in the terms of a contract. But, in absence of such terms, ownership of an NFT will not grant ownership rights of the digital asset, the underling content or any associated IP rights. Under these circumstances, the NFT owner cannot reproduce, display or distribute copied of the content because it remains the intellectual property of the owner of the copyright.

NFT creators should be mindful of potential infringement issues when using third-party intellectual property as part of the NFT e.g., a Tweet belonging to another individual.

Creators should further consider protecting their original work through the legal tools provided under intellectual property law. For example, in the UK, it has recently become possible to protect graphic marks such as a graphic file, which may make it possible to protect any representation of NFTs.

Whatever your opinion on NFTs, they have certainly opened a perplexing Pandora’s box. Because they can provide a verification of authenticity, they have paved the way for digital artists to create a new type of performative digital art. Jack Dorsey’s tweet is a great example: a screenshot of a tweet is of little value. However, a screenshot taken by Jack Dorsey of his own first tweet that has been transformed into a non-fungible token, thus providing a sort of “stamp of authenticity”, can qualify as a unique piece of art and therefore be sold for millions. It’s for the same reason that a print of Edouard Manet’s ‘Spring’ may be affordable to the common man, but the original is out of reach unless you have over $60 million to spend.

 

The Future of NFTs and IP law

From a copyright perspective, an NFT is simply a digital receipt indicating that you own a version of a piece of work. The problem, it seems, is the lack of transparency that exists in the marketplace. Buyers’ perceptions about what they own may not marry up with the legal reality because, so far, the rights being granted to NFT owners differs depending on the art. As such, it’s not unlikely that we will see shifts in IP law in response to the consequences that this NFT boom might bring. Over time, further distinction and clarification round what does and does not deserve copyright protection within the NFT market will evolve.

Then there’s the issue of piracy. In theory, an artist could create a piece of art, mint it as an NFT and keep the NFT as proof of creation and copyright ownership. A buyer would then receive the token as part of the copyright transfer. Already, we’ve seen this system abused. NFTs are increasingly being used to create “special” copies of a work, which are then sold for a high price. Often, those copies aren’t special per se, and the original artists is not receiving the financial reward for their creation of the work.

To a certain degree, it’s unsurprising. After all, when you have a market in which anyone can create and sell tokens of just about anything, it’s inevitable that this system will be abused. Until there are mechanisms in place to ensure NFTs are created by the artist, we can envision that many will seek to take advantage of the current hype.

In any case, it’s clear that buyers shouldn’t dive into the craze without doing their research and understanding exactly what rights their purchase will grant them. Meanwhile, creators should take care in protecting their work using the legal instruments they have. It would be wise to monitor your work and file notices to get it removed if and when it appears on NFT sights.

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