Legal Implications Of NFTs: Copyright Law In The Digital Age

The emergence of non-fungible tokens (NFTs) has opened up new opportunities for creators, collectors and investors in the digital age. NFTs are unique digital assets that are authenticated on a blockchain network, making them valuable and secure. They are becoming increasingly popular in the arts and entertainment industries as a means to sell and own digital art, music and other types of digital content.

However, the legal implications of NFTs are complex and can be confusing for those unfamiliar with copyright and property rights. It is important for creators and buyers to be aware of what an NFT grants you after purchase and what rights you retain after creation.

One of the most important legal aspects of NFTs is copyright. Copyright law protects the creator of an original work from unauthorized use or distribution of their work. However, with NFTs, the question arises as to who owns the copyright to the digital content and how copyright applies to the use and sale of NFTs.

In some cases, the creator of the digital content may retain the copyright, while in other cases copyright may be transferred to the purchaser of the NFT. In addition, the use of copyrighted material in the creation of NFTs can also create legal problems, especially if the material is used without the appropriate permissions or licences. When individuals purchase NFTs, they often seek ownership of avatars, artwork and other creative works. However, the reality is that they cannot always be sure of what they are receiving

Buying an NFT usually involves purchasing a tokenID stored on a blockchain, along with metadata that points to another content file, usually stored off-chain, which in most cases leads to confusion about the rights of NFT buyers.

In the United States, copyright laws do not automatically grant purchasers of traditional or digital artwork the right to reproduce, adapt or publicly display the artwork. Without a licence or an assignment of copyright by the creator of the NFT, the purchaser cannot exercise any rights under copyright law, except for narrow and uncertain copyright exceptions such as "fair use".

Licences can allow creators to grant additional rights to NFT holders, but licences are not currently applied uniformly to all projects. Many projects are launched without licences or with adapted licences that create more confusion than clarity. In addition, licences and other documents relating to the rights of NFT buyers are often kept off-chain, making it difficult for holders to know what they are legally allowed to do with their NFTs.

These problems are further complicated by the difficulty of transferring copyright, making it difficult for even the most knowledgeable buyer to understand what rights a previous owner has already transferred.

NFTs present a particular challenge to those who create, imprint and market digital art, video and other media because they authenticate these assets. Typically, these assets are subject to intellectual property (IP) protection that allows only the IP owner to control their commercialization. If an NFT is minted, sold or purchased without acquiring the relevant licences or underlying IP rights, this can have costly consequences, such as possible infringement claims, depending on the intended use of the NFT.

Ideally, standardized NFT-specific licences would be tracked and enforced on the blockchain to provide more certainty for users. Better licencing frameworks could facilitate access to high-quality licences, clarify ambiguities over ownership, and reduce the burden and cost for creators to make their own licencing arrangements.

Attempts and challenges of clarification

The recent introduction of CC0 licences has caused controversy in the NFT community. According to Creative Commons, this licence designates a creative work as being in the public domain with "no copyright" This means that the artwork can be copied, modified and distributed by anyone, including for commercial purposes.

In August, the NFT collective PROOF changed the licence of its Moonbird collection from commercial to CC0, which enabled anyone to creatively remix the project. This decision sparked discussions among holders and opened up a debate about defining intellectual property licencing designations in the NFT space.

If the CC0 licence is accepted, the copyright holder agrees to waive his copyright and associated rights as far as legally possible and to release the work into the public domain. If this waiver of rights is not possible for any reason, CC0 acts as a licence that grants the public an unrestricted, irrevocable, non-exclusive and free right to use the work for any purpose.

NFTs and copyrights are separate entities, but the transfer of one can also entail the transfer of the other. As the Terms & Conditions of the Bored Apes Yacht Club state, 'when you purchase an NFT, you own the underlying Bored Ape, the Art, completely.' This means that ownership of the NFT includes ownership of the underlying artwork.

An example that came out of uncertainty happened at SpiceDAO, after they paid $3.5 million for a copy of an unpublished manuscript of the script for the film “Dune”. Their intent was to create an NFT based on it, however, they later realized that acquiring the manuscript did not include the necessary rights to it.

To solve certain issues and offer more clarity to creators and buyers, NFT market participants proposed their own options for licensing NFTs. In 2018, Dapper Labs (known for their work on CryptoKitties and NBA Top Shot) offered the first known NFT license and in 2022, a16z created a framework called The Can’t Be Evil Licences that creators can enforce in their work.

As the use of NFTs continues to grow, it is important for creators, buyers and sellers to understand the legal implications and risks associated with these new technologies. In the past year, there have been two prominent court cases in the field of the metaverse and NFT, the outcome of which is now eagerly awaited: Hermès' lawsuit against MetaBirkin's NFTs and Nike's lawsuit against StockX. Some say such events are very useful to help us navigate this industry and provide more clarity later on.

The choice of an intellectual property (IP) designation is a crucial aspect of a creator's launch of an NFT collection. As NFTs gain functionality and provide long-term utility, it is important to create a clear understanding of the benefits for owners who invest in a project's ecosystem.

NFTs present a unique set of legal considerations in the digital age. Copyright, ownership and valuation are just some of the issues that need to be addressed to ensure that the use of NFTs is legally sound and beneficial to all parties. As with any new technology, it is important to be informed and seek professional help when navigating the legal landscape surrounding NFTs.

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