NFTs and Copyright in the Digital Era: Who Owns What

INTRODUCTION

Baseball cards, rare coins, and stamps were once purchased and traded. Today, rare and one-of-a-kind items which were once restricted to the physical space have transcended into the digital realm.[1] As human kind progresses forward, there seems to be happening an ongoing and rapid transformation into a digital era in all spheres of life. This trend is exemplified by the rise of NFTs, a technological innovation that allows for the ownership and trade of unique digital assets, mirroring the traditional collection of physical paintings.

WHAT ARE NFTs?

NFT which stands for non-fungible token in its most basic sense can be understood as a collection of ownership rights over a unique digital asset. This asset can be any piece of art, digital content, or video. They are stored on a blockchain, a secure and transparent digital ledger that records transactions. As in its name, it is a non-fungible asset which means that each NFT has its own unique and distinct value and cannot be exchanged unlike bitcoin or any other currency. If you own an NFT, you are the only person in the world with that unique token on the blockchain.

NFTs have particularly revolutionized the digital art and collectibles industries. Artists use it to sell their work directly to collectors, cutting out intermediaries and collectors on the other side can now obtain ownership rights of unique digital items. This has led to a surge in the creation and trading of digital art, music, virtual real estate, and other collectibles.

COPYRIGHT LAW

Copyright law is a legal framework designed and intended to protect the rights of creators over their original works or creations. It applies to various forms of expression, such as literary works, music, films, art, software, etc. In India, the Copyright Act, 1957[2] along with Copyright Rules, governs the laws related to copyright protection. This includes moral rights which protect the personal and reputational interests of the creator like the right of attribution, which ensures the creator is credited as the author of the work, and the right to integrity, which protects the work from distortion or modification that could harm the creator’s reputation. Similarly, economic rights, allow creators to financially benefit from their works. Section 51 of the copyright act provides protection against copyright infringement. Remedies like injunction and damages can be sought when a copyrighted work is used without the owner’s authorization in a way that violates their exclusive rights.

INTERSECTION OF NFTs AND COPYRIGHT LAW

Based on the definition of NFTs, they are unlikely to enjoy copyright protection because they merely represent certain works on blockchain technology. Non-fungible tokens are majorly metadata files that have been encoded using a work that may or may not be subject to copyright protection. Anything that can be digitized can be turned into an NFT, the original work is only needed in the first step of the process to create the unique combination of the token ID and the contract address. So in principle, NFTs have very little to do with copyright. However, a growing interest in NFTs from a copyright perspective arose because a lot of the works being traded as NFTs, were works of art, involving protection by copyright,

The general misunderstanding of the rights that purchasers acquire when purchasing an NFT is one of the main problems. Some buyers believe they are purchasing the original artwork together with all of its related rights. In actuality, though, they are only purchasing the work’s metadata, not the work itself. To illustrate the above, when Jack Dorsey sold his tweet, he auctioned it on the Valuables platform. Valuables characterise the purchase of an NFT as purchasing “an autographed certificate of the tweet” and makes it clear within the terms of sale that any such purchase does not transfer the copyright in the tweet to the customer. Therefore, even though the buyer of Jack Dorsey’s tweet spent millions of dollars on the NFT, he won’t be able to use the tweet itself by printing it on a shirt etc. without authorisation, as the copyright is still owned by Twitter and Jack Dorsey.[3]

To answer this significant lack of clarity regarding who owns the copyright of an NFT, we need to understand its dual nature. An NFT is made up of two parts- (i) the identifiable, non-fungible, non-replicable, and transferrable cryptographic asset recorded on the blockchain, and (ii) the creative content. The creative content is separate and distinct from the actual asset recorded on the blockchain. Someone who purchases an NFT only owns the asset recorded on the blockchain. The NFT purchaser does not own the creative content. The content creator continues to own the copyright, even if that NFT is resold a million times over. The only exception to this rule is if the copyright owner assigns the copyright to the NFT purchaser. This transfer of copyright ownership is possible as long as it is expressly determined in the contract between parties NFT copyright infringement occurs when someone steals creative content, without proper transfer or purchase as noted above, then mints it as unique digital asset on a blockchain, and then offers it up for sale on an NFT platform.[4]

CASE STUDIES

In the case of Hermès and Metabirkins in 2022, Hermès sued Mason Rothschild in federal court in New York for trademark infringement. Hermès is a renowned French designer brand known for their famous Birkin bags. Mason Rothschild a Los Angeles based artist made digital images of the Birkin bag as an NFT collection and went on to sell them under the name ‘MetaBirkins’. Rothschild argued that his works were an original piece of creation, merely interpreting the Birkin bag. He thus filed a motion to dismiss Hermès' trademark infringement claim. United States Court of Appeals for the Second Circuit dismissed Roger’s motion and held that he had infringed on Hermès’ trademark rights.

Similary in Miramax v. Tarantino 2021, Quentin Tarantino an American filmmaker announced that he will be selling Pulp Fiction NFTs, a film he had directed and released in 1994. Tarantino’s plan was to produce seven NFTs that showcased never-before-seen scenes and exclusive insights into the film. These NFTs were intended for auction on the privacy-focused “Secret Network.” This failed to be carried out as Miramax, the film’s production company sued him for alleged breach of contract, copyright infringement, trademark infringement, and unfair competition. They claimed that Tarantino lacked the rights to mint and sell the NFTs.

The dispute was centred around the interpretation of Tarantino’s “reserved rights” outlined in the original 1993 contract with Miramax. While Tarantino retained rights with regard to the screenplay, Miramax contended that its rights are broad enough to include technology not yet created in 1996 when the deal was done. Thus, Miramax argued, it retained the rights to sell NFTs featuring excerpts from any version of the screenplay.

While the two parties settled in September of 2022, this dispute raised significant questions associated with the authority for minting and selling of NFTs in the entertainment industry and beyond. It’s likely that future contracts will incorporate NFT provisions.

CONCLUSION

There is no law to specifically regulate the NFT market space and therefore, there exists a lot of uncertainty with regard to the rights enjoyed by NFT owners and the extent to which they can exploit the NFT which they purchase. This current lack of clear regulations necessitates greater education and awareness for both creators and collectors. Furthermore, collaboration between legal experts, technologists, and artists is essential to develop robust legal frameworks that protect creator’s rights while fostering innovation in the digital art and collectibles space. As the NFT space matures and legal frameworks adapt, NFTs have the potential to become a powerful tool for artists and creators to manage and monetize their work, ultimately leading to a more thriving and equitable digital ecosystem.

[1] Özgün Öztürk, Intellectual Property in NFTs and Legal Challenges, SSRN (Jan. 11, 2023).

[2] The Copyright Act, 1957, No. 14 of 1957, India Code 1993 (India).

[3] Keyur Asarkar, Non-Fungible Tokens (NFTs) – An IPR Perspective, 4 ISSN 793, 794 (2022).

[4] Ashli Weiss, Melodi Özer, NFTs: What You Need to Know to Protect Copyrights, MSU Broad College of Business (June 2022), https://bpp.msu.edu/magazine/nfts-what-you-need-to-know-to-protect-copyrights-june2022/.