NFTs (Non-Fungible Tokens) have taken the world by storm, being the talk of the cryptoverse for quite a while. According to an analytics platform, NFT trading volume hit an all-time record during Q3 reaching $10.67 billion, with a staggering 700% growth from the previous quarter, whilst during Q1 sales were of $1.2 billion and during Q2 of $1.3 billion. Now, you might be wondering what all the hype with NFTs is and how this emerging technology is reshaping the world as we [thought] we knew it. The not-so-ignored-now NFT industry, besides generating multi-billions is putting into the spotlight a law area that was previously in the shade: intellectual property (IP) law. Artists, musicians, publishers, creators in general are now using NFTs to monetize their works and make the most of their IP rights.

What do you [actually] own when buying an NFT?

In March 2021, Mike Winkelmann (also known as Beeple) sold the digital collage “Everydays: The First 5000 Days” via an unusual sale at Christie`s auction house for an incredible $69.3 million, being the most expensive NFT and one of the most expensive works by a living artist. So, if when thinking of buying art, you have in mind a canvas, a photograph, or a sculpture that you can actually touch, buying an NFT means that you are buying a digital file. The file is stored on the blockchain, containing a token that verifies the unique nature of the given piece and allowing you to trace the ownership all the way back to its creation. Basically, you own the token that confers ownership and/or authenticity evidence of the digital asset and the NFT is that token not the artwork itself. Ground-breaking, right?

The NFT “gold rush” in a copyright “Wild West”

Whether the NFT craze is indeed a mere “gold rush” or not, it is yet too early to decide that, and the odds are that if historically “gold rushes” were short lived, NFTs have all that it takes to be here to stay and change both the way to interact and buy art and the legal framework. Twitter co-founder Jack Dorsey also joined the NFT bandwagon and sold his first-ever tweet for $2.9 million, while more and more companies, such as IBM, announcing its plans to tokenise patents, Disney and McDonald`s  also joining the NFT party. Despite all the hype and the incredible transactional potential, the blockchain market is still largely unregulated, oftentimes compared to the “Wild West”. However, even in this digital “Wild West”, copyright law applies and both sellers and buyers should understand their importance.

Unlike owning an original painting or sculpture, owning an NFT does not give you the right to have exclusivity over the art, see the case of Jack Dorsey, whose tweet, despite the high selling price, is still available to the public, can still be read, liked, or retweeted by others. So, when buying an NFT, what you are really buying are certain rights in relation to the given digital asset, but not the asset, the artwork itself not being the same with the NFT. NFTs have been created to give users an authentic digital ownership of artwork, artificial intelligence (AI) and pretty much anything digitized, coming in all shapes and sizes. Their “non-fungible” character basically means that it is noninterchangeable, easily identifiable through metadata, stored and secured on a digital ledger using blockchain technology, with a unique value and function. The issue with NFTs and copyright is that it is still unclear whether “minting”, which is referring to the process in which an artist`s art becomes part of the Ethereum blockchain, a ledger that is publicly available, unchangeable and tamper proof, can be deemed relevant under copyright law, since the NFT refers to the creation of a token on the blockchain and not to the digital asset itself.

For example, according to the United States Copyright Office, falls under copyright protection the original works of authorship fixed in any tangible medium of expression, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device”. In light of that, many legal experts are scratching their heads to figure out how the already existing copyright laws are to interact with the new emerging technology. Besides the issues posed by the question whether NFTs can be copyrighted as regular artwork, some artists and creators are already dealing with copyright infringement, having their works copied and sold on NFT marketplaces without authorization. NFTs, despite their non-fungible character, might even make it harder to figure out the authenticity of a copy. NFTs are characters stored on a blockchain, a list of cryptographically interconnected data sets that act just like a land registry – to make the comparison more vivid – and can be viewed by anyone.

The very nature of NFTs has thus created the need of rethinking both IP protection and licensing policies and with that need, authors are encouraged to update their IP strategies and include NFT related amendments in terms of licensing, transferring, or assigning IP rights. When buying an NFT, generally you do not own the copyright, unless it has been assigned to you by the artist. The issue with copyright is that even though Beeple delivered to the buyer a copy of the “Everydays” artwork making the transaction more alike a regular art sale, there are a myriad of copies of his artwork flooding the internet, not so different from what the buyer received (a copy of “Everydays” of 500 megapixels), which is, in turn, making it very difficult to be sure that what you own is the authentic copy. It can be expected that with the rise of NFTs, there will be more infringement cases and piracy of digital art, much more difficult to defend in court. “Traditional” copyright protects the creator`s moral rights, and unless stated otherwise, the copyright of the artwork remains with the author of the work. What this means for NFT owners is that yes, they have proprietary rights on the blockchain, but they do not have copyrights over the art, and that they cannot stop third parties from copying, printing, sharing the given piece of art.

Of course, the copyright and all the other IP rights associated with the asset that belong to the author can be transferred or assigned to the buyer. Nevertheless, the relationship between the seller/author and the buyer and the rights associated with the NFT depend on what the parties agree in terms of the transfer of right, on the rights spanning from the given jurisdiction. The buyer`s rights can also be governed by the terms and conditions laid out by the NFT marketplace and the smart contract, which can set out how the NFT buyer can use the artwork.

Conclusion

The buzz behind the lines of code minted on blockchain (NFTs), attract significant attention as a channel for trademark and copyright owners to protect and exploit their rights. In this new age, it is expected that IP law will adapt to the needs of the market, most likely adjusting the means of IP registration process, protection and defense and supporting innovation, technology, and the digital art wave.