NFT & Copyright: Continuing conundrum

NFT or “Non-Fungible Token”, is essentially composed of metadata that makes it a non-interchangeable unit of data and a cryptographic tool. NFTs are generally stored on a blockchain, which is, simply put, a type of digital ledger. More commonly, NFTs can also be associated with digital files that can be reproduced, such as video files, photographs and videos. Really, NFTs can be anything digital such as music or drawings that have been downloaded and turned into AI.

Lately, NFTs are at the top of the news globally, largely using this technology to sell digital art. Although some argue that the fundamental purpose of NFTs is to prove originality and ownership, others argue that since works can easily be copied (such as screenshots of artwork or downloading a music file), the use of NFTs to represent digital work is rendered moot.

Interestingly, it is claimed that NFTs can be used to verify how authentic a physical asset is. However, most copyright legislation across jurisdictions have not evolved with the times and do not expressly address NFTs, which leaves any legal analysis or comments regarding NFTs subject to already existing core ideas of IP, commercial law and technology laws. Minting and selling NFTs can be susceptible to copyright infringement or copyfraud claims.

Also Read: Unreal demand? Irregular sales worth billions fire up wild NFT market

This copyright infringement can be either in the underlying work itself and/or the infringement of the moral rights of the original creator or author of the original work. Such conduct becomes a problem concerning NFTs since blockchain features include anonymity, making it harder to verify who the rightful creator and copyright owner actually is for the underlying work of an NFT.

Another question that could arise in this regard is whether the owner of an NFT is also the owner of the copyright in it? The ownership of an underlying asset has been deliberated upon, and largely the discourse seems to offer a unanimous opinion on this issue. Generally, purchasing an NFT only grants the purchaser of the said NFT the ownership of that specific copy of the work that the NFT represents. In the words of Copyright Expert Dr. Andres Guadamuz, “An NFT is simply a cryptographically signed receipt that you own a unique version of a work. It is a misconception that purchasing an NFT gives the buyer a proprietary right to every copy or version of the underlying work”.

Thus, the answer to whether the sale of an NFT automatically grants the new owner copyright in the underlying asset is NO. Just acquiring ownership of an NFT that already has subsisting copyright does not grant the new owner of that NFT any copyright in the underlying work.

Now, suppose you have bought an NFT that represents an original work of authorship, which already has in it subsisting copyright, what kind of rights do you really have as an NFT owner? Given the technical characteristics of NFTs and of relating to digital objects, they don’t typically match the already existing perceptions of ownership.

This creates significant implications for NFTs and the corresponding transfer of copyright ownership. The purchase of an NFT would give its new owner a sort of quasi-ownership at the very best. This quasi-ownership interest extends to a limited set of information and metadata that is generally linked to the content which is copyright protected.

However, if the transaction is complemented by contractual clauses that validly transfer the NFT copyright or if the national laws themselves configure NFT transfer transactions, then the owner of the NFT obtains a right only over the metadata that forms the pointer to a copyright-protected digital object in the NFT. Thus, they definitely get proof of ownership, which is separate from copyright. However, it is to be noted that the seller of an NFT does not have any proprietary interest in the underlying digital content or the “work” contained within the NFT.

Having established that an NFT does embody copyright that can be infringed by unfair use (whether explicit or implicit), it raises the question of what right a copyright owner of a work represented in an NFT has and what can they do to enforce these? Given the capabilities of the internet and the digital age, NFTs technically can be reproduced, circulated limitlessly and ad infinitum.

Also Read: After Pak and Beeple, what’s next for NFT collectors? Art made with a paintbrush

This can be rather complicated as they are generally dealt with on a case-to-case basis and depending on the facts, circumstances and impact of the alleged infringement. Going by generally established principles, if the NFT as a whole were to be reproduced or displayed, then a copyright owner can attempt to claim redress for a primary infringement.

However, this is near impossible with NFTs as they have an “immutable existence” that is codified on the blockchain, making it technically impossible to perform a primary infringement but rather fair use (Global Yellow Pages v Promedia Directories & Anr. matter, (2017)).

Thus, NFTs would only be able to gain copyright protection when looked at as a whole, making the digital asset and the NFT a single unit. As a result, a large part of our understanding of NFTs and their impact on copyright comes from precedent in this sphere. Some of the most landmark cases in this regard have addressed some aspects, but these are airtight or sufficient to indeed encompass the different issues arising out of NFTs.

In the case of Ice TV & Anr. v Nine Network Australia (2009), it was held that “Separating the digital asset from its NFT token arguably alters the nature of the work that is being reproduced and copied without permission from its copyright holder, whoever that is determined to be”.

Impliedly, even though the thematic arrangement of underlying work may have been copied, the arrangement in which the copyright was actually found to exist was not. A common counter to copyright infringement claims to counter the argument that Copyright is in the public interest to dissuade hindering creativity and innovation (Record TV v Mediacorp TV Singapore and others (2011)), is that of fair dealing.

Thus, the first step towards clarifying the legalese for NFTs and copyright is to give it explicit legal recognition in harmony with the digitalisation of society and is in line with international standards.

Further, a special committee of experts in the fields of media and technology law, as well as subject matter experts, could be called in to answer pertinent questions such as the link between the destruction of the original work and the NFT; and the risks of false claims of ownership and unauthorised use of other peoples’ works.

(Kaushik is Counsel at ZeusIP Advocates and Shankar is Managing Partner at Verum Legal)

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