Copyright Issues for Non-Fungible Tokens (NFTs)

Non-fungible tokens (NFTs) have revolutionized the fields of art, entertainment, and commerce in the digital world. By leveraging blockchain technology, NFTs provide a way to prove ownership and authenticity of unique digital assets, from digital artworks and music files to virtual real estate. As the market for NFTs continues to expand, so do the complexities surrounding legal rights, especially when it comes to copyright. Copyright issues have emerged as one of the most significant challenges facing the NFT ecosystem, impacting creators, buyers, and platforms alike.

This blog explores the multifaceted copyright issues associated with NFTs, shedding light on ownership disputes, unauthorized minting, and the legal intricacies of transferring rights. As the legal framework struggles to keep pace with this rapidly evolving technology, understanding the relationship between NFTs and copyright law is crucial for anyone involved in the digital asset market.

What Are Non-Fungible Tokens (NFTs)?

Blockchain technology authenticates and transfers NFTs, which are unique digital assets. The difference between NFTs and cryptocurrencies like Bitcoin is that NFTs cannot be exchanged. The blockchain stores a unique identifier for each NFT, enabling the verification of ownership and authenticity.

NFTs can represent various digital items, including:

Digital art refers to the images, animations, and videos that artists create.
Collectibles include digital trading cards and virtual assets in online games.
The music and media section includes audio files, album artwork, and exclusive music tracks.

The foundation of NFTs is blockchain technology, which provides a decentralized, immutable ledger for recording and verifying transactions. This guarantees the uniqueness, traceability, and detection of each NFT.

Introduction to Copyright Law

By granting creators exclusive control over their original works, copyright law protects their rights. This includes the right to reproduce, distribute, display, and create derivative works based on their creations. In the context of digital assets like NFTs, copyright protection applies to the underlying creative work (e.g., a digital painting), not necessarily the NFT itself.

However, the relationship between NFTs and copyright is complex, as ownership of an NFT does not automatically transfer copyright ownership of the associated digital work. This distinction lies at the heart of many legal disputes and misunderstandings in the NFT space.

Distinguishing NFT ownership vs. copyright ownership

One of the most common misconceptions in the NFT market is that purchasing an NFT grants the buyer copyright ownership of the associated digital work. In reality, owning an NFT only means possessing the digital token that points to a specific digital asset. The copyright remains with the original creator unless explicitly transferred through a separate agreement.

For example, in the case of the Beeple NFT sale for $69 million, the buyer acquired the token but did not gain any rights to reproduce or distribute the digital artwork itself. The original artist maintained copyright ownership, governing the future use and monetization of the work.

Case Example: Miramax v. Tarantino

In the high-profile case of Miramax v. Tarantino, filmmaker Quentin Tarantino faced legal action after attempting to mint NFTs based on his movie “Pulp Fiction.” Miramax argued that the NFTs infringed on its copyright ownership, while Tarantino claimed he retained certain rights under his contract. Despite the case’s out-of-court settlement, it brought to light the legal ambiguities surrounding NFT minting and underscored the importance of clear agreements between rights holders.

Legal Issues Arising from NFT Creation and Minting

Minting an NFT involves creating a unique digital token on the blockchain that represents a specific asset. NFT marketplaces often facilitate this process by offering artists a platform to upload their works and mint new tokens. However, legal issues can arise if the creator does not own the copyright to the underlying work or if they mint copyrighted material without authorization.

For instance, unauthorized parties have minted artists’ works as NFTs, leading to copyright infringement claims. Though the blockchain is immutable, it is difficult to reverse an NFT’s creation, even if the content is infringing.

Unauthorized Minting of Copyrighted Works

Unauthorized minting occurs when someone creates an NFT using a digital asset they do not own or have permission to use. This type of copyright infringement has become increasingly common as the NFT market grows. Often, creators find their artwork or digital content tokenized without their consent, resulting in legal disputes over ownership and compensation.

Under U.S. copyright law, unauthorized minting can be considered a form of reproduction, which is an exclusive right of the copyright holder. If platforms fail to implement effective takedown procedures under the Digital Millennium Copyright Act (DMCA), they may face liability for hosting infringing NFTs.

The role of smart contracts in NFTs

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. In the context of NFTs, smart contracts automate the process of transferring ownership and distributing royalties. However, smart contracts do not inherently transfer copyright ownership unless explicitly programmed to do so.

This limitation has led to confusion among NFT buyers, who may assume that owning an NFT automatically grants them rights to use the underlying work. In reality, transferring any copyright associated with the asset often requires a separate, written agreement.

Key Copyright Challenges in the NFT Space

Jurisdictional Issues in Copyright Enforcement

Enforcing copyright laws across international borders is a significant challenge in the decentralized NFT market. The digital nature of NFTs means that the creator, buyer, and marketplace could all be located in different countries, each with its own copyright laws. This creates jurisdictional complexities that make it difficult for copyright holders to protect their rights globally.

Copyright infringement and the DMCA

The DMCA provides a notice-and-takedown system that allows copyright holders to request the removal of infringing content from online platforms. However, applying the DMCA to NFTs is not straightforward, as the decentralized nature of blockchain technology complicates the process. Even if an NFT marketplace delists an infringing token, the record of the transaction remains on the blockchain, potentially perpetuating the infringement.

Fair Use Doctrine and NFTs

Fair use is a legal doctrine that permits limited use of copyrighted material without the owner’s permission, typically for purposes such as commentary, criticism, or education. Determining whether an NFT falls under fair use can be challenging, as it depends on factors such as the purpose of the use, the nature of the copyrighted work, and the effect on the market for the original work.

Legal Protections for NFT Creators and Buyers

Copyright registration and its importance.

Registering a digital work with the copyright office provides legal benefits, including the ability to pursue statutory damages in cases of infringement. For creators of NFTs, copyright registration is an essential step in establishing ownership and protecting their rights.

For creators entering the NFT space, registering their work with the copyright office is a crucial first step. Although copyright protection exists automatically upon the creation of an original work, formal registration provides several key advantages.

Legal Proof of Ownership: Registered works have a stronger claim in court, as the creator can present the registration certificate as evidence of ownership.
Statutory Damages: If a copyright infringement case goes to court, the creator can claim statutory damages and legal fees only if the work was registered before the infringement occurred.
Public Record: Registration creates a public record of the creator’s ownership, which can help deter unauthorized minting and use of their work.

This implies that in the context of NFTs, artists who tokenize their work without registering it may encounter more difficulties enforcing their rights if others copy or misuse it.

Licensing Agreements and NFTs

Licensing agreements are a vital tool for clarifying the rights associated with NFTs. The creator of an NFT may retain the copyright and instead grant specific rights to the buyer through a licensing agreement. This can include:

Display Rights: These rights allow the buyer to showcase the digital work, such as using it as an avatar or displaying it in a virtual gallery.
Commercial Rights: These rights allow the buyer to use the work for commercial purposes, such as creating merchandise.
Reproduction Rights: This refers to the buyer’s ability to reproduce or create derivative works based on the original content.

Clear and comprehensive licensing terms help prevent disputes by defining what rights the buyer acquires and what rights the creator retains. For example, the popular NFT project Bored Ape Yacht Club allows buyers to use their purchased ape images for commercial purposes, enabling them to create branded products and services.

Intellectual property laws and global perspectives on NFTs are being discussed.

The Copyright Act of 1976, which governs copyright law in the United States, safeguards original works of authorship, such as digital art and music, commonly referred to as NFTs. Under U.S. law, the copyright owner holds exclusive rights to

Reproduce the work.
Distribute copies of the work.
Perform or display the work publicly.
Create derivative works.

Unless explicitly stated, the buyer does not automatically inherit these rights when minted as an NFT. The Digital Millennium Copyright Act (DMCA) also plays a role in protecting digital content by providing a framework for copyright holders to request the removal of infringing material. However, enforcing DMCA takedown requests in the decentralized world of NFTs presents unique challenges.

European Union (EU) Perspective

The European Union has a harmonized approach to copyright law through directives such as the Copyright Directive (2001/29/EC), which grants exclusive rights to creators across member states. The EU places a strong emphasis on moral rights, including the right of attribution and the right to object to derogatory treatment of a work. These protections are particularly relevant in the NFT context, where accurate attribution is critical.

However, the decentralized and anonymous nature of NFT transactions complicates enforcement. Differences in the implementation of copyright laws across EU member states can lead to inconsistent protections and enforcement strategies, making it difficult for creators to safeguard their rights across borders.

Emerging Global Standards and Initiatives

As NFTs continue to gain traction worldwide, there is growing interest in developing international standards for digital copyright protection. Organizations like the World Intellectual Property Organization (WIPO) are exploring ways to adapt existing treaties, such as the Berne Convention, to better address the unique challenges posed by NFTs and blockchain technology.

One potential solution is the implementation of digital rights management (DRM) tools integrated with blockchain technology. Creators can automate licensing terms, track usage, and ensure compliance with agreed terms by embedding DRM into NFTs.

Strategies for creators to protect their work

To navigate the complex landscape of copyright and NFTs, creators can take several proactive steps:

Register Digital Works: Make sure to register all digital content with the relevant copyright office for tokenization.
Draft clear licensing agreements: specify the rights and restrictions associated with each NFT sale to avoid misunderstandings.
Monitor NFT Marketplaces: Regularly check NFT platforms for unauthorized minting of their works and file DMCA takedown requests when necessary.
Leverage Digital Watermarking: Embed digital watermarks in their works to help identify and prove ownership in the event of a dispute.

NFT Marketplaces and Copyright Policies

Leading NFT platforms like OpenSea, Rarible, and SuperRare have developed policies to address copyright infringement. These platforms typically offer a process for filing DMCA takedown requests, allowing copyright holders to request the removal of infringing NFTs. However, the decentralized nature of blockchain technology limits the effectiveness of these measures.

To enhance transparency and enforcement, NFT marketplaces could incorporate the following measures:

Enhanced Verification Systems: Require more rigorous verification of users and the provenance of digital assets before allowing minting.
Standardized License Templates: Provide creators with standardized templates for licensing agreements to clarify rights and reduce legal disputes.
Smart Contract Integration: Utilize smart contracts that automatically enforce licensing terms and restrictions, reducing the risk of unauthorized use.

Future Legal Trends and the Evolving NFT Landscape

As the NFT market matures, we can expect to see significant changes in the legal landscape. Lawmakers and regulators may introduce new legislation specifically tailored to address the unique challenges posed by NFTs, including clearer guidelines on ownership and copyright transfer. Legal precedents set by ongoing court cases, such as those involving high-profile NFT sales, will also play a critical role in shaping future regulations.

The Role of Technology in Mitigating Copyright Risks

Blockchain technology and smart contracts have the potential to transform copyright protection by providing transparent, tamper-proof records of ownership and transactions. By integrating digital rights management (DRM) directly into NFTs, creators can establish and enforce their rights more effectively. However, robust legal frameworks must accompany technological solutions to provide comprehensive protection.

Conclusion

The intersection of NFTs and copyright law is complex, presenting both opportunities and challenges for creators, buyers, and platforms. NFTs enable authenticating and monetizing digital assets but also raise legal issues about ownership, infringement, and enforcement. As the technology and legal framework continue to develop, stakeholders must stay informed and proactive in protecting their rights.

To successfully navigate this landscape, creators should consider registering their works, drafting clear licensing agreements, and leveraging technology to safeguard their content. In contrast, NFT buyers must understand ownership limitations and the rights they are buying. Ultimately, clearer legal guidelines and best practices will be essential in addressing the copyright challenges posed by NFTs and unlocking their full potential in the digital economy.

Patents, NFTs, and copyright law are complex and require expert guidance and knowledge of technology and intellectual property. Protecting your innovations and digital assets is our patent practice team’s specialty at Stevens Law Group. We simplify difficult legal issues with our unmatched technological skills and real-world experience in electronics, software, biotech, and more.

We offer strategic counsel and practical solutions to innovators protecting their IP and creators navigating NFTs. Contact Stevens Law Group today to ensure your rights are protected and your opportunities maximized. Together, we’ll build a solid legal foundation for your success.

You can also watch this video of Intellectual Property Management tailored specifically for in-house counsel. This guide offers essential strategies and insights for managing and protecting your company’s intellectual property and innovations.

FAQs

What legal rights do I have if I buy an NFT?

Owning an NFT lets you display the asset but doesn’t transfer copyright unless specified in a licensing agreement.

Can I mint an NFT for a public-domain artwork?

Yes, you can mint an NFT for a work in the public domain. Ensure the work is in the public domain and free from any existing copyright claims.

How can I prevent unauthorized NFTs from using my digital art?

Register your work with the copyright office, use digital watermarking, and actively monitor NFT marketplaces for unauthorized listings.

Do smart contracts transfer copyright ownership automatically?

No, smart contracts typically facilitate the transfer of the NFT but do not include copyright transfer unless specifically programmed to do so.

References:

Non-Fungible Tokens and Intellectual Property: A report to congress