NFT Copyright: Mistakes to Avoid in the $338 Million Opportunity!

Introduction

NFT stands for Non-Fungible Tokens, a unique piece of data stored on a blockchain. The word “Fungible” means that which can be traded or exchanged for another; for example, a dollar bill, a Bitcoin, or a Cardano coin. Therefore, a “Non-Fungible” token is unique and cannot be exchanged with another token. A token is a data unit on a digital ledger called a “Blockchain”.

One of the functions of NFTs is in artworks, so we should consider and study NFT copyright issues.

What is an NFT?

Non-fungible tokens (NFTs) are unique digital assets based on their characteristics, cannot be replicated, and are verified on a blockchain network. Therefore, the ownership of an NFT can be transferred from one person to another through the blockchain network, creating a digital marketplace for unique and rare digital assets.

Most of the NFTs are supported by Ethereum. In addition, other blockchains, such as “Flow” and “Tezos” have their standards to support the technology. Furthermore, digital galleries such as “Nifty Gateway” and “Super Rare” have been marketing them, too and applying rather stringent curating criteria.

Things like art, games, collectables, and much more are being tokenised. Record prices for Non-fungible tokens have created a frenzy. This distribution model enables creative Intellectual Property (IP) to be monetised in new ways. Since these tokens have some unique characteristics, they raise new issues for licensing NFT copyright and their protection strategies and laws.

Confusion when buying an NFT

Buying an NFT is not the same as buying the digital asset itself. For example, buying an NFT for a piece of digital art, the underlying work of art will not be considered the NFT but the record of ownership or authenticity stored on the blockchain. So what is bought as an NFT is the metadata associated with the art and not the actual art itself.

Most people who buy NFTs are usually confused because they assume that buying NFTs is similar to owning the image shown on the NFT they have purchased. However, this is not always the case because ownership of NFTs is restricted to the unique digital token, which is in the form of a certificate of ownership pointing to the image. Therefore, owning NFTs confers value to that art, but your ownership is limited to the extent that you cannot claim any exclusive rights or copyright ownership over that art without the original owner’s authorisation. 

What do you own when you buy an NFT?

The main question of NFT copyright issues arises at this point!

When purchasing, buying or paying for an NFT, the work is not owned. With the current novelty surrounding NFTs, the idea of NFT copyright creates confusion and grey areas.

NFTs allow a limited work or collection owner to reach their audiences directly. Whereas before, it was not possible to sell something like the first ever tweet, a taco-themed gif, or indeed a piece of art online;

Now individuals, companies or cultural organisations can do so if they are the rightful owner. When someone buys an NFT from the creator, they obtain ownership because it becomes their property. After all, an NFT is a digital certificate of ownership representing the purchase of a digital asset, traceable on the blockchain.

Copyright implications of NFT on artworks

While NFTs are relatively new and an unfamiliar type of art, copyright law will treat NFTs the same as any other traditional artwork. If an artist creates a new artwork, they will automatically acquire the copyright of that new artwork. There are certain rights that are acquired by a copyright owner automatically upon the creation of a copyrighted work. A copyright owner has exclusive rights to reproduce the work, prepare derivative works, and distribute copies of the work. 

Thus, a copyright owner has exclusive rights to make an NFT based on an original artwork because the “creation of an NFT can be categorised as a copy or even a derivative of the original work.”

How NFTs Impact Copyright Owners?

Let’s start by asking who copyright owners are. 

As a general rule, the copyright owner is the person who does the creative work. If you wrote the book or took a photograph, you are the copyright owner.

Now, to vast the argument of ours, which is about NFT copyright, as I mentioned above, the unique nature of NFTs means that creators need to gatekeep their collections from copycats by using intellectual property protection. However, this protection is limited due to the lack of regulatory clarity for digital assets and cryptocurrency specifically, unfortunately!

On the other hand, NFTs offer more advantages than traditional assets. For instance, NFTs are more liquid and easier to transfer. With the recent rise in NFT adoption, even more digital marketplaces have sprung up catering to a diverse user base and ready market. Plus, new NFT platforms launch daily, with the main consensus being making digital assets more accessible, enhancing user experience, and reducing transaction costs. However, NFT ownership still does not automatically mean copyright ownership like with a real-world asset.

Blockchain and copyright laws

One of the problems in the digital world that creates a lot of risk for copyright owners and creates frustrating situations is the lack of transparency with regard to ownership or a central database of copyright owners that includes music, imagery, and other copyrightable works. Information about copyright ownership is currently distributed across different databases and even companies. 

This weakness of transparency concerning copyright ownership and other owners’ rights puts authors and users in opposition, with the result that neither can benefit from the author’s work. Another unresolved issue is the inappropriate existing databases for transactions and sharing data, increasing the challenges and problems for authors and users. Interest has been increasing in blockchain as a potential tool for addressing these issues because of characteristics such as standardisation and network influences of copyright issues.

This transparency we have been discussing takes place in the context of copyright law, which protects copyrighted works on the internet. Copyright ownership also places requirements on other parties or third parties because they need formal certification and approval related to copyright ownership. Though technological progress has intensified all of these problems in copyright law, we cannot halt or prevent such development. Rather, we need the correct technology and implementation to address new issues.

NFT Copyright and Intellectual Property: Avoid These Mistakes

Creators need to be aware of potential infringement issues when using third-party IP and consider IP protection for their original creations. While NFTs offer exciting opportunities for creators to monetize their work, they also bring forth a myriad of legal questions especially related to copyright infringement in social media platforms. Many NFTs use third-party IPs without permission; some have incorporated them into their content. In many cases, the third-party IP has been exclusive content. Even NFT owners whose art has been misused are ramping up enforcement of their IP rights.

DC Comics is one of the most influential IP owners in the world. As a result of an artist’s $1.85 million profit from selling non-licensed cartoon characters (e.g. Wonder Woman and others) for DC Comics, the company’s creative teams and freelancers are forbidden from creating unlicensed art of the characters. DC has stated: As we examine the twists of the NFT marketplace and work on a fair and reasonable solution for all parties, including fans and collectors, DC will not be selling any digital images of their intellectual property without explicit consent. NFTs, whether rendered for DC’s publications or outside the scope of one’s contractual relationship with DC, are not allowed.

Copyright infringement is pertinent across various domains, including technology, fashion, and content creation. Explore our blog addressing how copyright infringement through social media channels can have far-reaching impacts and discover practical tips for its prevention.

NFT copyright and intellectual property: Who can be affected?

The following IP owners can be affected by misuse:

• Brands that have trademarks, logos, and other brand identifiers that are famous in the consumer market;
• A game company with a unique character or character art;
• Publishers of books, movies, and other IPs that have unique characters; and
• Physical or digital works created by artists; 

Other IP owners license their IP for a wide range of uses. At times, they license the general use of the work while reserving specific rights for specific uses. However, historically, IP owners have rarely considered Non-Fungible Tokens while making license deals.

In addition, most IP owners have not considered NFT law in connection with their IP protection strategies. Licensed Intellectual Property owners can use blockchain tech to benefit from an emerging and very lucrative market. IPs can increase their profile, goodwill, and revenue by adopting strategic licensing for this channel. However, protecting your IP and avoiding any legal or financial liability arising from these opportunities is crucial. 

Intellectual property owners who grant licenses to use their IP to third parties must include NFTs in that license. If the work is not explicitly licensed for this type of usage, the licensee may be wise to expressly prohibit minting tokens that incorporate the licensed work. When explicitly granting a license to an NFT, you must be clear as to what is being licensed and what is not. When licensing IP for such use cases, the license should be limited to that purpose, and other requirements should also be taken into consideration. All other rights are typically reserved for the owner of the IP. 

As IP protection strategies for “brands as brands” become more pushing when creating their own tokenised assets in this early stage of the Non-Fungible Token and blockchain boom, employers would do well to consider rethinking their IP protection strategies. As a result, brand owners can be encouraged to register their trademarks to include NFTs in their trademark uses. Additionally, they may choose to associate a particular design or trade dress with their brand.

Where appropriate, design patents should also be considered. 

Design patents are particularly valuable since profits from the sale and resale of NFTs can be significant. In addition, unlike trademarks, trade dress, and copyright protection, the owner of a design patent can be entitled to all infringement profits, not just the portion attributable to the use of the design. 

While tokenised content has abundant potential, creators should be cautious about infringing third-party IP. The fact is that third-party IP rights, including trademarks, copyrights, and design patents, can be asserted against NFT creators capable of possessing such rights even though they do not have a license or other legal rights to IP included in their work.

Do you need to consider NFT copyright?

Creators of tokenised content should pause before unauthorised use of brands, logos, famous characters, pictures, videos, music, and other IP belonging to third parties. If a creator uses an IP belonging to another party in a token, they should consult a lawyer. The fact that intellectual property owners have not enforced their rights against creators in the blockchain space does not mean they will not do so in the future, especially as more money flows into this space. Getting professional advice beforehand can save you a lot of money and trouble.

Typically, an NFT is associated with a wallet address, but the identity of the wallet owner may be difficult to determine without sophisticated computer forensics. You need to enforce IP rights when a token that uses your IP is listed on an exchange before the token is sold.

To prevent unauthorised use of your content, content owners should set up a watch service. Law firms specialising in intellectual property and monitoring for copyright infringement can help you keep an eye on and stop unauthorised use of your IP at discounted rates. In addition, if your content is protected by copyright, aggressive use of the Digital Millennium Copyright Act (DMCA) takedown notices could prevent the sale of the NFT in the first place.

How can one avoid copyright infringement on NFTs?

Create original content: To avoid copyright infringement, consider making your creations which will be original content. This can include artwork, music, or any other digital asset you have created. Creating original content eliminates the risk of infringing on someone else’s copyright.

Obtain the necessary permissions: If you intend to create an NFT of someone else’s work, you should obtain permission from the copyright owner, such as the original artist, musician, or author. You can do so by reaching out to the copyright owner and requesting permission to create an NFT of their work and explain the purpose of the NFT and how it will be used, including how it will be marketed, sold, or sold distributed. In addition, it will be essential to have a written agreement with the copyright owner that clearly outlines the terms of the permission, including the duration, compensation and any restrictions on how the NFT can be used.

 Check the authenticity of the NFT: It is crucial to verify that the seller has the legal right to sell the NFT. This can be done by looking at the blockchain where the NFT is stored as each NFT has a unique identifier or token stored on the blockchain, or Check the NFTs metadata containing information about the creator and the asset.

Get Solid Agreements in Place: When negotiating copyright, clearly outline the necessary rights in the agreement with any artist. This will ensure all parties know what rights are being conferred and how the rights can be used. 

Recently decided case law on copyright infringement on NFTs

The case of Shenzhen Qice Diechu Cultural and Creative Co.Vs Ltd. vs Ma Qianli is significant because it is one of the first cases in China specifically related to copyright infringement in the context of NFTs. It demonstrates that copyright law applies to NFTs just as it does to other forms of digital media and that NFT creators should be careful not to infringe on the rights of copyright holders.

Shenzhen Qice Diechu Cultural and Creative Co., Ltd. vs Ma Qianli is a recently decided case relating to copyright infringement in NFTs.

Shenzhen Qice Diechu Cultural and Creative Co., Ltd. (the Plaintiff) is a copyright holder of a picture that portrayed a cartoon tiger, while Ma Qianli (the defendant) is an NFT platform. 

Plaintiff sued the defendant for copyright infringement on allegations that a user of the defendant’s platform used Plaintiff’s photo without the defendant’s permission to generate an NFT and sold it to another user through the defendant’s platform. Plaintiff alleged that the defendant’s NFTs infringed on their copyright and sought compensation of 2 million yuan.

The court ultimately ruled in favour of Plaintiff, finding that the defendant had indeed infringed on Plaintiff’s copyright. The court ordered the defendant to pay 200,000 yuan in damages.

Frequently Asked Questions

How do NFTs relate to copyright?

NFTs can represent ownership of copyrighted works, such as artwork. However, the ownership of an NFT does not necessarily confer ownership of the underlying copyright in work. 

Can I sell an NFT of someone else’s copyrighted work?

No. This is because selling an NFT of someone else’s copyrighted work without their permission might be considered copyright infringement. 

If I sell an NFT of my copyrighted work, do I still own the copyright?

Yes. If you sell an NFT on your copyrighted work, you do not transfer ownership of the copyright. However, you still retain all the rights granted to you by the copyright laws, including the right to reproduce, distribute, and display the work.

Conclusion

NFTs (Non-Fungible Tokens) represent a unique digital asset that has recently gained significant popularity at a fast pace and has greatly allowed creators to monetise their digital content. However, it’s important to understand that NFTs can be subject to copyright law like any other digital asset. Therefore, to avoid copyright infringement when buying or selling NFTs, one should obtain the necessary permissions, check the authenticity of the NFT or create their original content. Generally, NFTs have the potential to transform our mindset on the value of digital content, particularly in this era where technology continues to evolve rapidly.