NFT Copyright: Mistakes to Avoid
NFT and IP law

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

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

To study more of the Blockchain legal issues, read the article below:

Blockchain Legal Issues

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

Most of the NFTs are supported by Ethereum, in addition, other blockchains such as “Flow” and “Tezos” have their standards to support the technology as well. 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, collectibles, and much more are being tokenized these days. Record prices for Non-fungible tokens have created a frenzy. This distribution model enables creative Intellectual Property (IP) to be monetized in new ways. Since these tokens have some unique characteristics, they raise new issues for licensing NFT copyright and their protection strategies and laws.

What do You Actually Own When You Buy an NFT?

The main question of NFT copyright issues arises in 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 seems to create confusion and grey areas.

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

Now individuals, companies or cultural organisations can do so as long as they are the rightful owner.

When someone buys an NFT from the creator, he or she obtains ownership in the sense that 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.

NFT copyright
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While NFTs are relatively new and maybe an unfamiliar type of art, copyright law will treat NFTs the same as any other traditional artwork. If an artist creates a new piece of 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 piece of artwork because the “creation of an NFT can be categorized as a copy or even a derivative of the original work.”

First let explain who are copyright owners?

As a general rule, the owner of the copyright is the person who does the creative work. If you wrote the book or took the 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 there is a need for creators 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 ither hand, NFTs offer some more advantages in comparison to traditional assets. For instance, NFTs are more liquid and easier to transfer in comparison to their real-world counterparts. 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 the 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.

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. On the other hand, there are users who cannot use digital content the way that they want to because it is either time- or cost prohibitive to do so. Because there is no special legal power for some copyrighted works, the users have to avoid using them. This weakness of transparency with regard to 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 a transaction and sharing data, which increase the challenges and problems for both authors and users. Interest has been increasing in blockchain as a potential tool for addressing these issues because of characteristics such as standardization 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

Creators of need to be aware of potential infringement issues when using third-party IP, and they should also consider IP protection for their original creations. Many NFTs use third-party IPs without permission, and some have incorporated third-party IPs 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.

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. 
  • 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 make use of blockchain tech to benefit from an emerging and very lucrative market. By adopting strategic licensing for this channel, IPs can increase their profile, goodwill, and revenue. However, it is crucial also to protect your IP and avoid any legal or financial liability that may arise from these opportunities. 

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 tokenized 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 so that they can 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. 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 the potential for tokenized content is abundant, creators should be cautious about infringing third-party IP. The fact of the matter 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.

NFT Copyright

Creators of tokenized content should pause before making unauthorized use of brands, logos, famous characters, pictures, videos, music, and other IP belonging to third parties. If a creator uses IP that belongs to another party in a token, they should consult with 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 advice early can help save significant expense and hassle later.

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 but before the token is sold.

In order to prevent unauthorized use of your content, content owners should set up a watch service. Law firms specializing in intellectual property and monitoring for copyright infringement can help you keep an eye on and stop unauthorized use of your IP at discounted rates. 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.

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