Not For the Taking: NFTs and Intellectual Property Rights

Mar 23, 2022 | Blog
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You may have heard the term “NFT” sometime in the past year. Perhaps you have seen it accompanied by a picture of a cartoon kitten or in an article about blockchain and wondered—What exactly is it? Is it art? Is it currency? Something else?

An NFT (a non-fungible token) is a unique digital asset that is not interchangeable with any other asset. While NFT ownership is documented using blockchain technology, NFTs differ from cryptocurrency in that crypto coins and tokens are typically fungible (e.g., if you traded one Bitcoin for another Bitcoin, you would have an asset identical to what you had before). The uniqueness—and the scarcity—of NFTs is largely what gives them their potential value.

According to a report by NonFungible, the total volume of all NFTs traded in 2021 was more than $17 billion, a 21,350% increase from the previous year. NFT’s have gone beyond the scope of crypto enthusiasts and entered into popular culture. The musician known as Grimes (you may have seen her with Elon Musk and/or Chelsea Manning) sold $6 million worth of “digital art” NFTs. “NFT” was named the Collins Dictionary 2021 Word of the Year. And, NFTs were the subject of their own Saturday Night Live skit.

While NFTs can take various forms, these tokens have recently garnered a lot of interest as digital art. To be more precise, these NFTs are actually unique bits of code that link to or otherwise point to digital files containing things like images, videos, animated stickers, GIFs, etc. For example, a popular NFT collection known as the Bored Ape Yacht Club allows buyers to purchase one of 10,000 unique digital renderings of different cartoon apes. While the actual image of the ape is not stored on the blockchain, a token linking to the digital content is.

Some of the most popular NFTs on the market have sold for hundreds of thousands, and even millions, of dollars. While the NFT market has experienced a cooling off period in 2022 (perhaps due to an oversaturated market), the recent explosion of NFT ownership has stirred up questions surrounding the intellectual property rights of these creative works.

The purchase of a digital NFT gives the buyer ownership of that particular digital asset, which is permanently recorded in a decentralized ledger, i.e., a blockchain (typically the Ethereum blockchain). However, unless explicitly stated otherwise, this ownership does not automatically extend to:

  1. any real physical object that the NFT might be based on
  2. intellectual property rights of the NFT, including copyright/reproduction rights

To use an analogy, if you bought a copy of Michael Crichton’s 1990 novel Jurassic Park at your local bookstore, you would own that specific copy of the book, but you wouldn’t own the IP rights to create your own Jurassic Park TV show or line of toys. Additionally, you would not have the right to make copies of the book since the rights to the copyrighted work remain with the author. Basically, you have purchased the “digital deed” to one particular NFT with unique bits of code. You do not own the underlying copyright of that work.

This is an important distinction. NFTs are, in essence, very expensive digital Pokémon cards. You do not get to start selling Pikachu merchandise Just because you bought a highly coveted, super rare Pikachu card. You get the card and that’s it.

Thus, while NFTs may seem to be something really unique and valuable like that one-of-a-kind Wu Tang Clan album purchased by ‘Pharma Bro’ Martin Shkreli, they do not carry the same intellectual property rights that even Pharma Bro managed to secure. Shkreli bought the only copy of the album which included the intellectual property rights attached to it. Therefore, unlike the purchaser of an NFT, he could have made copies and started selling it for profit. Much to the frustration of the Wu Tang Clan themselves and hip hop fans, Mr. Shkreli refused to release it. Since it upped his villain cred to even higher levels, he may feel that he got his money’s worth. That is, until the United States government seized it as one of his assets after he was convicted for securities fraud.

So, unlike the mysterious and controversial Wu Tang Clan album, an artist that creates an NFT can release as many other copies of the work as they want. Putting even the artist aside, an additional concern is that virtually anyone can mint an NFT. Therefore, there have been piracy issues where sellers create NFTs based on art that’s not theirs and sell it without the original artist’s knowledge or permission. Stealing another artist’s work for an NFT could be as simple as a screenshot or a right click on an image.

While some of the IP violations surrounding NFTs are malicious, others seem to be simply born out of confusion. For example, back in November 2021, a group called Spice DAO purchased a rare copy of filmmaker Alejandro Jodorowsky’s production bible for his abandoned film adaptation of Frank Herbert’s 1965 science fiction novel Dune. However, Spice DAO sparked confusion online when it seemed to indicate plans to create NFTs out of the bible’s individual pages—an act that would violate copyright law since the IP rights to Dune are currently held by Legendary Entertainment.

In short, NFTs can be confusing and messy. They raise a multitude of legal issues that run the gamut from intellectual property lawsuits to security law considerations. Therefore, as either a potential purchaser or seller of an NFT, it is important to understand your legal rights and obligations when venturing into the marketplace for this new kind of asset.

If you have any further questions regarding intellectual property, please contact Laura-Michelle Horgan.