WTF is an NFT and how does it affect IP?
Non-fungible tokens (NFTs) are a trending topic on the Internet. For example, the artist known as Beeple sold an NFT for $69 million on 11 March 2021. This article, by James Wan who is a Lawyer and Patent attorney with an interest in Art, AI and Blockchain, is going to explain what an NFT is and more importantly, explain its interaction with intellectual property (IP).
What is an NFT?
An NFT is a unique cryptographic token linked to an item, and can’t be replaced with something else. Most NFTs are part of the Ethereum blockchain and comply with the ERC-721 Non-Fungible Token standard. Blockchain technology is a type of distributed ledger technology which comprises a shared database filled with a chain entries that must be confirmed and encrypted. “Blocks” get added to the chain of transaction records by using cryptographic signatures called a hash.
Anything digital could be sold as an NFT (including articles from newspapers such as the New York Times). Digital animated stickers and digital trading cards can also be sold as NFTs.
A simplified way to think of NFTs are: The Mona Lisa.
There is only one original copy of The Mona Lisa, but there are millions of prints, photographs and even altered images. None of these are the original which has been verified and authenticated. Its price point is much more than any of the photographs, prints of alterations on the original. Therefore, in simple terms The Original Mona Lisa is similar to an NFT.
Another way to think about it is, if a digital artist is doing an exhibition — often the gallery will print out the art and put it on the walls to sell. Yes, the buyer may then own the Artists work, but the original is actually still on the device they created it on. NFT allows these artists to then sell on that original work. In the future, galleries might skip the printing process and install TVs where the original NFT is uploaded to for purchase.
Does owning an NFT provide any IP rights to the owner of the NFT?
Yes, its possible but not occur automatically. Ownership of the NFT does not necessarily mean ownership of the content (a digital asset such as a image, video or audio) and/or the IP rights of that content. The rights granted by possession of an NFT depend on what is specified in the contract by the copyright owner/creator and can vary with every NFT. Such rights are typically embodied in a contract called a license. Most contracts need to be prepared and signed off-chain (that is, they exist in real life rather than only on the blockchain) however these may be prepared using standard templates and signed via electronic signatures. As is typical with copyright assignments, ownership of the IP rights/copyright will only transfer if expressly provided for and agreed to by the author/creator of the original work. In the absence of such express terms, ownership of an NFT will not grant ownership of the content, the underlying content or any associated IP rights. In this circumstance, the NFT owner is not automatically authorised to reproduce, make derivative works of, perform, display or distribute copies of the content. These activities remain the exclusive right of the owner of the copyright unless they were transferred by the author/creator.
There are also differences in the rights and terms being granted to owners of NFTs. Some licences grant the NFT owner a non-exclusive ‘moment’ the rights “to use, copy, and display” the moment solely for “personal, non-commercial use,” “as part of a marketplace,” or “as part of a third party website or application”. For example, the licence governing the Kings of Leon album states that the NFT owner has a right to display the art and included merchandise for as long as the buyer owns the NFT, and solely only for personal purposes. Use in third-party products or within movies and other media is expressly prohibited.