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NFTs and Copyright – How far they are protected?

NFTs have undoubtedly caught the attention of those who want to keep up with the new internet phenomena. Owing to excessive sales of everything from famous songs album to original sketches, block chain collectibles are now gaining a lot of popularity. Non-Fungible Tokens (NFTs) are the most recent digital trend during this pandemic era. It has been used by the creators to earn money. NFTs have recently been progressively used to trade in digital artworks through online marketplaces such as Opensea, Super Rare, Foundation, and Nifty Gateway, which enable customers to carefully select from collection of work.

In the case of NFT, the question is

  • whether the buyer of an original work has the same rights as the copyright owner?
  • Is it possible for a buyer to seek copyright protection for an NFT-purchased work?

There are several concerns pertaining to the protection of NFTs by copyright. This article attempts to address some of the above issues, as well as how successful copyright has proven to be in protecting NFT.

What is an NFT?

Non-Fungible Tokens or NFTs are in a form of cryptographic certificate that cannot be replicated and, is issued for the purpose of proving ownership of a digital asset such as a piece of digital art, music, videos, PDFs, digital trading cards etc. NFT is a unique file that is stored on a digital ledger and secured by blockchain known as Ethereum. The currency used to construct blockchain contracts is Ether (ETH). It is a digital token which belongs to a person who has purchased it. One of the latest example that has hit the NFT blockchain is of Beegle, whose real name is Mike Winkelmann, is a digital artist who has recently sold his painting digitally for $69 (dollars) at a Christie’s Art Auction in March 2021. This was the biggest selling in the NFT group at the moment.

Bitcoin vs. NFT

Bitcoin and NFTs both are cryptocurrencies. Bitcoin is fungible in nature which means it is replaceable with another. For example, if one person has $100 and, the other has $100, none of them would be wealthier or poorer as a result of the exchange. They would each have the same value of $100. The same thing applies with bitcoin, one bitcoin has the same value as other bitcoins. On the other hand, NFT are non-fungible in nature. It means once it is created, it cannot be replaced by other NFTs. For example, the NFT of one piece of art cannot be replaced by another piece of art stored on the same block chain.

How to create NFT? 

Step 1: NFTs runs on a blockchains and Ethereum is one of such blockchain.

Step 2: The next step is to choose a marketplace that operates on that blockchain. Selection of such marketplace will help in creating the NFT on such blockchain. For instance, Opensea is one of such marketplace for buying, selling, and trading NFTs.

Step 3: Once marketplace is selected, then the creator will deposit some cryptocurrency i.e. ETH from his wallet for the creation of his NFT on such blockchain. The creator need to accept all the terms and conditions of such marketplace and thereafter he can starts creating the NFT.

Step 4: NFT can be created by uploading a photo, any video, music albums, and trading cards and so on. NFTs is created in the form of jpegs, gifs, videos, including tweets.

Step 5: Creator of NFT shall also have the option of making profit out of future sale of the NFT by selecting the option of royalties.

Step 6: Once the creator has added the original work on the blockchain, a token is generated which is called as Non Fungible Token and it will exist on such blockchain forever. The blockchain makes it is easy to trace the all the activities or transactions pertaining to such NFT.

Now, let us discuss about some of the basic principles of copyright law and how far it is related to the NFT.

Basic principles of Copyright and its applicability on NFT

Now, we will be discussing about the basic principles of copyright law and how they be applied to NFTs.

1. Copyright protect original work

Copyright protect original work of an author. Work is said to be original when it is not a copied one and must originate from the author out of his own intellectual mind. If the author has used his time, skill, labour and judgement while creating a work, such work is qualified to be protected under Copyright. This view of originality was based on the Privy Council’s ruling in the case of Macmillan Company v. J.K. Cooper (1924) 40 TLR 186, which stated that ownership over a work exists and persists in that work due to the talent and labor expended on it, rather than creative thoughts.

This principle may also be applicable in the case of NFT. NFT is a platform where digital creator comes up with his/her original work which is unique in nature and consider to be their own creation. People are only willing to invest their hard-earned money, if they are certain that the work is original and that they have proof of ownership.

2. Copyright is a bundle of rights

As per the Copyright law, copyright owner enjoys bundle of rights such as right to reproduce the work and makes copy of original work, right to sell copies to public, right to display the work in work. Whereas, in the case of NFT, creator of NFT have the right to own, sell, lend, or otherwise transfer the NFT. They have the right to produce, distribute copies of the digital art,, and to create derivative works based on the original, as long as they own the copyright in the work.

3. Copyright lies in the Creative work

One of the most basic criteria of Copyright law is the requirement of minimal amount of creativity in the work. A work must be creative in the sense that it must contain something that goes beyond the original in order to satisfy this criteria. Copyright protection would not apply to work that lack some degree of creativity, even though it is created independently by the author. In the case of NFT, what attracts to a buyer is the uniqueness of the art which is shown by the creator (seller) in his digital work. This uniqueness can be termed as a “creativity” in the language of copyright. Therefore, the online art or any other digital assets own by the buyer consist of minimal degree of creative work apart from being original in nature, qualifies to be protected by copyright.

In the U.S. case of Muller & Co. v. New York Arrows Soccer Team Inc., 802 F.2d 989 (U.S.: Court of Appeals, 8th Cir., 1986), if the creator wants to register the work as a “work of art” or “pictorial, artistic, or sculptural work,” under copyright, the appeal court said the work must have some creative authorship in its description or structure.

4. Work must be fixed in a tangible form

To be protected by copyright law, the work must be fixed in some tangible form. Here, tangible means something that can be touched, hold, see and feel. Any work which is in its oral form cannot be protected by copyright. Copyright protect those work which can be used, copied, reproduced or otherwise transmitted, either directly like book, novels, physical art or paintings or through any electronic device or machine viz. mobile, computer etc. In the case of NFT, any digital file such

as digital art, digital book, digital music, digital games etc. can also be considered as a tangible form and therefore are liable to protected by copyright once it is published digitally.

5. Copyright Infringement

The use of copyright-protected content without the consent of the copyright holder is known as copyright infringement. In other words, if any person reproduce or copy the work which belongs to the other author, without his permission is said to be liable for copyright infringement. The same principle is also applicable in the case of NFT. There are many marketplaces where, in order to make money, many artists now a days publish digital images, paintings, or other digital assets that belong to other creators without their permission. This has resulted into the infringement. However, this kind of infringement can be reported to google through DMCA take down notice. Users who suspect their work is being copied will file DMCA takedown notices against the platforms selling these NFTs. If google finds any such digital image or art which is not original

Ways to transfer ownership to the NFT owner

As a general rule, unless the author transfers ownership of the copyright with respect to the digital work to an NFT owner, the author (seller) retains the copyright of his work. As a general rule, the NFT itself is not protected by the Copyright. As it runs on a block chain which help to authenticate the ownership and the real owner of the NFT. However, there are some methods by which an NFT author can pass his copyright to a buyer. Let us examine such methods:

1. Written Contract

 As stated above, the creator of the digital work is only one who can claim copyright protection in his work. Such copyright do not transfer to the buyer of NFT automatically. However, if the creator (seller) wish to transfer his copyright with respect to the NFT, he can do so by making a smart contract (adding such term of sale in the marketplace of blockchain) with the buyer. The transfer must be in writing and signed by the owner of such work. In the absence of such contract, seller shall retain all rights of copyright.

2. License

The Copyright owner of NFT shall also have the right to issue license to the buyer stating the terms and conditions of the use. For example, NBA Top Shot is a marketplace that allow a buyer to use, copy and display the NFT solely for the personal and non-commercial use under its Terms of use. Whereas, The Crypto Kitties license permits NFT owners to use their kitties for commercial purposes as long as the use does not generate more than $100,000 in net sales per year.

The purpose of this article is to provide a general overview of the subject. Regarding your personal situation, you can seek expert guidance. HHS lawyers and legal consultants are specialized in dealing with the cases relating to the infringement of copyright. You can contact us for further consultation

M. Al Khatem

Trademark & Intellectual Property

M. Al Khatem is a senior Trademark and Intellectual Property (IP) expert in HHS Lawyers. He has handled some of the firm’s complex, high-profile cases – many involving the protection of trademark and IP rights.