Hailed as the new way of selling art, making money and taking ownership of intellectual property rights, NFTs are becoming one of the fastest growing sectors in the crypto-industry, generating over $23 billion in trading volume last year.
A type of crypto-asset, non-fungible tokens are units of data used to record the ownership of any object – physical or virtual – and have become an increasingly popular way to buy and sell digital artwork and collectables.
NFTs are appearing everywhere. Nike recently acquired RTFKT, a digital fashion and 3D creation studio, and together released the first Cryptokick sneaker.
When considering the extent that the NFT boom is being embraced, whether its from auction houses, galleries and social media, to the world of gaming, football and more recently, carbon credits, domain names and even museums, it’s not surprising that Collins Dictionary named NFT the word of the year.
Intellectual property and NFTs
Whilst this technology is thrilling and moving at pace, there are still some grey areas with regards to understanding the implications of NFTs in connection with intellectual property.
In the analogue era, legal protection of intellectual property – creations of the mind, art, design, literature, inventions, patents and trademarks, et al – were well-documented, comprehensive and coupled with an abundance of case law, generally straightforward to enforce.
But, as with any spike in technology – especially by virtue of today’s digital world – intellectual property laws need to accommodate and support this growing market sector.
This requires experienced IP and commercial lawyers to work closely with their clients – and within the digital space – to ensure the most appropriate protection is either available, or suitable mechanisms are adopted to best protect the client.
The legal landscape accommodated the rise of the internet and naturally adjusted where appropriate. The explosion of blockchain is again testing this landscape, along with society’s perception of its value and long-term relevance.
Defining ownership and copyright
Beeple’s Everything: The First 5000 Days – the first ever, purely digital NFT-backed artwork – was sold by Christie’s last year, for $69.3 million, giving crypto currency entrepreneur Vignesh Sundaresan, also known as MetaKovan, the privilege of being the only person on earth – and the metaverse – to own it.
The very nature of blockchain technology, and the smart contract attached to an NFT, means that an NFT cannot be edited, modified or deleted and every transaction, sale or transfer is verified and recorded – forever.
It is this blockchain immutability that makes NFTs so attractive in value. By virtue of their unique and exclusive characteristics, NFTs offer proof of authenticity and an uninterrupted, fully transparent chain of title – all of which contributes to their overall value.
But, owning an NFT isn’t necessarily the same as owning the copyright.
“Absent a contractual agreement — e.g., smart contract — that expressly includes intellectual property (IP) rights, purchasing an NFT does not convey any copyright, patent or trademark rights or even ownership interests in the physical world asset on which the NFT is based.” reports Cointelegraph.com
As the Crypto Bros dismally discovered: thinking they were buying the copyright to Jodorowsky’s Dune, when all they owned in the end, was a very, very expensive book.
Each NFT will have its own terms and conditions – Bored Ape Yacht Club for example, have given full intellectual property rights to users; whilst others offer limited rights, like CryptoKitties who enable buyers to use their NFTs commercially – however only up to the value of $100 000 in gross revenue.
There are many NFTs out there that only allow for private and non-commercial use – therefore, DYOR!
Complex issues arise when someone creates and sells an NFT of an existing work in which they have no rights of ownership, either in the work itself or its copyright.
Already, instances abound of alleged copyright infringement taking place with big brands like Hermès and Nike filing lawsuits against NFT creators using their trademarks without permission.
As with copyright, moral rights arise on creation of a work (and belong to the author of an original work), however unlike copyright, moral rights cannot be transferred – they remain with the creator of the works, even if the copyright does not.
The extent to which moral rights and copyright dovetail with NFTs still remains an important issue and it would behove artists and creators to be cognisant of what rights, terms and conditions they are conferring to their NFTs. This is an area that should not be overlooked whether by the artist or those creating an NFT collection.
Tort of conversion
One intriguing question is whether the tort of conversion, historically applied only in respect of tangible property, could be expanded to cover the new category of data objects.
The tort of conversion occurs when one person interferes with the personal property of another – either taking it or withholding it, without lawful justification.
In most jurisdictions, a buyer of stolen goods doesn’t acquire a legal title to those goods – irrespective of whether they know the goods are stolen or not – and the original owner can take action against the current owner, getting back possession of the stolen goods.
A consultation is currently underway, with the Law Commission of England and Wales, proposing new laws relating to digital assets – including NFTs – extending the tort of conversion to data objects, changing the IP landscape dramatically for artists and creators.
Despite its conception in 2014, when digital artist Kevin McCoy minted the first ever NFT, the legal development creating, buying and selling digital assets, and importantly enforcement is still evolving.
Opportunities for brands and businesses
NFTs have the potential to provide an infinite revenue stream for artists – not only as an opportunity to earn money from selling their creation, but also to receive royalties from each subsequent resale of that NFT.
This gives digital artists a whole new lucrative platform, changing how licensing works, revolutionising how royalties are paid and how artists can earn a living.
Kings of Leon – an American rock band – accomplished this when releasing their new album as a limited edition NFT, with six NFTs providing lifetime tickets to front row seats!
Brands are also using digital art to raise awareness and money for charity events and social initiatives: with Mac Cosmetics using NFTs as collectables to raise support for HIV/AIDS organisations and Coca-Cola auctioning an NFT “loot box” as part of International Friendship Day, raising over $575,000 for Special Olympics International.
“We are at the very beginning of Web 3.0, Blockchain, Crypto, and NFTs. We are in the 1995 era of the dot com and internet boom. Everyone who experiments now with Blockchain will be at the forefront of this revolution,” says Abdel Boazzati, the partnerships and blockchain lead at Coca-Cola.
The opportunities for brands and business considering NFTs abound: whether it’s raising awareness and investing in a variety of social/environmental/charitable/research, et al projects, thereby creating a sense of community with deliverable project aims; providing opportunity for exclusive experiences to customers; granting exclusive access to additional products and services; offering transparency on products and potential anti-counterfeiting measures; and raising funds/attracting investment and gaining additional revenue.
This is a fast-growing sector, without guarantee of success and which is subject to criticism and doubt.
The same could be said of the home PC, the mobile phone and the internet. If you believe in the potential value and relevance of the blockchain and in particular NFTs in society, then you should be at the very least:
- considering the risks associated with becoming an early adopter of a new industry/technology;
- assessing the potential high rewards of being a successful early adopter;
- thinking about creating an NFT that will have initial value for a prospective first time NFT Holder;
- imagining how your NFT will have a clear future growth strategy and desirable aims to enhance value for successive NFT Holders; and
- obtaining relevant, clear, and commercial advice from your professional advisors.
You are limited only by imagination. You have access to greater resources than ever before. You are capable of connecting and working with a growing like-minded community.
Everything changes. You simply need to determine whether your NFT project is deliverable and suitably beneficial in providing value for successive, future NFT holders.