NFTs and Copyright

Credit: author

The English language is constantly being transformed by the addition of new words, meanings, terms and acronyms. It is hard to keep up sometimes. The latest to crowd into my consciousness is “NFT”. While the expression NFW (you can look it up and no, it doesn’t stand for Nashville Flower Week) is quite familiar to me, WTF is NFT? And does it have anything to do with copyright? Of course it does, you say, or else he wouldn’t be blogging about it.

An NFT is a “non-fungible token”, the digital phenomenon that has taken off in recent weeks as wealthy investors purchase, often at art auctions, digital representations of “something”. Rather than try to explain it, I will crib from someone who undoubtedly knows more about NFTs than I do. As explained by Luke Heemsbergen, a Ph.D candidate at Deakin University in Melbourne, in his blog “NFTs Explained: What They Are and Why They Are Selling for Millions of Dollars”;

“NFTs are digital certificates that authenticate a claim of ownership to an asset and allow it to be transferred or sold. The certificates are secured with blockchain technology similar to what underpins Bitcoin and other cryptocurrencies…  (Unlike Bitcoin) NFTs are by definition non-fungible, and thus, are deployed as individual chains of ownership to track a specific asset….   NFTs are designed to uniquely restrict and represent a unique claim on an asset. And that is precisely where things get weird: often, NFTs are used to claim “ownership” of a digital asset that is otherwise completely copiable, paste-able and shareable, such as a movie, JPEG, or other digital file”.

NFTs can be bought and sold (for a lot of money—usually cryptocurrency), as shown by the example of the token created by digital artist Beeple (Mike Winkelmann) and sold to an anonymous buyer for $69 million through auction house Christie’s in early March. They exist only digitally but unlike most digital images they cannot be duplicated as each has a unique digital signature, although a semblance of the NFT can certainly be reproduced. Basketball fans can buy unique NFTs of video game highlights of NBA games, a collectible that can be traded or sold, even though the same video clip can be viewed for free on Youtube. But the NFT owned by the fan is identified and unique. I guess it is a bit like anyone being able to see Monet’s Artist’s Garden at Giverney in an art magazine or even on the internet, but the one and only original is in the Musée d’Orsay in Paris.

An NFT can be made out of just about anything digital—images, text (Jack Dorsey’s first Tweet), videos, music, etc. and just like the famous Dutch tulip bulb is a product of scarcity. It has value because someone will pay something for it, in the expectation that in future it can be sold to someone else who will be willing to pay even more for it.

How about the role of copyright with respect to NFTs?

One thing is certain. It is the creator of the artwork or music in an NFT who owns the copyright to the underlying work, not the purchaser unless the sale includes the sale of certain rights.  In many cases, even though the buyer is the sole owner of a particular NFT, the artist who created the work to which the NFT is linked could continue to produce copies of the work. One legal blog illustrates the limits of an NFT owner’s copyright by using the following example;

“Unless the NFT owner has received explicit permission from the seller, the NFT owner does not automatically acquire the legal right to take pictures of the creative work attached to the NFT and make T-shirts or postcards for sale.”

Can the NFT itself be copyrighted? The answer is unclear but it is unlikely because the NFT itself (i.e. the certificate of ownership) is not a creative work. Some people have compared it to a deed to a house, but not the actual house. The NFT gives title to the underlying work but normally is not the work itself. (There are some exceptions when an original piece of art is uploaded directly into the blockchain but this is unusual because, as explained here, the cost of writing data into the blockchain is often prohibitive).

What about NFTs based on works created by a team, or by employees in the course of employment or by AI machines?  The answer to these questions is the same with respect to other tangible works, it depends on the circumstances, except that a machine cannot hold a copyright. There has to be a human creator behind the AI.  

This raises an intriguing question with regard to the NFT created by the humanoid robot “Sophia” that was put up for sale in an online auction at the end of March. The underlying art is based on a collaboration between Sophia and Italian digital artist Andrea Boneceto, with Sophia shown manipulating Boneceto’s original creations to produce something new. The NFT of the work will not include the copyright which pershaps will belong jointly to Boneceto and David Hanson, the owner and founder of Hanson Robotics, Sophia’s creator. It will be interesting to find out.

Can the copyright of the underlying work be transferred to the owner of the NFT? That question has been pondered by legal experts; the conclusion seems to be yes, although the actual modalities of transferring a Blockchain-verified digital file written in software code might be complicated. A rights-holder might also choose to license certain, but not all, of their rights associated with an NFT. A key element in the process is ensuring the integrity of the link between the NFT and the underlying work in order to be certain that any given NFT actually represents the art on display.

NFTs offer some potentially exciting new advantages to artists in terms of copyright tracking, as well as greater returns from selling the copyright. As I wrote in a blog posting about a year ago (Blockchain and Copyright: How can this new Technology serve Creators?), blockchains can be a useful tool to enable tracking of authorship attribution, and thus attribution of royalties, as well as monitoring of use of copyrighted materials. They enable digital music distribution companies like Bluebox to flow royalties back to rights-holders more efficiently. With respect to NFTs, these are now being exchanged through the Bluebox platform. As reported by Bloomberg, one technique is to split each song into multiple NFTs, each representing a one percent split of the song’s copyright, half of which will be sold to the public. In this way, fans could purchase “bits” of recordings to help propel their favourite artists to the top of the charts, and then potentially resell their NFT for a profit.

However, it is not all smooth sailing. Artists have found their work appropriated by sellers of NFTs, without permission. It’s a bit like finding your art work adorning posters and T-shirts being sold on the internet, all without permission or licensing. NFTs have their downsides but still, they offer a new revenue-stream for some artists, as long as they can protect their copyright.

NFTs also raise ethical concerns for some artists because of the huge amounts of energy required to power blockchain transactions. Environmental responsibility is a big issue for some artists and consumers and, believe it or not, the way in which content is distributed and consumed can have a significant impact on one’s carbon footprint.

Coming back to copyright, it should be entirely possible for the laws and principles of copyright to be adaptable to works of art that have become digital tokens. However, there are still many unanswered legal questions related to NFTs, several of them involving copyright, others contractual terms. One US legal firm has outlined a number of them in the context of US law;

  • What rights and remedies does a creator have if their work is tokenized without their permission?
  • How can platforms, issuers, and IP owners enforce their rights and remedies against NFT owners in violation of license terms and contractual restrictions?
  • How do you clearly and conspicuously “attach” terms and conditions to an NFT and ensure that those terms follow the NFT and bind subsequent owners?
  • What right of publicity and SAG (Screen Actors Guild) issues are triggered by the tokenization of an asset that includes an individual’s image, likeness, voice, or performance?
  • How do moral rights impact NFTs in the U.S. and abroad? Does the Visual Artists Rights Act (VARA) apply, or should it? (Comment: VARA protects the moral rights of artists in the US).
  • What rights and remedies does an NFT owner have, and against whom, if the underlying asset disappears or changes? (Comment: This could happen if the entity hosting the NFT went out of business or dropped its internet registration).
  • How does the first sale doctrine (17 U.S.C. § 109) operate in the world of NFTs? (Comment: It probably doesn’t since the first sale doctrine does not apply to digital works).
  • How do copyright terminations work in a world of NFTs that is designed to last for eternity?

I certainly don’t know the answers to these questions and I am not sure that anyone does. However, the author of the blog that I have referenced above, Jeremy Goldman of Frankfurt, Furnit, Klein and Selz PC in New York would be more than happy to help you figure it all out. For a fee of course. There, Jeremy, some free publicity in return for providing such a thoughtful piece on the issue of NFTs and copyright. Thank you.

There are a host of challenging and as yet undefined issues when it comes to the sale and monetization of NFTs.  Will NFTs, like the Dutch tulip bulbs of the 17th century flame out, or are they here to stay as part of our digital world? Only time will tell. In the meantime, Beeple has cashed in “big-time” for his digital token “Everydays: The First 5000 Days”. Will his benefactor be so lucky in future? WTHDIK?

© Hugh Stephens 2021. All Rights Reserved.