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Saturday, June 15, 2024

NFTs & Copyright: What Do You Own?

Do you possess the rights to a non-fungible token that you purchase? Learn more about how to safeguard your digital assets and the copyright regulations that apply to NFTs.

NFTs (non-fungible tokens) are a common way for people and businesses to make money off of their digital inventions.

And it’s clear why.

You produce a one-of-a-kind digital asset, such as a work of art, then tokenize it to demonstrate your ownership of it.

NFTs are being used by more and more artists to verify authenticity and reduce fraud. Even the money of choice in the metaverse is non-fungible tokens.

But what happens once an NFT is sold? Who actually owns the copyright – the original creator or the new owner? And how do copyright laws and IP rights apply?

Understanding NFTs

It is useful to go back to the beginning in order to comprehend what NFTs are in order to determine where the inconsistencies and ambiguities in NFT copyright are.

Digital assets called NFTs have special identification numbers that prove ownership. These digital resources include everything from works of art, music, and photographs to collectibles like trading cards, comic books, and in-game goods.

Unlike fungible assets like money and cryptocurrencies, each NFT has a distinct digital signature that prevents trading or exchange.

Since no two NFTs are same, they cannot be substituted for one another or used in place of one another. The distinction between fungible and non-fungible is this.

Similar to cryptocurrencies, non-fungible tokens, or NFTs, are kept on a public ledger using blockchain technology, which encrypts data in a way that makes them impossible to hack.

Each NFT has a special identifying code that may be used to simply verify and confirm it as the owner.

Even if NFTs have the capability for ownership, the legislation around copyright is still unclear.

How Does Copyright Legislation Apply To NFTs?

Let’s take a look at the Hermès case.

Hermès sued artist Mason Rothschild (actual name Sonny Estival) in November 2021 for making a line of faux fur NFTs that were modeled after its most renowned and recognized luxury bag, the Birkin.

The series, known as the MetaBirkins, directly competed with Hermès and its own ideas for NFTs. The corporation claimed in its complaint that this left customers perplexed and diminished its brand.

In Rothschild’s favor? that because his work served as social commentary, it was protected by the right to free artistic expression.
The jury rejected it and decided in favor of Hermès in the lawsuit. According to their conclusion, the NFTs violated copyright laws, particularly those pertaining to trademark dilution and infringement. They all resulted in damage costs of $133,000 in total.

Who Owns The Intellectual Property Of An NFT?

It is clear that many companies are starting to investigate the possibility of non-fungible tokens, including well-known luxury companies like Dolce & Gabbana, Tiffany & Co., Gucci, and more.

This indicates that it’s crucial to recognize the boundary between creative expression and copyright protection.

In spite of the fact that purchasing an NFT grants the owner a number of rights, total creative power is not one of them unless the copyright holder takes proactive measures to assure this, which is rarely done.

Understanding Copyright Protection

Unless you decide to transfer the copyright or provide the buyer a license, you have the only right to reproduce and exhibit your work as the owner of the copyright.

Do NFTs, however, fall under the same laws? These are the queries that are being asked right now.

If manufacturing a non-fungible token constitutes copying or reproducing the original work in any way (at least in the U.S.), then only the copyright holder should be permitted to do it lawfully.

However, compared to before the Internet, copying works is considerably simpler and less expensive today. Today, all it takes is a simple right-click, whereas in the past, making copies required resources like time, money, and labor.

What Do You Own When You Buy NFTs?

It’s a wise inquiry.

A non-fungible token does not immediately grant you ownership of the copyright or even a license just because you purchase it. It is the creator.

This is due to the fact that when you purchase NFTs, you are essentially buying a digital token, which is evidence of ownership of anything. In some circumstances, you might only be a partial owner of that item.

Consider The Merge, an NFT artwork made up of 312,686 tokens that 28,983 collectors paid $91.8 million for.

It would be a nightmare if all 28,983 of those collectors went their separate ways and duplicated their own portions of the same work of art.

How Licenses And NFTs Work

Right now, copyright laws and guidelines are still being interrogated and debated.

But if you’re considering purchasing non-fungible tokens or are already an NFT owner, there are some workarounds when it comes to licensing:

Personal License

While you may not hold the copyright yourself, if you’re granted a personal license, you can use your NFT for non-commercial, non-profit means. This could include displaying your artwork in your home or using it as your social media profile picture.

Bear in mind, however, that you won’t be able to use your NFT for commercial gain in any way.

Commercial Rights

Here you will have some commercial rights to your NFT as given to you by the creator. It’s important to remember that they will still have copyright and IP ownership of the original work.

Depending on the specific rights transferred to you, you might be able to sell prints, create merchandise, or even create a TV show.

In the case of the Bored Ape Yacht Club, for example, owners have unrestricted commercial use of their NFT art. (However, there does seem to be some ongoing confusion about its copyright registration, which we’ll leave for another time.)

There are additional arrangements in which the purchaser of an NFT is required to pay royalties to the original developer aside from personal and business licenses. As a result, each time the NFT is sold, its owner receives a passive income.

For instance, William Shatner made a secondary income from the sale of 125,000 digital photos on the WAX Blockchain in under 9 minutes.

On the other hand, a royalty-free license can eliminate the requirement to compensate the inventor with royalties. Additionally, different licensing arrangements might give or take away specific permissions from their owners.

Brands Setting Precedence For NFTs & IP Rights

As we’ve discussed, the Hermès case sets an important legal precedent for luxury brands regarding the unauthorized sale of non-fungible tokens. And it’s more relevant now than ever.

Major brands such as Gucci, Louis Vuitton, Burberry, and more are starting to enter the NFT space, partnering with NFT marketplaces and creating digital collections. And why wouldn’t they?

NFTs allow them to authenticate limited-edition products, extend the lifecycle of their products, and build more sustainable business models.

What Does This Mean For Anyone Creating NFTs?

While NFTs have the potential to change the market and make new opportunities possible, as a brand or a creator, you still need to know your IP rights.

You also need to know about NFTs and understand that just because you’re purchasing one, doesn’t mean you own the underlying IP.

Unless, of course, you’re the original creator.

Non-fungible tokens, on the other hand, indicate the ownership or rights to a specific underlying asset. Therefore, creators must refrain from violating the intellectual property rights of others.

At the same time, they must take action to safeguard their own intellectual property.

What would prevent someone from buying the copyright to an NFT work of art, using it as their profile image, and then suing the buyer?

or making NFTs by copying other works and assuring the buyer holds the right to the work afterward? by tampering with the definition of copyright infringement.

Without bending the existing established copyright laws, there are already far too many ambiguous places to traverse.

Play it safe while the NFT copyright’s conditions are still being established.

As a brand or a creative, you should safeguard your copyrighted work.

Obtain royalties for resale if you are eligible.

Avoid using your NFTs for profit-making purposes without the necessary authorization.

And never challenge Hermès.

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