NFTs and Their Impact on the Future of Intellectual Property

April 23 2021 | Committees

News of high dollar sales of non-fungible tokens, or NFTs, splashed across media outlets in March 2021 after Christie’s Auction house sold digital artwork by the artist Beeple for over $69 million.[1]  What’s a non-fungible token, you ask?  A reminder from property law class:  fungible means that an asset can readily be replaced with something that is similar in kind (that $100 bill you lent someone can be replaced with another $100 bill, a couple of $50s, or 10000 pennies -- the value is the same).  Non-fungible means that the asset cannot be interchanged for an identical good (for example, a particular house on St. Charles has a unique value or characteristic making it un-interchangeable for another house on that toney street). 

NFTs are digital creations (art, a music album,[2] a New York Times article[3], NBA collectible highlight clips[4]) that have a particular electronic signature supported by the blockchain,[5] the record-keeping system underlying Bitcoin and other electronic currencies.  So while other people can download the digital creation, only the NFT’s buyer holds the unique token (or title) to prove ownership of the authentic, original work because their ownership is recorded on blockchain.  As The Verge put it “anyone can buy a Monet print.  But only one person can own the original.”[6] 

NBA Top Shot NFT of Zion Williamson

How does this NFT craze intersect with intellectual property law?  Under the Copyright Act, authors of original creative works are automatically entitled to an exclusive “bundle” of rights, including the right to make copies of the work and create derivative works.  17 U.S.C. § 106.  In the case of a physical work of art, the author retains this bundle of rights even after the work is sold, allowing the artist to make additional copies of the work (or not to make any copies to preserve market value of the original).  And while the buyer can display the work, they are not permitted to make copies of the work.  Third parties are also precluded from infringing the exclusive bundle of rights afforded to the artist.  

But with NFTs, because they are digital creations, nothing truly stops third parties from downloading and sharing the work.  So you, too, right-click and copy the $69 million Beeple digital work, you just can’t claim that you own the original.  Could Beeple sue you for copyright infringement because of the unauthorized download (copying)?  Under current copyright laws, yes, but this theory has yet to be tested in court.

Creators of original works (whether physical or digital) may also find their intellectual property incorporated into NFTs without authorization.  For example, a former DC Comics illustrator worked with a digital artist to create Wonder Woman NFTs, without DC Comics’ permission.[7]  Those NFTs sold for $1.85 million and DC Comics received none of the profits.  DC Comics responded by warning its employees and freelancers that they cannot create NFTs that include DC Comics’ intellectual property.  Other companies will surely follow suit in preventing employee use of their copyright-protected materials in NFTs. 

Nyan Cat sold for $590,000 in cryptocurrency

Trademark owners -- particularly owners of famous brands -- may also find their marks incorporated into NFTs.  Imagine a Chanel-wearing digital cat.  This means that intellectual property owners will have to spend more time and money policing digital markets to stop infringement by NFT creators, many of whom may be anonymous or difficult to trace in the digital world.

Whether the current interest in NFTs will continue remains to be seen.  (I never thought that Bitcoin would take off but I have friends who quit lawyering to mine Bitcoin).  Intellectual property law will have to evolve with these digital creations. 

 

[1] https://www.christies.com/features/Monumental-collage-by-Beeple-is-first-purely-digital-artwork-NFT-to-come-to-auction-11510-7.aspx

[2] https://www.rollingstone.com/pro/news/kings-of-leon-when-you-see-yourself-album-nft-crypto-1135192/

[3] https://www.nytimes.com/2021/03/24/technology/nft-column-blockchain.html

[4] https://nbatopshot.com/

[5] For a good primer on the blockchain, visit Investopedia at https://www.investopedia.com/terms/b/blockchain.asp

[6] https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq

[7] https://makersplace.com/hackatao/

 

About the Author:

Lesli D. Harris
Kelly Hart & Hallman LLP
NOBA Board Member
IP/Entertainment Committee Co-Chair



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