NFTs (non-fungible tokens) are becoming an increasingly popular way for individuals and brands to profit from their digital creations. And it’s easy to see why. You create a unique digital asset, like a piece of art, and then you tokenize it to prove your ownership of it.
More and more creators are turning to NFTs to help verify authenticity and minimize fraud. Non-fungible tokens have even become the currency of choice in the Metaverse. 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?
To find out where the discrepancies and confusion lie in NFT copyright, it’s helpful to go back to basics to understand what NFTs actually are.
NFTs are digital assets containing unique identification codes that verify ownership. These digital assets range from art, music and photos to collectibles like comic books, trading cards and in-game items.
While fungible assets like currency and cryptocurrency can be traded and exchanged (e.g. you can exchange $200 for 2 x $100 notes and it will be an even trade), each NFT contains a completely unique digital signature. This means that no two NFTs are alike, and so they can’t be replaced or interchanged with each other. That’s the difference between fungible and non-fungible.
Like cryptocurrency, non-fungible tokens or NTFs are stored via blockchain technology – a public ledger that secures information in a way that makes it impossible to hack. Thanks to the unique identification codes contained within each NFT, they can be easily verified and authenticated, and can’t be forged or copied.
Or can they? It’s so easy to simply right-click and save something from the internet, is it really true that a non-fungible token can’t be copied? Of course, a copy won’t be authentic but it will still exist, and it can be manipulated and changed. And here’s where the confusion surrounding copyright law and NFTs comes in.
How does copyright legislation apply to NFTs?
Let’s take a look at the recent Hermès case. In November 2021, Hermès sued artist Mason Rothschild (real name Sonny Estival) for creating a faux fur line of NFTs inspired by their most famous and recognizable luxury bag, the Birkin.
Named the MetaBirkins, the line was in direct competition with Hermès and its own plans for NFTs. According to their lawsuit, this confused their customers and diluted their brand.
Rothschild’s defence? That his work was social commentary, and therefore protected by freedom of artistic expression. The judge didn’t buy it, and awarded the suit in favor of Hermès. His judgment was that the NFTs were in breach of copyright law, including trademark dilution and infringement. All of which ended up costing $133,000 in damages.
An expensive lesson for Rothschild, and an important legal precedent for NFTs and copyright law.
Who owns the intellectual property of an NFT?
It’s evident that many brands, including notable luxury brands like Dolce & Gabbana, Tiffany & Co., Gucci and more are beginning to explore the potential of non-fungible tokens. Which means that it’s becoming more important to understand where creativity ends and copyright protection begins.
Because while buying an NFT does give certain rights to the owner, complete creative control isn’t one of them. Not unless the copyright holder takes active steps to ensure this, which is very rarely done.
Understanding copyright protection
Let’s imagine you paint a picture and sell it. Your expectation (and it’s a fair one) is that the owner will then display it for viewing. What you wouldn’t expect is for them to then reproduce it in any way for commercial gain. Because even though you’ve sold it, you still retain the copyright.
As the copyright owner, you have the exclusive right to reproduce and display your work. That’s unless you choose to transfer the copyright or grant a license to the buyer. But do these same laws apply to NFTs? These are the questions that are currently being asked.
If creating a non-fungible token is defined as copying or reproducing the original work in any way, then under copyright law (at least in the US), the copyright holder is the only one who should legally be allowed to do so.
However, making copies of works now is much easier and cheaper than it was before the internet.
Today a simple right-click is all it takes, whereas previously creating copies actually took time, money and effort. Which is why copyright law used to be a serious consideration, and today is barely given a second thought.
What do you own when you buy NFTs?
It’s a good question. Just because you buy a non-fungible token doesn’t mean you automatically own the copyright, or even a license to it. The creator does.
That’s because when you buy NFTs, what you’re actually purchasing is a digital token – proof of ownership of something. And in some cases, you may only be the part owner of that thing. Take The Merge, for example – an NFT artwork of 312,686 tokens that was purchased by 28,983 collectors for a total price of $91.8 million.
Now imagine each of those 28,983 collectors going off separately and reproducing their portion of the same art piece. Nightmare.
While the various IP laws of trademark, patent and copyright can be difficult to understand, particularly in how they apply to NFTs, the rules are simple and common sense. Don’t copy other people’s work, and always keep your own work safe. As Hermès has so recently and powerfully demonstrated.
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:
While you may not hold the copyright yourself, if you are granted a personal license, you’ll be able to 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.
Here you will have some commercial rights to your NFT as given to you by the creator. It’s important to remember though, 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.)
Aside from personal and commercial licenses, there are other structures in which the buyer of an NFT has to pay royalties to the original creator. So every time the NFT is sold, it generates a passive income for its owner. William Shatner, for example, sold 125,000 digital photographs on the WAX Blockchain in just nine minutes, and now earns a secondary revenue from their trade.
On the other end of the spectrum, a royalty-free license can do away with needing to pay royalties to the creator. And there are other alternative licensing structures that can grant or deny certain permissions to their owners. So while copyright laws may have strict guidelines, licenses can help grant particular creative freedoms.
Brands setting precedence for NFTs & IP rights
As we’ve discussed, the Hermès case sets an important legal precedent for luxury brands when it comes to the unauthorized sale of non-fungible tokens. And it’s one that’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.
It’s no wonder then that brands are optimistic about the potential of NFTs to transform the industry, and create new opportunities for growth and innovation.
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.
Instead, non-fungible tokens represent the ownership or rights to a particular underlying asset. And that means creators need to avoid infringing on the IP rights of others. They also need to implement measures to protect their own IP at the same time.
Otherwise, what’s to stop someone buying the copyright to an NFT artwork, and then suing the purchaser for making that same artwork their profile picture? Or copying other works to create NFTs, and then ensuring the purchaser that they have the rights to the work? All the while blurring the lines of copyright infringement.
There are far too many grey areas to navigate already without playing fast and loose with the copyright legislation already in place.
So while the terms of NFT copyright are still being defined, play it safe. Protect your copyrighted work as a creator or a brand. Claim resale royalties if the possibility exists for you. Don’t use your NFTs for commercial gain without the proper licensing.
And never go up against Hermès.