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digital art piece representing an NFT

The Effect of NFTs on Copyright

By John DiGiacomo

Non-Fungible Tokens (NFTs) are a type of cryptocurrency that are uniquely valued representations of different assets. While more common cryptocurrencies are fungible, meaning they are identical to each other and can traded at equivalency (i.e. 1 bitcoin = 1 bitcoin), NFTs cannot be traded or exchanged equally. One NFT does not hold the same value as another. Each have unique identification codes and metadata that distinguish them from each other, and they exist on a blockchain where they cannot be replicated. NFTs can represent ownership of a wide variety of assets, both digital and physical. At present, the most popular NFTs represent digital creations.

Most NFTs represent digital creations, such as digital artwork, GIFs, tweets, and music. Copyright protection applies to original works of authorship falling into several categories, among them literary works, pictorial and graphic works, motion pictures or other audiovisual works, and sound recordings. Additionally, because of their unique trading values and creative features, valuation of NFTs is often compared to that of paintings and other original works of art that possess unique value and are protected by copyright law. Because of the similarities in content between copyright ownership and NFT ownership, many wonder whether the terms of ownership are interchangeable.

Purchasing and Owning NFTs

Owning an NFT is not the same as owning a copyright on the content of the NFT. Only those who produce original works of authorship are automatically entitled to copyright protections. Purchasing an NFT does not necessarily transfer ownership of the underlying copyright from seller, or even creator, to buyer. A similar concept applies to the sale of paintings, music, and other works of art. Purchasing a painting, movie, or book with copyright protection does not transfer the copyright to the buyer. Rather, the copyright protections remain with the painter, musician, or author, while the buyer simply takes possession of the asset. The same laws apply to NFT transactions. Any copyrights associated with the NFT will remain with the original creator of the NFT, though the NFT itself may be bought and sold as an asset, like a piece of art. Copyright laws that apply to NFT purchasers are the same as those that apply to anyone purchasing copyrighted material, and can be found in section 109 of the Copyright Act. The first sale doctrine provides that an individual who purchases a copyrighted work or copy thereof has the right to sell, display, or otherwise dispose of that particular copy. Thus, NFT purchasers have these same rights. Exclusive rights of copyright holders, actions from which purchasers are barred, are detailed in Section 106 of the Copyright Act. Owners of copyrights have the exclusive rights to reproduce the copyrighted work, prepare derivative works based on the copyrighted works, and distribute copies of the works. NFT owners therefore may not take any of these actions as applied to their NFTs.

Copyrights can only be transferred from an original author to another person or entity via assignment. This requires an explicit agreement between the parties through with the original owner (or former copyright assignee) assigns copyrights to the buyer. When purchasing an NFT, it is important to read all the applicable information in order to know whether the copyright to the work represented is being transferred with the sale. If there is no explicit indication in the contract for sale that the copyrights are also being assigned to the purchaser, the rights do not transfer to the purchaser, and the purchaser is barred from exercising exclusive rights listed in Section 106.

NFT “Minters”

If a digital creator creates an NFT that is a new creative work, the copyrights to original work of authorship belong to the original author, the creator of the NFT. For example, Jack Dorsey, CEO of Twitter, created an NFT of his first-ever tweet, “just setting up my twtter.” Because he authored the tweet, the content used for creation of the NFT, he is the original author and easily entitled to copyright protection of both the NFT and the tweet.

However, if an individual mints an NFT of a work that is not his own, the “minter” may be subject to a copyright infringement suit by the original author from which the NFT was derived. NFTs are considered copies or derivatives of original works, and only copyright owners have the exclusive right to make copies or derivatives of their works. To avoid infringement, NFT minters must be sure that the asset represented by the NFTs they create is indeed their own or that they have an assigned copyright or license granting them the authority to do so.

Are NFTs copyrights?

No, but they represent copyrightable assets. NFTs are not copyrights, rather, they serve as authentication badges of copyrightable works. Original works of art falling into the categories described by 102(a) of the Copyright Act are indeed subject to copyright law and can themselves be protected by copyright.  The language of 102(a) declares that copyright subsists “in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” The language of this statute, written even before the invention of smartphones and laptops, broadly encompasses such futuristic creative endeavors by defining “fixed tangible medium of expression” as those “now known or later developed” and perceived, reproduced or communicated “with the aid of a machine or device.” NFTs, as digital creative works fixed in a “later-developed” medium known as a blockchain and viewed with the aid of a device, fit neatly under this statute. 

Original Creators of Any Works

Because each token has a unique identity existing in a blockchain, NFTs can serve as irreplaceable certificates of authentication and should be something that all creators consider employing as representations of their original works. NFTs have been likened to “digital passports” through which the blockchain can keep track of ownership details, identification, and transfer between token holders. Additionally, NFTs can provide creators with ways to generate new content and additional revenue. Because NFTs are uniquely identifiable, creators can duplicate works in any number of NFTs and keep track of the derivatives, allowing for “limited edition” copies or variations of the original.

With great opportunity often comes risk and responsibility, unfortunately. Creators also need to be aware of those that may utilize their works in creating new NFTs for sale. The NFT “minting” process can be done by anyone, as all it involves is creation of code on a blockchain network that assigns an ID to the digital assets. There have been many cases in which individuals have been fraudulently offering artists’ works as NFTs without permission. Creation of NFTs using another artists’ work is categorized as a copy or derivative of the original work, which is a right exclusive to copyright holders of the original work. Thus, creators must be aware of potential infringement in this medium and take steps to protect their rights by monitoring NFT sites for copies or variations of their works and submitting DMCA takedown requests to the NFT platform as necessary. Additionally, copyright owners should consider, now more than ever, digital enforcement techniques like adding watermarks.

If you have legal questions about NFTs and what rights you may have, contact Revision Legal at 231-714-0100.

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