By: Karlie Rubin

Non-fungible tokens, otherwise known as NFTs, are quickly sweeping through the cryptocurrency market making a name for themselves valued by the richest of the rich. Although NFTs are seemingly acting like cryptocurrency, every NFT has a unique identification code and metadata that distinguishes them from each other.  When NFTs first hit the market in 2014 their value skyrocketed, but since then they have leveraged out.  Participants in the cryptocurrency market for NFTs find it highly regarded, while others are often astonished by the price of a JPEG, let alone transactional fees.  To appreciate the value of an NFT, one must have in-depth knowledge of physical assets as digital representations.

The way an NFT works is by blockchains, similar to bitcoin.  The blockchain is essential in the NFT as it supports security, ownership, purchases and sales.  In the growing technology era, all different entertainment sectors can join in the NFT hype.  In the art world, the benefits to an artist in creating NFTs of their artwork is that it eliminates the middleman and allows the artist to have complete autonomy over selling their art.  In sports, trading and collectible companies are jumping on the bandwagon as NFTs could move physical trading cards into GIFs, bringing a new value to collectors all over.  The buildup of NFTs stems from the rarity of the token; no one token is the same as another, and one does not ever equal the other.  Only one owner can claim ownership of an NFT, making it that much more scarce.  In some cases, buyers do not understand the difference between owning an NFT and their rights to reproduce that NFT.  A copyright in a creative work behaves differently than ownership of an NFT.

The reason people are jumping headfirst into NFTs, and sometimes without full knowledge, is because of the price tag associated with the uniqueness of the token.  Setting up blockchains requires a certain digital apparatus that is difficult to obtain, the transaction fees can often be astronomical, and the always apparent mistake of sending money to the wrong electronical address are all issues that marketgoers face.  Most participants are looking for quick money and their inexperience and ignorance with technology is causing disastrous mistakes.  The adapting world of cryptocurrency is unknown as to where NFTs will lead and how they will change this market.  Huge companies are working on incorporating NFT’s into their platform such as Pokémon Go, Twitter, and Meta (formerly known as Facebook).

As NFTs reach a wider audience, courts are having a hard time differentiating the issues of NFTs against copyright laws.  Out of the issues that have been arising through copyright infringement of NFTs, the major one is people who right click and save as JPEG image, essentially, stealing the image that involves the DNA of the NFT.  Another major issue is when one re-creates an image or footage in an attempt to mint it as an NFT to try and obtain copyright licensure to the original.  The contention of purchasing an NFT stems from obtaining ownership of this unique (non-fungible) token, however, the purchaser does not obtain copyrights of that token unless there are affirmative steps taken by the artist/seller of executing a standard, formal copyright license to the work connected to the NFT.  Owning the copyright gives one the freedom to copy and disperse that work of art in any way they want, as well as allowing them to stop people from making copies.  NFTs sales have a hard time distinguishing this because buyers are getting confused about owning the “one of a kind token” to thinking they also own the intellectual property that created it.

Knowing all the information about how NFTs work is essential before buying one.  There are three components to obtaining an NFT.  The first is the actual NFT you purchase on its blockchain, second is an actual physical cube in a warehouse in Illinois, and third is the legal right to control the physical cube.  If the sale goes smoothly, the legal right is the link to the on-chain NFT connecting to the off-chain cube.  The way an NFT is linked to this creative piece (whether it be artwork, an image, GIF, etc.), is when the purchaser can control a copy of the token, or it can be used to control the copyright in the work itself.  The confusion here is mostly within the reproduction of the token and whether the purchaser obtained rights to duplicate their rare token.

In a recent case in California, these issues were put to the test.  The defendants, YES snowboards, took copyrighted pictures of Notorious B.I.G., the plaintiff’s estate, and sold them as NFTs.  Here, the judge acknowledged that NFTs have little case law information but detailed how an NFT falls within the subject matter of the Copyright Act.  As the NFT marketplace quickly grows, courts will most likely have to make more decisions on how to analyze the copyright process of NFTs and decide whether it infringes on the benefits of the original copyrighted piece.

The rapidly growing marketplace of NFTs has drawn such great attraction because of the high price tag these tokens can go for.  When selling and trading NFTs through cryptocurrency it is essential to be aware that they are subject to copyright laws just as a physical piece of artwork would be.  Digital artwork is still artwork that has been copyrighted and creators of NFTs should be aware that their artwork must include some copyright interest.  The rule of thumb should be that unless the owners of the art give explicit copyright interest to the buyers of the NFT, buyers should not assume they have reproduction rights.

To help prevent this issue in NFT transactions, it could be useful to add an additional document stating that either the NFT is subject to copyright laws and cannot be reproduced or the seller is transferring ownership of their copyright with the NFT.  This would be similar to adding the standard, formal copyright license to the end of the transaction in which the seller affirmatively acknowledges the transfer of rights under copyright law to the buyer.  These documents will make certain that the buyer is well aware of their reproduction rights.  To ensure the courts don’t become backlogged with copyright infringement of NFT cases, it is important to establish a set of rules that the buyer and seller must engage in through documentation, explaining who controls the copyright, and whether a license or reproduction rights have or have not been given.

 

Student Bio: Karlie Rubin is a second-year law student at Suffolk University Law School.  She is a staff writer on the Journal of High Technology Law.  Karlie received her Bachelor’s Degree in Counseling/Psychology from Lesley University.

Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.