NFT and Intellectual Property: Copyright in Blockchain Era

by | Apr 29, 2022 | Blog, Blockchain, NFT

Overnight, non-fungible tokens, NFTs, have become an impressive industry; the top 10 NFT collections alone brought in over $500 million. Based on the already well-known blockchain, a new formula to represent any element, digital or physical, with works of art as the first major use case.

In this scenario, one might think that one of the main virtues of NFTs is to enable and facilitate the commercialization of works whose ownership transactions are otherwise difficult to trace. And so it is, but these benefits only apply at one point in the chain – the buying and selling – and not in other areas, such as the fight against copyright infringement.

NFTs are elements that facilitate the buying and selling of works, but they do not amount to the generation of proof of authorship. The work, in fact, is created before the NFT. NFT sales platforms are marketplaces where the cryptographic elements that are sold are created and that enable transactions signifying the purchase and sale of those works. Therefore, the generation of proof of authorship needs to be prior to the sale or release of any work.

But to what extent is there a risk that someone could use a digital work that they do not own and upload it to the blockchain as their own? The threat exists and is one of the main concerns around NFT and blockchain in general. There are cases of unscrupulous people creating NFTs of works they do not have authorization over, creating derivative works of original works and selling those without the author even being aware of it, as well as impersonations and promises of NFTs that never materialize.

What the Law Says About NFTs

Of course, the law protects the original creators of the works, and it is the Copyright Act implemented which is a federal law that guarantees them the right to take legal action if their rights are infringed. This applies to the field of NFT as in any other, as in the case of counterfeiting, plagiarism, etc.

The NFT phenomenon is relatively recent, but it does not differ greatly from other forms of buying or selling works. There is nothing specific in the current laws, as far as we know, that mentions exactly NFTs, but as they are analogous to what it can be to sell or buy a work in an art gallery, and since they fall under the category of  “a creative expression of thought or emotion” (listed in Article 2 of the Copyright Act), the mechanisms that protect the authors will also be analogous. However, what is clear is that being very advanced issues, it may be complicated, in the first cases, to explain correctly before judges and lawyers because what is being sold is an entry in a digital ledger called the blockchain.

What is clear is that the use of intellectual property registrations is recommended  before creating the NFT. Any creator needs to register their work before putting it into circulation, as an NFT or otherwise, to have early evidence to prove their authorship. This makes it easier to combat fraud that could occur if someone unauthorized creates an NFT of that author without permission.

How to Act in Case of Copyright Infringement

How can an infringement of copyright in NFT be reversed, considering that one of its principles is immutability?

On the one hand, there is the question of how an author should act in case of infringement, whether it occurs in the NFT environment. As the copyright law protects the artists, they can take legal action if their rights are infringed.

In relation to immutability, in the same way that an element can be inscribed in the blockchain with information at a given time, it can also be included, in case of proven infringement, that the previous information is incorrect and that that element has been plagiarized, for example. That information would also be linked in the blockchain and immutable. When they are public, references to judgments will be searchable, just as with other court cases.

Since buying an NFT is not buying the actual digital artwork, but the link to it; the oken is what is the true ownership attribute. Therefore, the ownership history of NFTs is always on the blockchain. That ownership history record is the equivalent of real property records recorded with the local county recorder of deed. That’ s why, until new developments, current Copyright law  is what applies for NFTs.

And what About Exploitation  Rights?

There remains one last aspect where NFTs are clearly challenging pre-conceived norms in the regulatory arena: the exploitation rights of each work, independent of the property itself.

This is the key question when employing NFTs as title and registration of ownership of creative work: what are the rights to the work that the purchaser of the NFT acquires? Currently, the NFT purchaser of a creative work owns nothing more than a unique footprint on the blockchain with a record of the transaction and a link to an image of the work.

The question is what does the link attached to each NFT allow each buyer to do and how to attach that rights to the print on the blockchain.

The NFTs unquestionably determine the transaction: the date, the amount, and the portfolios of the buyer and the seller, but they do not say what has been bought.

However, it is possible: by recording the copyright information in IPFS and linking it to the NFT via its own link. This way, it is inseparable and unalterable. It is already possible to generate NFTs with copyright information of any work registered on the platform.

Although NFTs are questioned, they are assets that belong to a buyer and have been created by an author or artist. Although there are still questions regarding the need to develop specialized NFT copyright laws, current laws help protect them.