There Are So Many Misconceptions

NFTs have been written about ad nauseam, but I haven’t yet seen a good analysis of how these new assets interact with existing intellectual property laws. Excitement around NFTs is undeniable, with something as simple as an NFT of Jack Dorsey’s first tweet being sold for $2.9 million. But what are you really buying when you buy an NFT? If you buy an NFT of a work of art, can someone else use that art for some other purpose? Can the artist sell another NFT using the same artwork? Let’s look at how US copyright laws interact with the bleeding edge of blockchain innovations.

Let’s start with what an NFT is and what you are buying when you buy an NFT. NFT stands for “non-fungible token.” If something is fungible, then all items of that type are interchangeable. A great example of this, of course, is ordinary money. A dollar is a dollar no matter which dollar you use. The same is true of crypto currencies—1 bitcoin is the same as any other single bitcoin. NFTs, on the other hand, are designed from the outset to be completely unique. There is only one like it, and its uniqueness is assured by an underlying blockchain.

So you want to buy an NFT.

You search for a chosen work of art that has been minted into an NFT, and you conduct a transaction to buy that NFT. First, you need to be able to conduct a transaction using a crypto currency. The crypto currency you need to purchase an NFT depends on the blockchain onto which the desired NFT has been minted. Ethereum is a popular blockchain choice for NFT minting, so to purchase an NFT that has been minted on the Ethereum blockchain, you’ll need to own Ether. If an NFT you want to buy is on a different blockchain, you’ll need to own the correct corresponding cryptocurrency.

Finally, you can buy an NFT. So what are you actually buying? Up to this point, intellectual property law has not yet really been implicated. But purchasing artwork involves copyright law, and copyright law can be slow to change and adapt. Artwork that has been minted as an NFT is subject to all the same laws that apply to artwork created anywhere else.

Let’s do a quick overview of copyrights.

A copyright protects an original work of authorship that has been fixed in a tangible medium of expression. Common works that are copyright protectable include music, books, film, photography, artwork, and so on. There are a lot of cases interpreting what is and is not protectable by copyright, but for the sake of this piece, we’ll assume artwork sold as NFTs is protectable via copyright. A person that owns a copyright has the right to exclude others from reproducing, adapting, distributing, and in some cases, performing or displaying a work of authorship.

There are limits to what works can qualify for copyright protection, because copyright eligibility has an underlying creativity requirement.

So who owns the copyright when you buy an NFT? GOOD CHANCE IT’S not you.

In general, the owner of a copyright is the person or entity that created the work (the author). An exception to this rule is that if, for example, the work is created by an employee within the scope of their employment or the work is a specially ordered or commissioned work that meets the Copyright Act’s definition of a work made for hire. When you buy your NFT, are you and the author signing a contract stating that the work is made for hire? Is the artist your employee? If the answer is no, it is probably not a work made for hire that vests title in you.

That’s not the only way you can come to own a copyright. Copyright ownership can also be transferred via assignment that meets certain statutory requirements. A signed writing is one of those requirements. But how often are NFT sellers creating and executing copyright assignment contracts in compliance with US law? I’m guessing pretty much never.

Let’s say you follow through with an NFT purchase. What exactly do you own? If you don’t own the copyright, the answer to that question may implicate something called the first sale doctrine. Assuming you don’t own the copyright, do you own the right to sell copies of the artwork you just purchased? No. The author (or lawful transferee) owns that right. And that artist could likely, if they wanted, mint more NFTs using the exact same artwork. But do you own the right to re-sell the NFT to another person? If first sale doctrine applies to this situation, then you may! That’s the first sale doctrine at work. An easy example of this doctrine in practice is if you buy a Blu Ray movie, you are welcome to sell that Blu Ray at a garage sale later without any fear of infringing a copyright. But you cannot burn that Blu Ray and resell any copies for profit—that would be copyright infringement.

What does this mean for NFTs?

It means that NFTs are a bit out over their skis as it relates to intellectual property law. The last major revision to copyright law happened with the Digital Millennium Copyright Act (DMCA) that Congress passed in 1998. So Congress last changed copyright laws (minor changes aside) when Outkast released their third album, Aquemini. This was the year before RIAA sued Napster. The year Fear and Loathing in Las Vegas came out. It has been a while, and we are all still subject to copyright laws as they are currently written.

When you buy an NFT, you are likely buying only that: the non-fungible token that creates a digital asset from some work of art. That does not necessarily mean you own any rights to the underlying artwork, and it is possible anyone else can own a different copy of that work of art (NFT or otherwise). You are unlikely to be able to sue anyone for copyright infringement because you probably don’t own the copyright. Some companies have approach NFT minting with public user agreements that spell out what rights the current holder of the NFT has with respect to the artwork embodied in the NFT. These NFT legal solutions are still, to our knowledge, bespoke. An NFT minted by one company might give you different rights with respect to the artwork, by agreement (if any), than an NFT minted by another company, or it may be accompanied by no legal rights or interest in the artwork at all.

This whole thing keeps playing out over and over again on social media

And frankly, it’s hilarious. A popular perception is that purchasing an NFT means you own the underlying artwork, and that you should be able to prevent other people from using that artwork for, say, a Twitter profile picture. Of course, that’s not necessarily true.

This really just scratches the surface of all the different areas of law at play. A minted NFT depicting a celebrity without their authorization or consent, for example, could present an entirely different set of issues (and ways to be sued).

And so we have finally arrived at the completely predictable backlash, probably somewhat similar to the Streisand Effect. The harder you try to stop someone from using your NFT artwork in a way that you don’t like but have absolutely no control over, the more it’s going to happen. And the memes will follow.

When you buy an NFT, you own a copy, not a copyright. This is madness.