NFTs and copyright management — Part 1

NFTs and copyright management — Part 1

A text by Bianca Lessard intellectual property lawyer

Unless you haven’t been online in the past couple of years, you’ve no doubt heard about non-fungible tokens or NFTs. After the artwork called Everydays: the First 5000 Days was sold for US$69 million in March 2021, many other works have sold in the seven-figure range, laying the foundations for a market that’s now worth billions. 

Another example is the image that illustrates this post — #FreeHawaiiPhoto by Cath Simard — whose rights were released by the artist after the sale of her NFT; an automatic and prearranged action in a smart contract. 

This article is the first in a series exploring NFTs, which have been made possible by blockchain technology.

While this series is not intended to address the legitimacy, value or future of NFTs, it does focus on understanding how they impact the ownership and management of related copyrights, while examining solutions for better managing these rights in world that’s still quite new.

The essentially intangible nature of NFTs muddies the waters when it comes to establishing copyright ownership.


Breaking it down

Let’s start by reviewing some concepts that are a bit more theoretical to help us understand the relationship between NFTs and copyright.

After that, we’ll be able to see how this pivotal relationship intersects with the issues arising in the market in terms of managing those rights.

Then, we’ll spend some time reviewing the various solutions that could make it possible to manage copyright more effectively in those types of situations, including standardized Creative Commons licences and their derivatives.


Some background

Even though copyright was developed to protect content creators, it’s certainly difficult for them — and just about everybody else — to fully understand and apply it. What’s more, the current copyright legislation was drafted long before the Web and NFTs were invented, complicating matters further when those virtual environments are involved.

A basic fact to keep in mind: copyright protection in Canada is automatically granted to any work as long as it falls within the categories recognized under the Copyright Act and it meets certain conditions, including the criteria of originality and fixation (it must be “fixed in material form” to make it more than just an idea).1

Once copyright has been granted, the author or copyright owner has the exclusive right to produce, reproduce, perform or publish all or part of the work for a period of 70 years after the author's death.2


Does copyright protection apply to NFTs?

Many people are surprised to learn that it’s unlikely and maybe even impossible for NFTs to benefit from copyright protection! 

Don’t forget that NFTs represent only a unit of data on a blockchain, which is not enough to constitute a work within the meaning of the Copyright Act. Plus, the originality criterion mentioned earlier would be difficult to meet: creating an NFT is a purely mechanical action carried out by a computer and may therefore not be covered by the Act.

An NFT is not the same as the work it’s related to. When an NFT is attached to a work, the work is not part of the NFT itself; instead, the work is simply connected to it by a hyperlink.

The NFT represents only a kind of guarantee confirming the integrity of the information related to that NFT as well as the integrity of the relevant data on the blockchain. Anyone can check that information, which is freely available on the blockchain, but only the NFT’s owner has the power to transfer or sell it.


Confusing situation

What adds to the confusion is that the work associated with the NFT remains available and accessible to anyone online. That can make it difficult to understand what rights are tied to that work.

Nevertheless, the rules are very clear:

Unless otherwise indicated, the copyright in a work attached to an NFT belongs solely to the author of that work. No transfer of intellectual property rights occurs if ownership of the NFT itself is transferred.

And that’s exactly how the confusion starts:

It’s important not to confuse “ownership” and “intellectual property rights”. The purchase of an NFT only grants ownership of the NFT, together with the right to resell, assign or transfer ownership of that NFT.


Parallels with the art market

This is very similar to what happens in the traditional art market, where purchasing a work only grants ownership of the work itself, not a right to copy, distribute or market the work.

For example, someone who buys a painting would have only the right to resell, assign or transfer ownership of that painting.


What’s next?

Unfortunately, the digital and intangible nature of the NFT environment greatly facilitates infringement, which is growing.

And that doesn’t even include involuntary infringement that happens because the NFT sales terms and conditions are often imprecise or even non-existent.

That’s what we’ll cover in the second part of this series, where we’ll explore the links between the fundamental relationship that we discussed here and the issues coming up in the NFT market in terms of managing those rights.


Bianca Lessard is a lawyer specializing in contract and intellectual property law. She is particularly interested in the legal issues surrounding the development and implementation of emerging technologies such as blockchain and non-fungible tokens.


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