A text by Bianca Lessard intellectual property lawyer
In the first article in this series, we discussed how the popularity of non-fungible tokens (NFTs) is raising concerns when it comes to copyright. In this second article, we’ll take a closer look at specific issues related to NFTs and copyright.
What makes NFTs very concerning from a copyright perspective is that no legal framework has been set up to protect digital assets in general. Because of their unique characteristics, NFTs are susceptible to various kinds of copyright infringement and it can also be difficult to determine copyright ownership in some cases. Plus, there’s a lot of confusion about what constitutes fair dealing in this emerging industry.
Copyright infringement
One of the main copyright-related issues affecting NFTs is the risk of infringement. When an NFT representing or incorporating a copyrighted work is created without the copyright owner’s permission, it’s very likely infringement has occurred.
Example: A digital artist creates a unique work of art and publishes it on their website or social media. A third party captures an image of the work on screen and creates an NFT from it without the artist’s authorization. That person has infringed the artist’s copyright.
This situation is a major concern for artists, whose works could be sold in the form of NFTs even if they haven’t given their permission or received any compensation.
Looking to address this issue, some platforms selling NFTs have introduced measures to guarantee that only the true owners of the works are authorized to create and sell NFTs incorporating those works. However, since this isn’t a failsafe solution, copyright infringement remains a serious problem.
Copyright ownership
Another major issue is copyright ownership. Although the buyer owns the NFT representing the work, they still don’t own the copyright for the work itself. That means they may not have the right to reproduce or distribute the content, which could limit their ability to take full advantage of the NFT.
Example: Someone pays a large amount for an NFT representing a digital work of art, thinking they’ve bought the rights to use the work commercially. Then they discover they can’t use the work how they actually wanted to without infringing the artist’s copyright.
For that reason, some platforms have started to offer buyers additional licensing options that grant certain rights to use the work itself. Those options are still relatively new so it remains to be seen how effective this innovation will be in practice.
Spice DAO case
That’s what happened to Spice DAO (decentralized autonomous organization), an anonymous group that raised €2.66 million to buy a copy of a rare artbook called Jodorowsky's Dune inspired by Frank Herbert’s epic science fiction novels.
Spice DAO’s intention was to make the book available to everyone, produce a limited animated series inspired by the book and publish a collection of NFTs based on the book. Not only that, but Spice DAO planned to destroy the physical copy of the book after it had been made public.
What actually happened is that all those plans failed to materialize when the group realized that none of the rights they needed to achieve their goals were included in the exorbitant price they’d paid for the book.
The group’s failure highlighted the need to understand what you’re buying in both the virtual universe and the physical world. Simply owning a book or NFT doesn’t automatically give you the underlying intellectual property (IP) rights, as we saw in the first article in this series.
Fair dealing (or not)
Another issue involving NFTs is fair dealing for content protected by copyright. Fair dealing is a legal doctrine that allows copyrighted content to be used for certain purposes, such as criticism, review or education, without requiring the copyright owner’s permission.
However, it’s not clear how that exception applies to the use of copyrighted content in the form of NFTs.
If someone creates an NFT of a copyrighted work for the purpose of criticism or review, would that be considered fair dealing? It’s a complex legal issue that will likely be an important topic of discussion and litigation in the years ahead.
Rothschild case
In May 2021, the artist called Rothschild (whose real name is Sonny Estival) published a digital artwork called Baby Birkin, representing a foetus in a transparent Birkin bag that looked like the iconic bag sold under the Hermès brand. The NFT sold for US$23,500. In December of that same year, the artist released a new collection of 100 NFTs called MetaBirkins, representing Birkin bags covered in faux fur.
Hermès decided to sue Rothschild for copyright infringement. In the end, the jury determined that the versions of the Birkin bags sold by the artist were likely to cause confusion among consumers and were not a form of protected speech. Rothschild had compared his use of the bags to Warhol’s representation of Campbell soup cans in his pop culture silkscreen prints.
Countering that claim, Hermès argued that Rothschild was a digital speculator and appropriator and that his actions were likely to harm the brand’s image. Even though the case focused more on US trademark law, it’s important because it was one of the first cases involving NFTs and could affect future brand/artist collaborations and the use of certain content.
Takeaways
The use of NFTs creates exciting new opportunities for creators and digital collectors but also raises many copyright issues. It’s essential for artists and NFT buyers to understand the legal implications of selling and using NFTs.
As NFTs become more widespread, new developments will follow in the legal field. In the meantime, creators and buyers need to be cautious and ask for legal advice if they have concerns or questions about copyright issues related to selling or using NFTs.
__
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.