NFT litigation raises new questions about copyright

Artists make thousands and sometimes millions of dollars selling non-fungible tokens, some of which feature celebrities or others. The artist may have protected rights under copyright law for their original work, but the celebrity portrayed in the NFT has competing publicity rights to control their name, image and likeness. Whose rights prevail?

First, some background. The Copyright Act gives copyright owners “exclusive rights” to display, perform, reproduce or distribute copies of a copyrighted work, and to prepare derivative works based on the copyrighted work.

When a self-employed artist takes a picture of a celebrity, the Copyright Act gives the artist the exclusive right to make and sell copies of that picture. But what about the celebrity portrayed in the photo? Do they have a competing right to control how their name, image or likeness is used? Most states say yes.

California, for example, has long recognized a common law right of privacy to protect a person’s name and likeness from appropriation by others for their benefit, commercial or otherwise, as in Stewart v. Rolling Stone LLC.

California also provides a statutory right of publicity that prevents knowingly using another’s “name, voice, signature, photograph, or likeness” for “advertising or sales purposes” without “that person’s prior consent.”

How should the courts reconcile the artist’s copyright rights with the celebrity’s competing rights to privacy and publicity?

The answer lies, in part, in Section 301 of the Copyright Act, which seeks to “preempt and extinguish all rights under the common law or statute of a state which are equivalent to copyright and which extend to works within the scope of federal copyright law. “

Two-part test

Courts use a two-part test to determine whether a state law claim is preempted by copyright law. As articulated by the Ninth Circuit, a court must first determine whether the “subject matter” of the state law claim falls within the subject matter of copyright.

If it does, the court must determine whether the rights asserted under state law are equivalent to the exclusive rights granted to copyright owners under the Copyright Act.

Whether a claim for a right of publicity based on a copyrighted photograph falls within the scope of the copyright may turn on whether the photograph is used for commercial purposes. For example, the Ninth Circuit has held that “a right of publicity claim may continue when a likeness is used without consent on merchandise or in advertising.”

But where a likeness has been captured in a copyrighted artistic visual work – such as a photograph – and the work itself is distributed for personal use, “a right of publicity claim is little more than a thinly veiled copyright claim” and is made.

Under this approach, if an artist uses a celebrity’s image without consent on merchandise, the celebrity’s claim to publicity will not be preempted by the artist’s copyrights. However, if the artist makes a photograph of the celebrity available for download for non-commercial, artistic use, the right of publicity claim will be preferred because it challenges control over the artistic work itself and falls under the subject matter of copyright.

What about NFTs?

Where do NFTs depicting the image and likeness of a celebrity fall within this spectrum? If NFTs are merely reproductions of photographs, the display and distribution of NFTs arguably falls within the scope of copyright law and the celebrity’s claim of publicity will prevail.

However, if NFTs are different from the underlying copyrighted photograph, they are no different from any other item and the celebrity’s publicity rights should not be displaced. In a recent decision, a federal court held “that NFTs fall within the subject matter of copyright law” based on its understanding that NFTs are “a ‘digital representation’ of the underlying asset, i.e., the photographs in question.”

It can be argued for the opposite. As another federal court recently observed, NFTs are “units of data stored on a blockchain created to transfer ownership of physical objects or digital media.”

In other words, NFTs have value and exist independently of the underlying photographs they represent, and a right of publicity claim directed at an NFT should arguably be treated for preemption purposes in the same way as one directed at goods, such as skateboards and shower curtains.

In the coming months and years, the courts will have to resolve the collision between a celebrity’s or others’ right to publicity and an artist’s copyright, especially when it comes to NFTs. In the meantime, the issue will continue to significantly affect both celebrities and artists. Since this issue is still being determined, risk avoidance practices still require obtaining the consent of the copyright holder and the right of publicity holder.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Erica J. Van Loon is an intellectual property partner at Nixon Peabody. As an experienced IP litigation attorney, she has a winning track record litigating copyright, trademark, patent, publicity rights, trade secret, invasion of privacy, defamation, business interference and other media and entertainment claims.

Joshua J. Pollackan intellectual property attorney at Nixon Peabody, is a trial attorney with more than 26 years of experience representing clients in high-stakes litigation in federal and state courts across the country spanning a wide range of businesses and industries.