NFTs and copyright: What do you own?

NFTs (non-fungible tokens) are becoming an increasingly popular way for individuals and brands to monetize their digital creations.

And it’s easy to see why.

You create a unique digital asset, like a work of art, and then tokenize it to prove your ownership of it.

More and more creators are turning to NFTs to verify authenticity and minimize fraud. Non-fungible tokens have even become the currency of choice in the metaverse.

But what happens when an NFT is sold? Who actually owns the copyright – the original creator or the new owner? And how do copyright and IP rights laws apply?

Understanding NFTs

To find out where the discrepancies and confusion lie in NFT copyright law, it is helpful to go back to the basics of understanding what NFTs are.

NFTs are digital assets that contain unique identification codes that confirm ownership. These digital assets range from art, music and photos to collectibles such as comics, trading cards and in-game items.

While fungible assets such as currency and cryptocurrency can be traded and exchanged, each NFT contains a unique digital signature.

This means that no two NFTs are the same, and therefore they cannot be exchanged or exchanged with each other. That is the difference between fungible and non-fungible.

Like cryptocurrency, non-fungible tokens or NFTs are stored on blockchain technology – a public ledger that secures information in a way that makes it impossible to hack.

Thanks to the unique identification codes contained in each NFT, they can be easily verified and authenticated to prove ownership.

Although NFTs have the technology for ownership, there is still confusion about copyright law.

How does copyright law apply to NFTs?

Let’s take a look at the Hermès case.

In November 2021, Hermès sued artist Mason Rothschild (real name Sonny Estival) for creating a faux fur line of NFTs inspired by its most famous and recognizable luxury bag: the Birkin.

Named MetaBirkins, the line directly competed with Hermès and its own plans for NFTs. According to the company’s lawsuit, this confused customers and diluted the brand.

Rothschild’s defense? That his work was social commentary and therefore protected by artistic freedom of expression.

The jury didn’t buy it and awarded the suit in favor of Hermès. Their assessment was that the NFTs were in breach of copyright law, including trademark dilution and infringement. All of this ended up costing $133,000 in damages.

An expensive lesson for Rothschild and an important legal precedent for NFTs and copyright law.

Who owns the intellectual property of an NFT?

It is clear that many brands, including notable luxury brands such as Dolce & Gabbana, Tiffany & Co., Gucci and more, are beginning to explore the potential of non-fungible tokens.

This means that it becomes more important to understand where creativity ends and copyright protection begins.

Because while purchasing an NFT gives the owner certain rights, full creative control is not one of them – not unless the rights holder takes active steps to secure this, which is rarely done.

Understand copyright protection

As the copyright owner, you have the exclusive right to reproduce and display your work – unless you choose to transfer the copyright or grant a license to the buyer.

But do the same laws apply to NFTs? These are the questions being asked now.

If creating a non-fungible token is defined as copying or reproducing the original work in any way, then under copyright law (at least in the US) the copyright holder is the only one legally allowed to do so.

But making copies of works now is much easier and cheaper than it was before the Internet existed. Today, a simple right-click is all that is needed, whereas in the past it took time, money and effort to make copies.

This is why copyright law used to be a serious consideration and today is hardly thought about.

What do you own when you buy NFTs?

That’s a good question.

Just because you buy a non-fungible token doesn’t mean you automatically own the copyright or even a license. The creator does it.

That’s because when you buy NFTs, you’re actually buying a digital token – proof of ownership of something. And in some cases, you may only be a part owner of that thing.

Take The Merge, for example – an NFT artwork of 312,686 tokens purchased by 28,983 collectors for a total price of $91.8 million.

Now imagine each of the 28,983 collectors going off separately and reproducing their part of the same work of art: nightmare.

While the various trademark, patent and copyright IP laws can be difficult to understand – especially how they apply to NFTs – the rules are simple and based on common sense.

Don’t copy other people’s work, and always keep your own work safe, as Hermès recently and powerfully demonstrated.

How licenses and NFTs work

Right now, copyright laws and policies are still being questioned and debated.

However, if you are considering buying non-fungible tokens or are already an NFT holder, there are some solutions when it comes to licensing:

Personal license

Although you may not own the copyright yourself, if you obtain a personal license, you may use your NFT for non-commercial, non-profit purposes. This can include displaying your artwork in your home or using it as your social media profile picture.

However, remember that you will not be able to use the NFT for commercial gain in any way.

Commercial rights

Here you will have some commercial rights to your NFT given to you by the creator. It is important to remember that they will still have copyright and IP ownership of the original work.

Depending on the specific rights transferred to you, you may be able to sell prints, create merchandise, or even create a TV show.

In the case of the Bored Ape Yacht Club, for example, owners have unlimited commercial use of their NFT art. (However, there seems to be some ongoing confusion about the copyright registration, which we’ll leave for another time.)

Aside from personal and commercial licenses, there are other structures where the purchaser of an NFT must pay royalties to the original creator. So every time the NFT is sold, it generates a passive income for the owner.

William Shatner, for example, sold 125,000 digital photographs on the WAX ​​Blockchain in just 9 minutes and is now earning a secondary income from their trade.

At the other end of the spectrum, a royalty-free license can do away with paying royalties to the creator. And other alternative licensing structures may grant or deny certain permissions to their owners.

So while copyright laws can have strict guidelines, licenses can help provide special creative freedoms.

Brands take precedence over NFTs and IP rights

As we have discussed, the Hermès case sets an important legal precedent for luxury brands regarding the unauthorized sale of non-fungible tokens. And it is more relevant now than ever.

Big brands like Gucci, Louis Vuitton, Burberry and more are starting to enter the NFT space, partnering with NFT marketplaces and creating digital collections. And why shouldn’t they?

NFTs allow them to authenticate limited edition products, extend the life cycle of their products and build more sustainable business models.

It is therefore no wonder that brands are optimistic about the potential of NFTs to transform the industry and create new opportunities for growth and innovation.

What does this mean for anyone making NFTs?

While NFTs have the potential to change the market and enable new opportunities, as a brand or creator, you still need to know your IP rights.

You also need to know about NFTs and understand that just because you buy one, it doesn’t mean you own the underlying IP.

Unless, of course, you are the original creator.

Instead, non-fungible tokens represent the ownership or rights to a specific underlying asset. And that means creators must avoid infringing on other people’s IP rights.

They must also take measures to protect their own IP at the same time.

Otherwise, what’s to stop someone from buying the copyright to an NFT artwork, and then suing the buyer for making that same artwork their profile picture?

Or copy other works to create NFTs and then ensure that the buyer has the rights to the work? All while blurring the lines of copyright infringement.

There are far too many gray areas to navigate already without playing fast and loose with the copyright laws already in place.

So while the terms of NFT copyright are still being defined, play it safe.

Protect your copyrighted work as a creator or brand.

Claim resale royalties if the opportunity exists for you.

Do not use the NFTs for commercial gain without proper licensing.

And never go up against Hermès.

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