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In one increasingly digital landscape, where intellectual output often takes the form of digital output, non-fungible tokens (NFTs) are exploding in the arts, media, and entertainment worlds to protect digital files and, in turn, improve the protection, enforcement, and commercialization of the intellectual Ownership (IP).
After a few months, it doesn’t seem like NFTs are going away as quickly (as many have predicted). Kim Pietersen, Associate at Spoor & Fisher explains the principles and looks at the IP aspects.
What are NFTs?
Like cryptocurrencies, NFTs are unique digital tokens that use blockchain technology to record ownership and verify authenticity – call them digital certificates of ownership if you like. Therefore, an NFT records ownership of the digital address on the blockchain in the same way that a title deed records ownership of a fixed property. However, an NFT can – but does not have to – transfer ownership of the IP rights to the underlying digital asset. The person who purchases the NFT does not necessarily own the actual asset, although it can if the creator of the underlying digital asset transfers the intellectual property along with the NFT.
What exactly that underlying asset can be is far-reaching, and it is precisely because of this that content creators, artists and individuals alike have jumped on the NFT bandwagon.
Who are NFTs aimed at?
NFTs can be linked to any digital asset, e.g. B. a meme, a video snippet or a tweet. Earlier this year, an NFT created by British designer Beeple, which was based on a JPG file of a collage of 5,000 digital images, sold for $ 69.3 million (Rand 990 million) at a UK auction. Two weeks later, Twitter CEO Jack Dorsey sold his first tweet as NFT for $ 2.9 million (R41 million). After all, our own Bryan Habana, near his home, was the first South African sports star to sell an NFT, a 3D record player on which he raced with a cheetah, for 150,000 rand.
Kristin Robinson writes on the music news website Consequence of Sound (2021), “While some of the NFTs on offer today may feel reckless, the logic of buying NFTs is similar to other physical goods.” The appreciation of an NFT is largely made by you Buyer determines, and right now this value seems to be about rarity and having an NFT as a status symbol.
What do you own when you buy an NFT?
Unless otherwise stated, ownership of an NFT does not, by default, give you any intellectual property rights in the underlying asset. However, the NFT gives you the right to retain ownership of the NFT and prevent others from taking ownership of it.
For example, when you buy an NFT, most of the time you can’t legally edit the digital asset – even though you’ve paid for it. You can view it on social media or resell it to another entity, but you cannot profitably reproduce additional verified copies.
What are the IP considerations?
South African law grants an author automatic copyright protection without the need for registration if, for example, that author independently creates an original work. For example, this original work could be an original tweet (as in the case of Dorsey’s first tweet, which may be copyrighted in relation to the piece being written) or an original image or video (as in the case of Habana’s digital image, which is looped -GIF that could be copyrighted as an artistic work and / or a motion picture).
However, as mentioned earlier, NFTs do not necessarily grant intellectual property rights to the underlying creative work. Therefore, in many cases, the purchaser of an NFT who is not the copyright owner may not be able to object to third party reproduction of the underlying creative work.
However, NFTs can improve the protection, enforcement and commercialization of intellectual property, especially in the context of copyright, as the digital tokens can be used to manage and validate property claims; be set programmatically for the payment of royalties; and help with the detection of plagiarism.
The South African NFT platform Momint has recognized the benefits and potential of NFTs and is therefore marketing its platform to local content creators and celebrities to monetize their online creations. Momint users can create NFTs on the platform, known as minting, that enable Momint to print and store a user’s digital assets on an open source, distributed, peer-to-peer storage system called IPFS (InterPlanetary File System) . .
Author Kim Pietersen says that there is still no case law on NFTs and IP
This brings us to the question of how the underlying creative work is actually represented in an NFT. One possibility is to store all creative work data in the NFT on the blockchain. This is inefficient and costly because the larger the NFT, the more expensive and time consuming to transmit the NFT. The alternative is for the NFT to simply contain a link for off-chain storage of the data representing the creative work.
One possibility is to save the data in conventional cloud storage. The main advantage of IPFS over conventional cloud storage is that with cloud storage, if the file is removed or deleted, the link to the file encapsulated in the NFT no longer works. IPFS, on the other hand, is distributed over many peers and offers redundancy and efficiency.
The World Intellectual Property Organization (Wipo) does not run on blockchain, but uses a very similar technology to time. Used to protect creative works and designs, trade secrets and know-how, research and data, and other digital assets, the service is aimed at content creators, artists, and the like as it provides verifiable evidence that at any given point in time an intellectual Property existed in time.
Of course, like any other asset, NFTs can be risky. While trading NFTs is still a relatively new concept from an intellectual property perspective, the possible violations and allegations an intellectual property owner might have have largely remained the same.
For example, an NFT advertised for sale online could infringe trademark rights if a registered trademark is used for it without the trademark owner’s consent. In addition, if an NFT relates to an unauthorized digital reproduction of previous works of art, resale of that NFT could constitute copyright infringement in much the same way that the initial unauthorized reproduction would constitute infringement. An NFT alone does not affirm that the NFT’s creator has any rights in the underlying creative work; anyone can shape an NFT for any creative work. In both cases, the IP owner would be able to object to such a violation and could send a warning letter to the infringer or ask a high court for redress in the form of a prohibition and damages, depending on the facts.
Due diligence
While NFTs may still be a relatively new phenomenon, there appear to be benefits that content creators and artists can take advantage of, and those benefits seem to outweigh any risks involved.
It is important that buyers conduct due diligence on the NFT prior to handing over funds. It should take into account who the mint was, whether they even had any rights to the underlying creative work, and what rights such as ownership and future royalties are associated with the NFT.
However, this is a developing area where, as far as we know, there is no case law. Watch this room!
- Kim Pietersen is an associate in the trademark enforcement department at Spoor & Fisher in Cape Town
- The content of this column does not constitute legal advice
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