Blockchain technology is a widespread phenomenon that advances the web as we know it to a decentralized Web3 based on tokenomics. Whether or not these records of transactions are physically tangible, they fall under a specific type of law. Copyright infringement is a serious offense and can breed major consequences. However, the widespread confusion circling the NFT space has made many projects run into copyright issues. Why? Because the fundamental problem lies behind one question: What do you get when you buy an NFT?
Many assume that buying an NFT grants them the rights to its linked artwork. Which is mostly not the case. If you are the proud owner of an Azuki NFT, I hate to break it to you, you do NOT own the legal rights to the artwork. You don’t own anything related to the artwork. So what do you own? Well, the NFT of course.
This guide will walk you through the intricate and fragile world of NFT copyrights. However, before we discuss how copyright law applies to NFT, we need to clear up the confusion.
What You Get When Buying an NFT
Many believe that owning an NFT automatically grants them the right to own the underlying work of art and all its intellectual property. However, in reality, they simply own the metadata associated with the artwork, not the work itself.
The confusion stems from the millions of dollars spent on NFTs. For example, CryptoPunk #5822 was coined by the Guinness Book as the most expensive NFT sold for $23.7 million. And thus, people might assume that this massive amount of money was spent for something more than just code on a blockchain. Especially newcomers in the NFT scene will expect to own much more than just strings of code. However, that is what most NFTs are – a transaction. Sad to inform you that you are purchasing the receipt of owning a pizza, not the pizza itself. This is where NFT copyright issues fall when someone distributes a work of art thinking he owns it, but all he simply owns is its metadata.
So why would someone pay millions of dollars for a transaction? That’s a topic for another article. However, as established before, some actually think that they own more than that.
NFT Copyright Explanation
Even if NFTs are part of the decentralized space of the blockchain, copyright laws apply. However, many NFT cases have reported a copyright violation but not many were actually compensated. Why? because very few NFT projects take into consideration the copyright steps to ensure the legal ownership of a specific artwork. Legal issues are unfortunately an afterthought in the NFT space.
Copyright is the exclusive and legal right to publish, redistribute, and print creative works. It’s literally the “right” to make a “copy” of a specific intellectual property. The United States Copyright Office has established a set of rules and regulations attributed to copyright law. That means any original work of authorship is protected by federal law. However, in order to legitimate any work, it needs to be registered at the U.S. Copyright Office.
Copyright vs. Copy
However, we have to differentiate between a copy and a copyright. You can own a copyright to a specific creative work but not own any of its copies and vice versa. I’ll explain.
Imagine you wrote a novel and you printed it into a book. You then registered the novel under copyright law. Thus, you are the sole owner of all exclusive rights to the book. You can prevent anyone from making copies or derivative works, such as movie adaptations, of the book. Let’s say you sold the book to a friend. That friend now owns the book but does NOT own its intellectual property. If your friend redistributed the book he’d be committing serious copyright infringement. So even if you do not own a physical copy of the book anymore, you’d still have all legal rights tied to the work. Similarly, even if your friend owns a copy of the book, that doesn’t mean he purchased its copyright. The same goes for NFTs.
However, there are two ways to give someone permission to redistribute or make a derivative of a copyrighted work. They can either buy the copyright, which is known as a transfer of ownership, or they can buy the copyright outright which comes in the form of a license. Transfer of ownership is simply, transferring all legal rights to another person. However, on the other hand, a license is more limiting to specific rights the original owner can give to someone.
Okay, that’s great and all, but how do NFTs fit into copyright laws? Well, NFTs generally fall under the same law of copyright above. Meaning that to understand how NFT copyrights are enforced, you must understand how normal copyright law work. However, NFTs differentiate from other original works of ownership. The main difference is that NFT consists of both on-chain and off-chain entities. The actual non-fungible token is an on-chain asset that when you purchase an NFT, you get all legal rights ONLY to this asset. However, the media linked to it is an off-chain asset, meaning, purchasing an NFT doesn’t grant you any right to the artwork.
However, some NFT collections link their off-chain asset to a legal connection to the on-chain asset. This process is called tethering. In short, some NFTs grant you the ownership of all legal rights for both the string of codes and the media associated with it. A famous example is the Bored Ape Yacht Club NFT collection. Although not a complete control of ownership, the BAYC offers owners the right to make derivative work, like merchandise, off of the NFT they have purchased.
Unfortunately, many issues may run into this kind of licensing. For instance, let’s say NFTx employs the same copyright as BAYC. Therefore, if you own an NFTx, you own the right to give a license to your cousin to create a comic book based on the NFT’s artwork. However, what would happen to the right of owning and distributing the comic if you sold the NFT to another collector? Well, four things could fall into place.
- Your cousin’s license would terminate as your ownership of the NFTx ends. Meaning if your cousin chooses to sell his comic book, he would fall under serious copyright violations.
- Your cousin’s license would terminate but any existing work, such as the comic, is not prone to copyright infringement.
- Your cousin’s license would continue but the new owner of the NFT could give the same license to someone else.
- Your cousin’s license would continue and the new NFT owner could not give off the same license.
NFT Copyright Offenses
Copyright law is a thing most NFT owners brush off, but copyright infringement is an unforgiving offense. The Copyright Act clearly states under section 504, that the sale or distribution of an infringed work can make everyone liable for actual damages, whether done innocently or willfully. Willful distribution of copyrighted work can lead to the offender paying up to $150,000 per infringement.
Unfortunately, some NFT projects do not explicitly write copyright terms for their digital assets. In this case, someone can buy the underlying copyright of the actual NFT artwork and sue the NFT owner for using the copyrighted image in a profile picture. Stolen NFT art also falls under copyright infringement. Many NFT collections use artworks stolen from artists and false-advertise that owners will receive the legal rights of the artworks. Anyone who buys an NFT with stolen art and makes a copy of it would also be liable for infringement.
This also applies to real-life assets. If you own millions of dollars worth of physical artwork, that doesn’t grant you the right to distribute, print, or alter them for the sake of NFTs. That’s what Mexican businessman Martin Mobarak did when he burned a $10 million Frida Kahlo painting to sell it as an NFT. Mobarak will be facing legal consequences for distributing something he has no copyright for.
Be Careful of Legal Rights
Whether you are an NFT creator or collector, you should carefully study the implications of copyright laws. If you want to create an NFT collection, you should not launch the project based on smart-contract libraries that are filled with imperfections and faulty legal terms. You should research widely on how you want the copyright to be. However, if you are an NFT collector, do your research before buying an NFT and investigate the intellectual property rights you are buying. Make sure you are not also buying a copycat project that might get you liable for copyright infringement in the future.