Intellectual property: NFTs and IP rights

This article will look at the relationship between NFTs (non-fungible tokens) and intellectual property rights. We will examine two key areas: who has the right to create and sell NFTs, and what potential IP issues might arise when transferring NFTs.

What are NFTs?

However, before we dive into the law in this area, we should perhaps set out what NFTs are. NFTs are blockchain-based units with a unique ID linking them to an underlying asset. NFTs are essentially a one-of-a-kind token that cannot be replaced with something else (in other words they are non-fungible). They are minted so that they can connect to the underlying assets (be these digital or physical). Often, these underlying assets are protected by intellectual property rights such as copyright, designs or trade marks.

It is important to note that NFTs are not the asset itself, but instead just a certificate of ownership of the NFT. By way of an analogy, limited edition artist prints work in the same way: the artist’s signature and print number authenticate the work, indicating that it is one of a kind, but do not confer rights in the original artwork. The value of NFTs comes from their non-fungible nature. NFTs can be attributed to anything from drawings to music to a photo of
a designer handbag.

In the past year, we have seen NFTs being sold for increasingly high sums. For example, the digital artist Beeple sold an NFT of his collage “Everydays: The First 5000 Days” at Christie’s auction house for $69 million in March last year. Rather confusingly, anyone can copy a digital file, including what is included in an NFT; however, ownership of an NFT cannot be copied. Again it is helpful to consider the limited edition print analogy: you can download as many copies of Mona Lisa as you like, but only one person can own the signed and numbered print.

Rights to what?

The IP rights that come with NFTs are not straightforward, as purchasing them is not the same as purchasing a physical asset. Rights of ownership of the actual NFT are straightforward; this can be verified by the owner displaying proof of ownership of the NFT. However, having ownership of the NFT does not give ownership of the asset that the NFT represents. This was illustrated recently when former Twitter CEO Jack Dorsey auctioned an NFT of his first tweet. The Valuable platform which facilitated the auction, noted the buyer was acquiring an “autographed certificate of the tweet”. This made it clear that purchase of said NFT did not transfer the copyright in the tweet to the buyer.

Confusion over who owns NFTs is further exacerbated when the seller’s right to the underlying asset is questioned. In January, we saw Hermès bring legal proceedings against an American artist, Mason Rothschild, for selling “MetaBirkin” NFTs inspired by Hermès’ Birkin bags. Hermès accused Rothschild of trying to profit from Hermès’ trade mark. In response, Rothschild noted that he was not selling or creating fake Birkin bags but instead making artworks that depict imaginary, fur-covered Birkin bags. Which, he went on to say, was a freedom of expression protected by the US constitution, likening his artworks to Andy Warhol’s use of Campbell’s soup cans.

In an ideal world, the minter or seller of the NFT would ensure they have the required rights and permissions to the files they are minting or selling. The potential repercussions of copying, selling, or publicly displaying works without authorisation from the original creator or brand owner in the physical world are the same when it comes to NFTs. There is a risk of copyright, design right and trade mark infringement.

Final thoughts

NFTs are still very much a new concept, and when it comes to IP, the position remains relatively untested.

Beeple, the digital artist we mentioned earlier, has likened the current NFT craze to the late 90s dotcom bubble.

Craze or not, it is a risk that many brand owners are taking seriously, with Nike, Gucci, Disney and L’Oréal all looking to expand their trade mark portfolios to include the virtual world.