The concept of NFT still presents many gray areas for the public, especially in the area of intellectual property, a vagueness that affects artists and collectors alike.
An acronym for non-fungible token, an NFT is thus a token anchored on a blockchain: each token has unique properties and cannot be reproduced. It is this uniqueness that sparks interest because the token, associated with an asset, embodies a digital title of ownership and is potentially indestructible when issued on a well-distributed blockchain, such as Bitcoin or Ethereum.
The NFT can thus represent an artistic work (painting, music, video, digital art), real estate, an admission ticket. The digital and tamper-resistant characters make the concept attractive because it makes the property easily transferable. In addition, the vast majority of blockchains are public, making the history of NFT-related transactions easy to verify.
Distinguish ownership of the token from ownership of the work
Of course, as required by blockchain technology, real ownership of the token is only materialized by possession of the private key corresponding to the address where it resides; once an NFT is hosted by a third party service, the presumed holder of the NFT is exposed to its default.
Above all, owning the token does not imply ownership of the asset it is associated with. On this subject, Emmanuel Ronco, IP/IT/Privacy partner of the law firm Eversheds Sutherland in Paris, is clear: “Access to a physical or virtual work offered by the NFT does not confer any rights; the rights depend on the use chosen by the sender of the work.” There are different types of cases, writes Emmanuel Ronco:
- NFTs on so-called “native” or “crypto-art” works, where the author creates a work for the purpose of issuing NFCs and defines the parameters of the smart contract itself. This does not pose a copyright issue as the same person owns the rights and the NFT.
- NFTs on pre-existing works (not initially created to issue NFTs) but for which the author decides to issue NFTs himself. Again, this will not pose a particular problem as there is a coincidence between the author and the publisher of the NFT
- NFTs related to works that have fallen into the public domain (in France, more than 70 years after the death of the author), cases where economic copyright no longer applies and only the moral rights to pieces.
- NFTs that contain copyrighted works and are published by persons other than their authors. In this case, it will be necessary to identify the authors or their heirs and to check the chain of rights and whether they cover the possibility of using the work in the context of the production of NFT.
“Collectors are licensed instead of intellectual property”
In any case, it should be emphasized that it is very rare for the holder of the intellectual property rights to transfer them: “This is the best case for the buyer; at the worst, the smart contract does not refer to any terms and in the most common case speak of a license, so users are left in the dark because they may have thought they were acquiring the intellectual property through the NFT, when in fact they had obtained a license,” continues Emmanuel Ronco.
Different types of permits exist and some of them can be very beneficial to the holder of the NFT; this is especially the case with the one offered by the Yuga Labs studio in August for the collections it bought in March 2022, Cryptopunks and Meebits. The holders of these two collections thus have the right to use the work associated with their token for commercial purposes, without limit on the amount, both for virtual and physical activities.
Other licenses, on the other hand, limit a maximum turnover generated from the use of the work: this is the case of Glue Factory Show, an animated series developed by the Australian company Centaur Studios with Hollywood actors and screenwriters, whose NFT collection offers a sales limit of up to $100,000 per work: “A license that does not extend to the use of our brand name and there are also caveats to what can be done in the entertainment and animation sector to avoid confusion with the series we are making,” confides the JDN Sam Korotkov, the studio’s founder.
Conversely, the VeeFriends collection, published by investor Gary Vaynerchuck, grants its holders a right for personal and non-commercial use only. Finally, others, such as the creators of Moonbirds, opted for the Creative Commons 0 intellectual property code, synonymous with free use for all, after initially announcing that they would relinquish the rights to the holders of the collection. A decision misunderstood by Raphaël Malavielle, co-founder of the World of Women collection, who believes it “took rights away from the holders of the Moonbirds”. Conversely, he and his companion and illustrator Yam Karkaï opted for an “intellectual property transfer contract to all of our NFT holders,” which authorized them for all uses except those that spread messages of hatred, violence or bigotry. “We found that collectors were not sufficiently protected and wanted to encourage them to buy art,” continues the French entrepreneur.
In France, the start-up TokenArt has created its licensing portal to clarify the different possibilities, both for authors and for collectors: “We have simplified the information with icons so that everyone can understand the rights it has and these rules are either written in the metadata from the NFT, or referenced directly in the blockchain,” explains Clément Fontaine, founder of TokenArt. In the United States, a16z, Andreesen Horowitz’s crypto investment firm, also published a licensing framework for NFT business on August 31.
But whatever license is chosen and announced, it is important to emphasize that the author of a work retains his moral rights. In order for him to refrain from exercising them, this expression must be contracted. In the absence of writing, only the author can determine whether the work can be modified and how it can be used for a derivative creation. Thus, in the case of a work associated with an NFT, it is possible for the author to modify it, especially if the metadata associated with the smart contract is accessible to him. For example, in September 2021, buyers of NFT Raccoon Secret Society received the unpleasant surprise that their drawn portrait of raccoons was replaced by a drawing of a pile of bones. Behind this act a will from the team of developers who “wanted to tell people what they really buy”.
An access token to the file hosting
This event raises the question of the storage of the work associated with the NFT. In the case of digital goods, there are three cases:
- If the NFT artwork is generated on-chain (an increasingly rare case on a platform like Ethereum due to transaction fees, as each operation carries a fee), it cannot be destroyed until the blockchain exists. On the other hand, in the case of a little-used or private blockchain, the risk of modification is very present.
- If the NFT work is generated off-chain, it may reside on a distributed network of servers, such as IPFS. In this case, the metadata cannot be changed unless consensus from most of the servers or uploading a new file.
The off-chain work can also be stored on a central server, such as Google Drive. In this case, it is at the mercy of the server owner.
When it comes to sustainability, on-chain NFT is therefore the safest asset, hence its appeal. NFT Project Manager at Ledger, Gaspard Broustine, in particular, evokes the examples of the Autoglyph collections of Larva Labs (at the origin of the Cryptopunks collection) or Cyber Brokers of the artist Josie Bellini, which has more than $250,000 spent to work the different graphic layers in the blockchain. He acknowledges that the issue of saving a work remains complicated: “As a new user, it is true that it is complex to obtain this information. To collect works on-chain, you already have to be an expert.” “the standard now is the storage of metadata in IPFS or Arweave, a blockchain dedicated to file storage, thanks to tools such as Nifty Kity or Manifold.xyz (two no-code NFT creation tools, editor’s note)”.
“A smart contract is neither a contract nor intelligent”
Therefore, both NFT makers and buyers need to be extra vigilant to safeguard their rights, especially as current legislation still has to regulate all cases of use of this technology. According to lawyer Emmanuel Ronco, “there is no need for a total revision of the law, but certainly for an adjustment of certain elements, a clarification of the law, of certain provisions, when there are disputes.” He points in particular to the proposals of the report of the Supreme Council for Literary and Artistic Property, in particular that of “dissemination of simplified educational documentation on the copyrights mobilized by the issuance, purchase and resale of non-replaceable tokens.” and the technical functioning of the blockchain to inform buyers, platforms, rightholders and authors about the applicable law and the real technological possibilities it enables”. In general, the responsibility of marketplaces is often emphasized: “Important information, such as licenses, is not made available enough,” confirms Gaspard Broustine. “The first thing you should do is add to marketplaces the ability to display licenses on an NFT’s purchase page, just like a site displays a link to terms and conditions,” says Sam Korotkov in abundance. Basic amenities but still too rare.
The same goes for other NFT use cases, such as real estate. On this occasion, lawyer Emmanuel Ronco recalls that the smart contract is not authoritative: “It is neither a contract nor intelligent: in France in a real estate transaction one cannot be satisfied at all with an NFT, you have to go for a notary with an authentic deed”.