Authored by: Niharika Salar and Rhea Reddy.
What is the NFT buzz all about?
NFTs (Non-Fungible Tokens) are the talk of the town, especially amongst the digital and the IP community. Apart from allowing artists to monetize their work in ways that were never explored before, NFTs facilitate a self-perpetuating chain of ownership in a particular object, which can range from anywhere between a tweet to a musical piece. NFT transactions are tracked on a blockchain ledger, allowing individuals to see whether the NFT originates from the creator. Buyers can then easily spot forgeries and avoid fraudulent purchases, motivating them to invest in NFTs. It also ensures the artistic integrity of the underlying asset and prevents manipulation of protections. However, the underlying asset may be replicated once bought. In addition, blockchains only track transactions, due to which the underlying asset resides separately. This may create issues when the asset is deleted or changed on the host platform.
Copyright and NFTs
NFTs are advantageous as decentralised marketplaces transacting in art are inherently creator friendly. This is because such platforms eliminate intermediaries and connect content-creators directly to buyers. This prevents intermediaries from having claims of ownership, controlling how the digital work is distributed, or from even taking a sizeable cut of the creator’s earnings. They have also been argued to reinforce the underlying rights subsumed in copyright law. This is because NFTs, while allowing the original artist to retain copyright, have the added bonus of giving royalties to the original artist every time it changes hands. In addition, original work can be identified by associating it with the NFT, solving the dilemma of easily replicable digital works protected by copyright. It also protects moral rights, such as the right to preserve the integrity of a work, even after a sale or commission; and permits creators to choose the context in which a previously purchased work can be exploited.
NFTs also have benefits for digital files under copyright protection. Since ‘digital first sale doctrine’ is not categorically recognised, it has resulted in the issue of infinite reproductions of digital assets, known as the ‘double-spend’ problem, where buyers could not ensure that a digital file or unit of currency was sent to only one party. With a risk that a digital currency can be spent twice, it is a potential problem unique to digital currencies. However, as NFTs use blockchain technology that tracks the origin and subsequent transactions of the NFT, it solves the ‘double-spend’ problem for digital files.
However, NFTs also exacerbate the issue of copyright infringement and undermine the concept of ownership in an artistic work. The immutability of blockchain means that publication of a token and its associated rights cannot be revoked. This is problematic when the NFT is minted without the artist’s permission, after which they would not be able to receive profits or enforce their rights against the unalterable or indestructible digital asset. For instance, many artists reported earlier this year that their work had been stolen and sold on NFT sites without their permission.
It would also now be easier for well-intending artists who have created derivative works to be held liable for “exploiting” protected IP. This may subsequently impact trade of NFTs because the reseller may be found liable if the work expressed in the NFT infringes copyright. Moreover, marketplaces and platforms that facilitate the trade of such NFTs mostly do not guarantee the uniqueness, originality, or quantity of the work or metadata contained on the token. Due to this, consumers are also affected as they don’t have surety that the underlying work is not an infringement of IP, especially since the anonymity on such platforms makes it difficult to verify the rightful creator or owner in the underlying work. Thus, their now worthless NFTs may be removed by the marketplace due to copyright. However, though platforms themselves have removed some infringing NFTs, there has been no application filed or cases before courts involving NFTs and digital art. In the United States, DMCA take-down notices may be issued to bring down copyright infringing content as well.
With respect to enforcement, blockchain is decentralised technology due to which there is no central authority to take down NFTs. The responsibility of regulation falls on individual platforms. However, platforms like OpenSea, which have committed to mitigating traditional risks, have also not successfully regulated infringing content. Moreover, internationality and use of pseudonyms make it difficult to identify the infringer and take action against them. Regulators would then have to use sophisticated computer forensics to identify the owner of a digital wallet address associated with the pseudonymous account to hold them liable.
Personality Rights and NFTs
Personality rights are a wing of intellectual property law that seeks to protect celebrities from people trying to commercialise on aspects of persona. Because a certain celebrity may have a global reputation and outreach, opportunities to monetize on the celebrity’s reputation and fame are sought. The legal position on personality rights can be broadly divided into defining a right in itself i.e. right of publicity (followed in countries like USA) and protection via the common remedy of passing off (followed in countries like UK & India).
NFTs that depict individuals have been considered valuable, both in monetary and brand promotion terms. For example, professional athletes have entered the NFT market, offering digital collectibles of themselves. Violation of personality rights may be involved when NFTs make use of an individual’s name, image, or reputation without their authorisation.
When this occurs, an entity involved in trading that NFT may then be liable for infringement of personality rights because such NFTs are considered for commercial use due to its financial transaction. In the same way, even purchasers of the infringing NFT may be liable for both reselling the NFT as well as using the underlying work to promote their commercial interests. This would include liability for using the valuable or desirable NFT to drive customers to their business. Trading platforms may also be held liable for secondary or contributory infringement depending upon applicable state law. In this manner, personality rights create a strong deterrent against selling, purchasing, and even hosting another’s rights.
Some have also argued that NFTs help celebrities take back their personality rights. They present a new marketing opportunity for athletes and celebrities to profit from their name, image, or likeness. This has allowed athletes to become their own marketing platforms and negotiate for these rights to fall outside the scope of collective bargaining agreements. Pursuant to this, many athletes, as mentioned above, have sold their own trading cards and digital collectibles outside of leagues and team structures, thereby allowing them to reclaim their personality rights. Moreover, each time the NFT is resold, featured celebrities receive a cut. NFT’s popularity would also result in celebrities exploiting their own names and likeness as digital tokens, due to which any future infringements of such rights will be carefully vetted and strictly enforced.
However, those pieces of media can still go viral or circulate on the internet. NFTs may also result in unconsented misappropriation of personality when an individual’s identity is used to sell a product or service, such as celebrity tokens (monetising the celebrity’s reputation), without explicit permission.
Conclusion
From transparency and provenance to avoidance of double spend, NFTs have solved numerous problems surrounding digital transactions. However, it is not a one fit all solution. a grand saviour of all the problems. It is a technological tool that facilitates transactions in a way that is more secure and verifiable as compared to current digital transactions. Despite its safe use, instances of errors are not unheard of. At the very outset, there is an opportunity to withhold information in the chain, and once the information is on the blockchain, it becomes immutable and the wrong information is perpetrated forever.
Issues with personality rights will have to be addressed as and when instances occur. The extent of misappropriation is high, with an individual even creating a verified profile of the artist Derek Laufman on Rarible and selling NFTs in his name. NFT sales also would not prevent parties from reproducing the underlying work, rendering the exercise to gain control over the ‘personality’ moot. Thus, though the right may be useful in theory, there has been no implementation of it in practice by the platforms.
About the author: Ms Niharika Salar is an Assistant Professor of Law at NALSAR, Hyderabad. During her postgraduate studies at NUS Singapore, she had the privilege of presenting her research at Hong Kong and Indonesia with respect to Brands and IP law in multiple jurisdictions. She also assisted Prof Irene Calboli towards the organisation of IPIRA 2nd IP & Innovation Researchers of Asia Conference 2020 in Jakarta. Additionally, she also had the opportunity to work with Prof Chalmers (Vice Dean, Research, NUS Law) on his project on the legal and regulatory framework of various South East Asian countries with respect to their Covid-19 response. At NALSAR, she is responsible for teaching Intellectual Property Rights elective, seminar and mandatory courses to undergraduate and graduate students.
Rhea Reddy is a 5th Year B.A. LLB (Hons.) student at NALSAR University of Law. Her areas of interest include Intellectual Property Law, Competition Law, and International Criminal Law.
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