Non-fungible tokens (NFT) have finally gotten the mainstream media attention they deserve and are increasing in value everyday. However, before creators can take advantage of this innovative way to share your creations(and get paid for it), you must first (1) know what an NFT is, (2) know intellectual property (IP) basics, and (3) understand how these two worlds collide. Let’s start with the NFT.
What is an NFT?
An NFT is a unique cryptonic token that is linked to an underlying asset and managed on a blockchain. Unlike Bitcoin, each token has a unique ID that cannot be replicated. When you purchase an NFT, you claim ownership to that unique token pursuant to the terms embedded in the underlying smart contract. You do not claim ownership to the underlying asset(the art). The NFT itself is intangible personal property.
What is IP: Copyright
IP generally is property rights connected to certain types of ideas and creations. The most relevant type of IP here is copyright. A copyright is a right connected to an original work of authorship fixed in a tangible medium of expression(think books, paintings, songs; NOT ideas or thoughts). An author of a copyrightable work earns ownership of the copyright upon creation(although copyright registration is highly recommended). Once a work is created, the author has the exclusive right to sell, transfer, reproduce, perform, display, distribute, or create a derivative work. Most importantly, under U.S. copyright law, transfer of a copy(think book, mp3, jpeg) does not constitute transfer of the underlying copyright to the work(think the story, song, or photograph). Even if an author sells a book or mp3, the only thing the buyer owns is that copy( the physical book or digital file). Only the author can then turn the underlying story in the book into a movie or a podcast.
The Intersection of NFT and Intellectual Property
The most important takeaway is purchase of an NFT, like the purchase of a book, does not automatically transfer copyright ownership in the underlying asset. The owner of the NFT only owns that unique token. Further, most NFT are transferred with underlying license agreements either embedded in the NFT or stated on the NFT platform’s terms of use. Thus use of the NFT beyond the terms of the embedded license is not only a breach of contract, but likely copyright infringement. While you may own the NFT, you may still be restricted from its use, display, and even sale as per the licensing agreement. Thus before buying an NFT it would be wise to read those terms to fully understand the value of the NFT. And if you are selling an NFT, it is even more wise to ensure that the license connected to its sale is just that; a license that restricts the NFT owner’s use, and not a transfer of ownership of the underlying asset’s intellectual property rights.
The NFT Market is currently like the wild wild west. However, you can take full advantage of the early stage NFT market by intersecting your NFT knowledge with a basic understanding of intellectual property.
P.S. For further information on Intellectual property generally, check out the KNOW YOUR INTELLECTUAL PROPERTY RIGHTS article on this site.
THIS IS NOT LEGAL ADVICE, THIS IS JUST INFORMATION. I AM NOT YOUR ATTORNEY. GO GET AN ATTORNEY.