The Role Of NFTs in Intellectual Property Law: A Brief Overview

Preliminary Observations

Technological advancement has a crucial impact on various legal fields, including the one of Intellectual Property law (hereinafter ‘IP law’). This is the case when it comes to blockchain technology. This new institution had an imperative impact on how natural and legal persons interact with each other there and the government. Being an immune digital ledger, it opened to private parties completely new ways to engage in peer-to-peer online transactions.

A specific attention should be given to Non-Fungible Tokens (hereinafter ‘NFTs’). This type of cryptocurrency is similar to the conventional ones, such as Bitcoin, but lacks the feature of interchangeability. Each single NFT has its unique ID and other data which cannot be replicated. As a consequence, one can observe that this technological characteristic of NFTs is of great interest for the IP law regime in the European Union (hereinafter ‘EU’) and its Member States. This short paper will outline the key implications NFTs already have on this field of jurisprudence and how one can use it to his or her benefit.

NFTs and IP: Key Implications

To start with, it should be noted that NFTs are based on the Ethereum blockchain and can be anything digital, such as music, a picture, or a drawing. As each NFT is unique, it also gives to its owner the possibility to ensure that the original version of the file will always belong to her or him. Put differently, if there is a specific digital image with a NFT which belongs to person A, copying it to the computer of person B will not make the latter an owner of the original file, but only of its copy.

With regard to the right of ownership, there is a distinction between ownership of an NFT as a token and ownership of a unit of data associated with it. Owning an NFT therefore does not automatically result in owning a unit of data which is associated with it. Henceforth, there is a debate regarding who owns an asset which has been minted into an NFT. This topic is specifically relevant when it comes to [digital] art. Whenever an individual purchases a physical painting, s/he becomes an owner of this physical painting, but this does not automatically allow him/her to replicate it. By analogy, if one purchases an NFT and a digital painting attached to it, this individual does not automatically become and owner of the painting itself. He/she becomes an owner of the NFT and can display the painting in question in his/her wallet for personal purposes only. By contrast, s/he cannot use this digital painting outside of the wallet, for instance by further selling it in either digital or printed form. This means that one should always distinguish between owning an NFT token and the digital art associated with it.

As a consequence, the contract between an NFT buyer and the owner of an art in question should always specify which rights are transferred together with an NFT. For instance, the contracting parties have to specify whether copyright and other exclusive rights associated with it are transferred from the original owner to the NFT buyer. This further results in a situation that an NFT cannot be used as a validation that an owner of this NFT also has all [exclusive] rights over a unit of data associated with it. Here it should be underlined that even though this paper discussed a topic of digital art, an NFT can be tied to any other type of data, such as a specific song.

Nevertheless, by default IP owners did not consider NFTs while creating their license deals. For example, it can be strategically smart to specifically preclude the licensee from minting an art in question into an NFT. Similarly, when allowing the licensee to mint an art into an NFT, the original owner must specify which exact rights have also been transferred to the NFT creator. Thus, such crucial topics should always be clearly specified in a contract.

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Author: Kirill Ryabtsev

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Providing the Road to Regulatory Clarity in the Blockchain Industry.

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Providing the Road to Regulatory Clarity in the Blockchain Industry.