Authored By Tim O’Keeffe, Esq. & Harold Pickmans J.D.
NFTs continue to slide into zeitgeist, but barriers to entry remain, and confusion about the rights they confer persists. One year after the March, 2021 sale, for $69.3 million, of Beeple’s “Everydays – The First 5000 Days,” salient questions around NFTs remain: What are they? What do they do? Why are portraits of cartoons so valuable?
An NFT is a Non-Fungible Token, a unique cryptographic asset on a blockchain such as Ethereum (“ETH”). NFTs are “non-fungible” because each NFT is encoded with verifiably unique identifying code and metadata. Unlike fungible cryptocurrencies where, for example, each Bitcoin is equivalent to every other Bitcoin, each NFT is unique, so each can be valued and priced individually. They are “tokens” in the sense that they are digital assets, secured by the underlying cryptographic ledger.
NFTs are being bought and sold as speculative investments. To purchase, own, and trade NFTs, you need a cryptocurrency wallet. The wallet does not “hold” NFTs the same way a normal wallet holds cash, but the wallet allows for verification of ownership. To “own” an NFT is, in a sense, to know the recovery phrase, the password, for a crypto wallet to which an NFT is tied. Ownership of an NFT, however, is not necessarily tied to ownership of the intellectual property rights to the NFT’s content.
NFTs are often encoded with JPEG or GIF images, and in part because the images are often unique (although not always), the images become confused with the NFTs themselves. A popular meme refers to “stealing” NFTs by simply screenshotting their image. A screenshot of an NFT, however, cannot make (or “mint”), transfer, or steal an NFT (not at the time of this writing).
To analogize, take the Mona Lisa, the actual painting as a physical object of oil on wood that exists in a single location, the Louvre. The physical object is photographed all the time. Capturing the Mona Lisa in a digital photo, however, is not taking or stealing the painting itself. Interpol won’t come looking to you for the photograph.
The NFT space embraces and feeds the analogy to fine art. NFTs offer a way to make digital art scarce, and therefore valuable. The analogy extends to intellectual property law and the copyright implications. NFTs are governed by smart contracts, self-executing programs with terms written directly into their code, verified by the blockchain. Smart contracts can both define the conditions and terms of an agreement and automatically facilitate, verify, and/or enforce those contractual terms and conditions.
Different NFTs have different terms and conditions. Unless the contract says otherwise, ownership of an NFT in a crypto wallet does not give the owner the right to the intellectual property of the image (or other creative work) to which it relates. The purchase of a work of art gives the owner the physical object, but not usually the copyright. Buying a painting does not typically include a license to reproduce or copy the painting for commercial or other use. That right remains with the artist for life (and then with their estate or successor for 70 years after death) under United States Copyright law unless expressly transferred. Likewise, the purchase of NFTs do not always include the copyright to the NFTs’ image or other artistic or creative components. Many NFT projects give their owners a non-exclusive license to use, copy and display their images for personal, non-commercial use only.
This January, a decentralized autonomous organization (“DAO”), a member-owned entity without centralized governance based on specific rules enforced on a blockchain, collectively raised and then paid $2.6 million to buy Alejandro Jodorowsky’s “script bible” for Dune with plans to produce content for which they would need to own the copyright. The DAO failed to realize, apparently, that the purchase of the script bible would not confer upon it the copyright in the work absent an agreement to the contrary. NFT purchasers and investors should know that by throwing some ETH down on non-fungible tokens they enter contractual agreements that may, or may not, transfer copyright and other intellectual property rights. NFT creators should beware of using and commercializing images for which they do not own the rights. The Mona Lisa, however, is in the public domain. She’s free to mint.
