Legal Scope of NFTs – Intellectual Property and Copyright Issues Surrounding NFTs

NFTs are a rapidly growing digitised asset, but the legal scope concerning NFTs is still complex and evolving. This article looks at the legal content of NFTs, including intellectual property rights and contract law issues.

NFTs (Non-Fungible Tokens) are a one-of-a-kind digital asset that leverages blockchain technology to validate ownership and authenticity. 

NFTs can represent a broad spectrum of digital media, such as art, music, and videos, and their ownership can be bought, sold, and exchanged just like actual goods.

Since each NFT is unique and cannot be traded for another token of equivalent value, they are desirable as collections or as a method to assist artists and creators. In recent years, NFTs have become popular as an innovative method to monetise digital material and create scarcity in the digital world.

The legal scope of NFTs

Experts in the law and government regulators are still working to determine the full extent to which NFTs can be used legally. Legal issues surrounding NFTs often centre on intellectual property rights and contract law.  

Contract law may govern the terms of the sale or transfer of an NFT, which may entail copyright, trademark, or other intellectual property rights. More legislation and regulatory clarity concerning NFTs are inevitable as their use and adoption rates continue to rise.

Intellectual property and Copyright issues surrounding NFTs

Intellectual property and copyright issues surrounding NFTs are key legal considerations for creators, buyers, and sellers of NFTs. Some of the leading intellectual property and copyright issues that may arise with NFTs include: 

1. Copyright
2. Trademark 
3. Right of Publicity
4. Derivative works 

Copyright

Copyright is a critical intellectual property issue in the context of NFTs. The law of authorship protects original works of authorship, such as literary, artistic, musical, and other creative works. 

When an artist, for example, develops an NFT to represent their digital artwork, they may own the copyright to that artwork and have control over how it is used, reproduced, or distributed. The production, distribution, and sale of NFTs resembling copyrighted works may necessitate permission from the copyright holder. 

Buyers and sellers of NFTs must be aware of any copyright restrictions that may apply to the underlying digital media represented by the NFT. Furthermore, NFT developers must guarantee they have legal permission to utilise any copyrighted content included in the NFT, such as music or photos. 

Using copyrighted content in NFTs may create concerns about fair use, which permits limited non-permission use of copyrighted material for purposes such as criticism, commentary, news reporting, teaching, scholarship, or research. 

However, the application of fair use to NFTs is currently being researched by legal experts and is likely to be a topic of continued discussion as NFTs gain popularity.

Trademark

Another critical intellectual property and Copyright problem that comes up with NFTs is trademarks. Trademarks are used to identify and separate the goods or services of one business or group from those of others. They can include names, logos, slogans, and other branding elements that make them stand out. 

When an NFT is made to reflect a brand or logo, it may be subject to the same rules and restrictions as when it is used in other forms of advertising or branding. 

Trademarks in NFTs have to be in line with trademark law, which says that a trademark can’t be used in a way that is likely to confuse or trick customers if it isn’t allowed to. This means that NFTs that use a trademark must be made and sold with permission from the trademark owner or in a way that will not likely confuse or trick customers. 

Also, using brands in NFTs could lead to problems with dilution, which is when a trademark is used in a way that makes it less unique. Dilution can happen through tarnishment when a brand is used in an inappropriate or derogatory manner or through blurring, which is when a trademark is used to make the connection between it and the goods or services it stands for weaker. 

When making, buying, or selling NFTs, you must know the laws about trademarks and get any rights you need from the trademark owner to avoid trademark problems.

Right of Publicity

The right to publicity is also a significant intellectual property and copyright issue surrounding NFTs. The right of publicity is a legal idea that lets people decide how their name, likeness, and other personal traits are used in business. 

When a person’s picture or likeness is used to make an NFT, the use of that image or likeness may be governed by the person’s right to publicity. If you use a picture of a person in an NFT, you might have to get their permission or pay them fees. 

The right to publicity means that the people who make NFTs must get permission from the person or their authorised representative to use their likeness in the NFT. They may need to negotiate a licensing deal or royalty payment. Using a person’s likeness in an NFT may bring up problems of privacy and defamation, in addition to the right to be in the public eye. 

So, people who make NFTs with a picture or likeness of a person must ensure that using that picture or likeness doesn’t break the person’s privacy rights or hurt their reputation. 

To avoid problems with the right of publicity when making, buying, or selling NFTs, knowing the law and getting any permissions or licenses you need from the person or their approved representative is crucial.

Derivative Works

Another significant intellectual property and Copyright concern involving NFTs are derivative works. Derivative works are based on or developed from another original work, such as a book, painting, or musical composition. 

When an NFT incorporates parts of an existing copyrighted work, such as an image, sound recording, or video clip, the use of those elements may be subject to the copyright owner’s exclusive rights. 

The creation and selling of NFTs, including parts of copyrighted works, may necessitate authorisation from the copyright holder or be considered a violation of their exclusive rights. 

For example, including a photograph in an NFT may necessitate authorisation from the photographer or the owner of the photograph’s copyright. Furthermore, constructing an NFT based on or developed from a previous work may raise concerns about originality and inventiveness. 

To avoid copyright infringement difficulties when developing, buying, or selling NFTs, ensure that any copyrighted materials are used with the copyright owner’s agreement or in accordance with fair use or other exceptions to copyright law.

Navigating these intellectual property issues can be complex. It may require legal guidance to ensure that the creator, buyer, or seller of an NFT is not infringing on the rights of others.

Tips to avoid legal issues with NFTs

Here are some ways to deal with NFTs so you don’t get into legal trouble;

1. Get permission
2. Create original contents
3. Conduct research
4. Consult a lawyer
5. Use disclaimers
6. Keep records

Get permission

Before you use someone else’s copyrighted work in your NFTs, ensure you have the rights and licenses from the copyright owner. 

Create original content

Consider creating your own original content, such as digital artwork or music, to incorporate into your NFTs. Creating original content can help prevent copyright infringement issues. 

Conduct research

Before purchasing or selling an NFT, conduct research to ensure that you are not impeding on the intellectual property rights of a third party. 

Consult a lawyer

Consult a lawyer with expertise in intellectual property law to assist you in navigating the legal issues surrounding NFTs. 

Use disclaimers

Include disclaimers in your NFT listings to clarify that you make no claims or guarantees regarding the intellectual property rights associated with the NFT. 

Keep records 

Keep track of all permissions and licenses obtained and all correspondence with copyright owners and attorneys. This can help demonstrate that you have taken reasonable precautions to avoid violating the intellectual property rights of others.

Summary 

Due to their unique characteristics and the potential for intellectual property issues, the legal scope of NFTs is complex. 

When creating, purchasing, or selling NFTs, it is crucial to understand applicable laws and acquire the necessary permissions to avoid copyright infringement and other legal issues.