• Arjit Roshan

Non-fungible Tokens and Intellectual Property

Updated: Jun 13, 2021

Non-Fungible Tokens are a hot new class of assets for investors and crypto-currency enthusiasts. Like their fungible cryptocurrency counterparts, they offer a new way to trade, store value, and grow money.

Non-Fungible Tokens are simply digital files, given a unique cryptographic identity and stored on a blockchain. They essentially serve as a form of digital property, similar to owning land, real-estate, artwork, or rare collectibles. In some cases NFTs are simply digital representations of these real world items, in others they represent purely digital assets that have no physical counterpart. For instance, the first tweet ever by Jack Dorsey has been tokenized and put on auction. Similarly, the unique cryptographic identities of digital videos and artwork, although they can be copied by anyone for free, have been sold as assets.

But in most cases, purchase of these digital assets and even their unique cryptographic identity isn’t the same as purchasing intellectual property rights. For instance, when you own the copyright to a piece of artwork, you have exclusive rights to reproduce, license, and otherwise profit from that work. When you buy an NFT of a work, that right may still reside with the creator or issuer. This means in many instances, those who buy NFTs have simply bought a copy of the work with a tamper-resistant digital signature, not true ownership of the work itself.

So what’s the value of NFTs? Well, in a digital age where “things” online can be replicated and shared with no limits, blockchains provide a means of marking an original or “authentic” copy with a digital signature. This creates a scarcity and consequent value for that digital item.

Take Nyan Cat: An NFT of a remastered copy of the GIF was sold for $590,000 while the copyright still belongs to Christopher Torres--yet anyone online can copy and download the GIF for themselves. So what does the NFT owner own here? What does the copyright owner? The NFT owner owns what amounts to a signed copy of the GIF. This is akin to a signed baseball card or first edition of a book--one of many but one of a kind. Meanwhile, the copyright owner retains the right to profit off of reproduction of the work. The NFT owner can of course sell their copy as they would any other asset, but they cannot reproduce and sell that work for profit--just as the owner of a first edition of Harry Potter a book may sell their copy, but cannot start printing their own hardbacks.

The blockchain your NFT is stored on also matters quite a bit. As was illustrated in a high profile incident on Openseas, NFTs stored on centralized servers can lose their value entirely since the owner or manager of the server can unilaterally change the entry--in this case the artist changed his artwork into pictures of rugs to illustrate the flaw. On wholly decentralized networks, like the one that enables BitCoin, this is not possible. In addition to knowing what formal intellectual property rights are tied to the purchase of an NFT, it is important to know whether the blockchain entry is immutably linked to the artwork as sold.

Some blockchains enable automatic royalty payouts to artists at every instance of resale of an NFT (because as stated earlier, the artist often retains formal IP rights) and even enable fractional ownership of NFTs by employing smart contracts. All of these functionalities present exciting opportunities for investors and artists--if they know how to navigate the technology to their advantage.

NFTs, blockchains, and intellectual property rights can be confusing. If you’re considering selling or investing money in one, we recommend you reach out to an experienced intellectual property attorney first!

Here at WRO Law and Strategy, we take care to stay on the cutting edge of these developments so we can advise forward thinking individuals and businesses on how to seize all the opportunities presented by emerging technologies like blockchain.

If you have any questions about NFTs or any related legal matter, please do not hesitate to reach me at rolanzo@wro-law.com

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