The NFT Copyright Conundrum

As the NFT market continues to boom, it is important to keep in the mind the various legal issues that might arise in the not-so-distant future. OpeanSea continues to report exponential increases in its volume over the past month, and it is likely this increase will only continue. But with all this new volume, comes more risk and potential copyright issues.

Wex Legal Dictionary defines copyright as: “The exclusive legal right to reproduce, publish, sell, or distribute the matter and form of something.” Merriam-Webster defines it as: “the exclusive legal right to reproduce, publish, sell, or distribute the matter and form of something (such as a literary, musical, or artistic work).” Basically, copyright gives someone ownership over their artistic work which in turn protects their work from being stolen, reproduced, and sold for profit without their permission. 

Typically, copyright is an automatic right that attaches as soon as an original work is created, but that does not mean the original owner can enforce that right. You would have to register a copyright with U.S. Copyright Office to receive protection, which includes the ability to sue someone for infringement. When it comes to NFTs, this leaves the door wide open for people to take images that have not been registered and make money from them, leaving the original owner with little means of recourse.

Typically, an NFT’s origin can be traced back to its original owner through blockchain verification, but that does not mean the original underlying image or asset belongs to the person who initially listed the NFT for sale. For example, someone who wants to jump in on the pixelated art trend can simply google “pixelated ape,” save that image to their computer, then list it on any NFT platform. This can be a problem for many reasons. 

First, just the act of taking someone else’s artwork and attempting to pass it off as their own is a copyright violation. Second, this can cause issues down the road for investors and anyone who bought and sold an NFT that violates copyright. If the true owner of the underlying image finds out that their original artwork is being sold for profit, they will likely have a claim against the person who listed the NFT and potentially anyone else who made money from it. Not only may this cause legal issues for investors, but there is a good chance they will lose a lot of money on their initial investment. Once people realize the NFT is not an original work, the NFT will likely plummet in value.

Investors should always do their due diligence before buying a piece, and this means ensuring the original image or underlying asset truly belongs to the artist selling the piece. Since there are literally millions of images floating around the internet waiting to be grabbed up and sold as an NFT at any moment, this might not be as easy as it seems. A good way to verify an NFT’s authenticity is to do research on the artist who listed it. If you see the artist is active on social media, has been creating art for many years, and has a large portfolio, it is more likely their pieces are authentic. Anyone who is serious about investing in NFTs should absolutely take the time to do research, and those who plan on investing large sums of money might even consider consulting a lawyer.

The Fair Use doctrine permits limited use of copyrighted material without having to first acquire permission from the copyright holder. There is still a question of how this applies to NFTs. Fair use typically allows someone to use a copyrighted work without permission for purposes such as criticism, news reporting, teaching, research, and parody. Courts use several factors to determine whether something is considered fair use, including whether something is considered “transformative.” A transformative use is one which adds something new and is used for a further purpose or meaning, not just an exact replica of the original work. This is an interesting consideration when it comes to NFTs, since NFTs in and of themselves are an entirely new concept. Does this mean that merely turning something into an NFT is transformative in nature? Does putting something on the blockchain completely transform its purpose and meaning? Only time will tell…

The Future of NFT Legalities

As of now, we are still in a sort of legal gray area when it comes to NFTs since this is all relatively new, and there are no landmark cases which can provide guidance on this subject. There are many unanswered questions when it comes to NFT copyright, ownership, and digital contracts in general. For example, if someone sells an NFT that doesn’t necessarily mean they are also selling their copyright ownership in that piece to the buyer through the sale. Every NFT selling platform has different material terms. As the NFT space continues to grow we can expect to see new information on NFT laws and how they fit into the intellectual property world. We can also expect to see more lawyers specializing in smart-contracts and NFTs. For now, make sure you do your research and protect your investments.