What You Really Buy When You Own an NFT: The Legal Edge of NFT Ownership
Introduction
What do you actually get when you purchase an NFT? The token? The picture? The right to use it? There has been much talk about such matters in the Web3 community, especially as NFTs have evolved from simple digital collectibles into complex IP assets.
A lot of buyers of NFTs feel that when they buy an NFT, they own the digital art or content it represents. In reality, people usually own a token, not the work of art. This article clarifies the legal differences between owning an NFT and owning the rights to the intellectual property. The point is simple, to clarify what NFT buyers are actually getting and not getting when buying an NFT.
What NFTs Are
NFTs are digital tokens that exist on a blockchain and enable the ability to prove you're the owner of a certain item or asset. Each NFT has a unique identifying number that cannot be duplicated or copied making it a great way to showcase and prove you are the owner of digital art, music, collectibles or in game items.
However, the NFT exists on the blockchain and the content (such as the art, audio clip or video) in most cases sits off-chain. Off-chain content means it is stored on a storage device like IPFS or a centralized server while the NFT simply holds the link or pointer to the off-chain content.
You can prove ownership of the NFT on the blockchain and you can track the history of ownership of the NFT on the blockchain, however, the certificate of ownership does not mean you have any rights to the content in any way.
What Ownership Means
Owning an NFT means you own the token, but you may not own the intellectual property of the art or item. You can hold it, sell it or give it away. You typically do not have the right to copy, modify, or distribute, or otherwise use the ancillary content, for commercial use, unless the creator licenses you that right.
Another analogy would be owning a limited-edition print of the painting. You own the print, but you do not own rights to the original artwork. You can sell your print, but you cannot reproduce the artwork, or sell a t-shirt with the picture on it.
There will be a license agreement that the author or project grants you that will outline your scope of your NFT. Some authors grant you rights of open use or commercial use, while others reserve their rights completely. The existing rights of the NFT owners would generally follow normal copyright law, which, assuming no other rights exist, would generally state that all rights rest with the creator.
Overview of Intellectual Property Rights
Intellectual Property (IP) refers to legal ownership or rights that a person has over a creative work or object, such as a copyright, trademark, and the rights to use that work for commercial ends. Any other ownership is different from ownership of a physical or digital object.
In the NFT space, IP rights determine who has the right to copy the art, create any derivative works, or commercially use it. The creator of the NFT art continues to own the work unless they abandon or license away the rights.
Usually, when an NFT is sold, no rights to the IP are transferred to the buyer. Leaving the rights to the IP with the creator, the creator must have something clear in legal terms, such as metadata in the smart contract, or in the terms of service on the site, or a signed separate written license to convey those rights.
NFT vs. IP
Most people do not know the difference between ownership of an NFT and the associated IP.
Ownership of the NFT means ownership of the blockchain token and all its history, whereas the owner of the IP means the owner of the creative work decides on the use, sharing, and selling of the creative work.
For example, the Bored Ape Yacht Club provides full commercial rights to you as the holder of your ape's image for you to make products, merchandise, or even new companies. The Bored Ape Yacht Club is explicit, but that is not common.
Many well-known NFT collections, such as CryptoPunks prior to Yuga Labs purchase, and Art Blocks, only provide limited usage rights to the authors of the work. The lack of uniformity creates confusion for buyers, and lawsuits, regarding who owns what.
Common Misunderstandings
One typical misconception in the NFT realm is that "I possess the NFT, so I am able to utilize the artwork however I want." This is incorrect in most situations.
Just because you own an NFT does not mean you can:
- put the image on items that can be sold
- create derivative works that can go to an animation or something related, or spin-offs
- use it for business or marketing purposes
Anything without permission crosses into copyright violation, and displaying it publicly can mean permission from the creator. Ownership of the token is recorded on the blockchain, as opposed to the ownership of the creative piece, which is a significant distinction in understanding the application and legal premise for NFTs.
Legal Consequences
NFT buyers who do not understand these various distinctions, could risk being in violation of the law.
For example, in the case Hermès International v. Mason Rothschild (2023), the creator of "MetaBirkins" NFTs was sued for using Hermès patented designs, and the ruling was that selling NFT images of Birkin bags constituted a violation of trademark law, demonstrating that digital tokens don't provide any protection for either producers or purchasers of the IP from theft.
In addition, the creator of CryptoPunks, Larva Labs, has issued takedown notices for NFT owners displaying their Punks when those same owners try to sell the Punks without permission. In other words, an NFT sale means a creator has copyright protection with the resale of the creator's NFT. If a project does not specify what commercial rights it provides, then the customer could be violating copyright law by reusing or making money off the art that created the NFT.
Real Examples
The following are real and imaginary examples to demonstrate the legal difference between NFTs and IP:
CryptoPunks: A buyer of a punk image used it to produce a clothing line. Larva Labs provided the buyer with a letter asking him to stop, telling the buyer that the commercial rights were not included in the sale.
Art Exhibition: A museum held a public exhibition of NFTs, and hung massive banners of the NFT paintings, creating a public case of the artist saying their work was used without permission, and the artist filed a lawsuit for copyright infringement.
Music NFTs: A musician sold NFTs of their songs but retained ownership, and once a person buys the token with music it is tradable. A person or entity that buys these tokens still cannot use the song in a movie or remix it without the musician saying they can.
These examples demonstrate the problem that they pose between buyers and authors over owning an NFT where the IP rights are unclear and owning the NFT could still open up expensive arguments over "who owns IP rights."
Conclusion
Purchasing an NFT does not mean owning the rights to the intellectual and creative work in a copyright sense. The blockchain validates the ownership of a token, not business or copyright rights.
Generally, buyers can sell or transfer ownership of the NFT, while the underlying rights to the IP still belong to the creator unless permission is given by the creator to have ownership of those rights.
As NFT ecosystems grow, having an understanding of this will give you the legal edge and make the limitations of NFTs readily apparent. In this way, licenses that are clear and written will help project owners build trust and prevent litigation in the future.
For the buyer, doing your due diligence means reading the license as much, if not more than, viewing the art. In this fluid digital ownership landscape, clarity becomes the most valuable thing.
This article is contributed by an external writer: Jocelyn Hamoy.
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