NFTs designed to empower artists and creators have on the corollary created a market of sellers and buyers with false ideas of ownerships and assignments of creative works resulting in an array of legal puzzlements. Miramax has sued Quentin Tarantino on NFTs related to Pulp Fiction, the Weird Whales NFTs were sold for thousands but were later found to have infringed on older pixeled whale image, Super farm auctioning JayZ’s first album Reasonable Doubt and various other such copyright suits are on the rise. The article is an attempt to explain the link between NFTs which are so often talked about these days and copyright and set right some misconceptions regarding copyrights associated with the art when one buys the NFT.
What is NFT?
NFTs are non-fungible tokens. Before we understand non-fungible tokens, we have to understand what “fungible” and “non-fungible” mean. Fungible tokens can be physical currencies chips in a casino, or crypto currencies: they are interchangeable by another identical item, which is why a €10 note can be replaced by another €10 note. Furthermore, they can be divided in fractions of the currency. For example, a €10 note can be replaced by ten €1 coins. This property makes currencies fungible. Further, tokens are programable digital unit of value that is recorded on blockchain or other decentralized networks such as Ethereum, Cardona etc.
Now, NFTs are non- fungible tokens and thus are not interchangeable. They are unique assets with no substitutable equivalent token or currency. This uniqueness makes them drive a realm of digital scarcity thus creating digital assets.
Intellectual creations such as digital art works, memes, music albums in the digital age can be easily copied and replicated ad infinitium. NFTs with their unique digital encoding mechanism are seen as a solution against imitation and replication. Digital tokens can represent variety of things from coins, shares, loyalty points, commodities etc., however at the core they are a piece of code which acts as an encrypted version of the object they are representing.
There are various standards on which tokens are created. One such standard is the Ethereum network standard known as ERC-721 smart contracts. ERC -721 smart contract allows for implementation of a standard API for NFTs providing basic functionality to track and transfer NFTs. Below in fig 1 we see digital art named “Herbie Starbelly” with the corresponding ERC 721 smart contract and metadata. As we see the contract has a token ID and the contract address linked with the Owner ID. Various other features can be coded into the metadata. NFT is thus a contract which ties to the artwork and not the artwork itself.
In effect, when someone is purchasing an NFT, they are purchasing the metadata file, which is akin to a signed receipt of a work, where the ownership is not of the work itself but of the receipt.
NFT was envisaged to the enable artists to exercise control over their work. Anil Dash one of the co-creators of NFTs said –
“Technology should be enabling artists to exercise control over their work, to sell it more easily, to more strongly protect against others appropriating it without permission. By devising the technology specifically for artistic use, McCoy and I hoped we might prevent it from becoming yet another method of exploiting creative professionals.” .
In other words, NFTs were envisioned and work primarily as digital rights management tool: the creative work is tethered to a unique token (NFT) with a unique ID containing the link to the creative work. As stated earlier, by creating a unique digital file the owners were supposed to have potential control on the uses and subsequent distribution of the creative work.
However, what we see in the NFT market space is uncertainty, opacity regarding the rights that are transferred. Most of the issues which have arisen is due to unclear understanding of copyrights in the art itself and the rights associated with the NFT token.
Who Owns the Copyright?
When one buys an oil painting or a book or any other creative work, one pays for the physical possession of that copy of the book or artwork but not for the copyright in the painting. The copyright of the book vests with the author and the publisher.
Similarly, in the NFT market, when one buys an NFT based on a copyrighted work, what one buys is a receipt or a smart contract with the unique ID tethered to the tweet. Sina Estavi bought Jack Dorsey’s (the creator of Twitter) first tweet by paying $ 2.9 M and obtained a digital certificate autographed and verified by the creator. The blockchain platform on which the tweet was sold explicitly states that the buyer does not own the copyright of the tweet and solely gets an authorized digital certificate. This is clearly stated in their FAQs -
“After I buy an NFT on Valuables can I use the content of the tweet to print on t-shirts or other merchandise to sell?
No. You own the autographed certificate of the tweet, establishing a unique, direct relationship between you and the tweet author. You do not own the copyright.” 
In general, buying an NFT does not mean you own the copyright in the underlying work as such. There are however some exceptions to this. For example, Bored Ape Yatch Club (BAYC) put on sale over 10000 unique Ape arts as NFTs, stating explicitly that the copyright over the underlying digital art was transferred with the NFT. In their terms and conditions, they explicitly specify
“You Own the NFT. Each Bored Ape is an NFT on the Ethereum blockchain. When you purchase an NFT, you own the underlying Bored Ape, the Art, completely. Ownership of the NFT is mediated entirely by the Smart Contract and the Ethereum Network: at no point may we seize, freeze, or otherwise modify the ownership of any Bored Ape”.
Such transfer of ownership provides freedom for buyers to use their ape art for commercial purposes such as printing and selling T-shirts, mugs or license it to create avatars in the metaverse.
To conclude, there are two main options when it comes to copyright transfer with NFTs, where in one the buyer is provided a certificate of ownership of the NFT with minimal control over the actual work and the other where there is complete transfer of copyrights. The important element is to understand that NFTs as such do not imply copyright ownership over the work.
Two main issues arise in relation to copyright and NFTs: the question regarding copyright ownership and transfer, and the issues regarding IP infringement and enforcement in the digital world.
The question of online assignment of the copyrights in creative works can create legal issues as present copyright laws may not be able to tackle issues of transfer of ownership in the digital space. Traditional copyright law states that transfer of ownership or assignment can only be done in writing signed by the assignor or his represented agent. The Indian Copyright Act of 1957 stipulates explicitly that an assignment is not valid unless done in writing. However, NFTs basically being smart contracts are devoid of written transfer of rights. Courts in India have considered digital signatures to be valid and do consider valid transfer when assignment of rights is done digitally. The particular case of NFTs get complicated when the NFTs brought from an original copyright holder (who transfers ownership through a digital certificate) is subsequently brought by Buyer 2 from Buyer 1 on a digital marketplace with no per-se written or digital signed copy of transfer of ownership. The smart contract with its unique identifiers would act as a means of tracing the previous owners and subsequent transfer, however it is still unclear if this would be recognized in copyright law.
Apart, from issues of the ownership and transfer, issues of misuse of the IP enforcement also arise. Unauthorized minting (publishing your work through an NFT on the blockchain to make it purchasable) or the use of the digital asset, redistributing or communicating on other platforms not envisaged by the copyright owner may lead to infringement suits.
Presently, there appears to be more questions than answers in the NFT space... NFTs are evolving and may be ushering in new business models and pushing the boundaries of law. Though they bring in huge opportunities both for creators and buyers, the age-old doctrine of caveat emptor should prevail; LET THE BUYER BEWARE!
 Andres Guadamuz, ‘The Treachery of Images: Non-Fungible Tokens and Copyright’ (2021) 00 SSRN Electronic Journal 1.
- Publication date
- 25 March 2022