The NFT craze and intellectual property issues lurking within

By Michael Rosen

Early 2021 will one day
likely be synonymous with both the beginning of the end of the COVID-19
pandemic and the end of the beginning of non-fungible tokens (NFTs) — and the
intellectual property (IP) issues associated with them.

A humanoid robot holds a brush during a demonstration before her non-fungible token (NFT) artwork is auctioned in Hong Kong, March 16, 2021, via Reuters

First deployed in 2014 to
combine aspects of scarcity and reproducibility, NFTs (good explainer here) enable visual artists, athletes, musicians,
and other creators to develop and sell unique and secure digital products.
Largely housed within the Ethereum blockchain, NFTs allow the digerati to use
cryptocurrencies to buy and sell digital art, music clips, sports highlights,
and the like, much as traditional collectors amass and trade comic books,
baseball cards, and paintings in hard copy form.

While the technology
languished for years, history was made earlier this month when the American
digital artist Mike Winkelmann, better known as Beeple, sold a collage through
Christie’s auction house for $69 million. Not only did Beeple’s sale of “Everydays:
the First 5000 Days” represent
the first NFT the venerable auction house ever offered, but it was also the
third-highest sale in history of an artwork by a living artist.

NFTs have also penetrated the world of professional sports, with collectors trading officially licensed NBA “moments,” or unique video highlights, on NBA Top Shot, a marketplace developed by Dapper Labs. One participant purchased a LeBron James dunk highlight on January 1 for $400 and sold it earlier this month for more than $32,000; CNBC reports that the system had generated $230 million in sales as of last month.

The Wall Street Journal reported that as of late March, musicians had earned nearly $43 million from nearly 30,000 NFTs. And earlier this week, Twitter founder Jack Dorsey sold his first tweet from 2006 for a cool $2.9 million (proceeds will go to charity).

But as this NFT craze
accelerates, it has already begun to raise several important IP issues that
won’t easily be resolved.

On one hand, NFTs arguably reward their creators more generously than traditional markets. Many digital-art marketplaces provide the artist with as much as a 10 percent cut of all sales of their works; even if the same work is transacted multiple times, the artist will still receive a cut. Similarly, sales of NBA Top Shot moments generate revenue shared between the marketplace operator, the NBA, and the players’ union. Because these transactions take place on the blockchain, changes in ownership can easily be monitored and tracked, ensuring creators receive their fair share. And for musicians, NFTs have been something of a savior, helping them make up for lost concert revenue during the pandemic.

At the same time, there have been growing reports of the minting of NFTs without the consent of the artists who created the original work. For instance, the Australian Broadcasting Corporation (ABC) reported several weeks ago on a tweet-minting bot called @tokenizedtweets that creates and sells new NFTs out of artists’ tweets.

A Russian artist named
Weird Undead discovered that the bot had cloned one of her tweets featuring
images of her work, prompting her to file a protest with the NFT marketplace
selling her tokenized tweet, citing “insane and pointless copyright
infringement.”

Another artist told the ABC that NFT enthusiasts had harassed him for declining to mint and sell digital copies of his work. “The NFT crowd is really scary,” the artist said. “They behave exactly like a cult.” Even actor William Shatner got in on the act.

Other creators have fretted over unauthorized reproductions of their digital works on various NFT platforms, some of which apparently do not require a would-be seller to verify ownership of an artwork before offering it.

But copyright-based
challenges to NFT misappropriation are likely to be complicated, since an NFT
of an artwork is not itself a creative work. It’s only a token of ownership,
akin to a receipt, and not a claim to have created the underlying artwork
itself. Similarly, the unauthorized minting of a token out of a tweet with a
picture of a copyrighted work doesn’t itself violate the copyright.

Then again, the
(oft-maligned) Digital Millennium Copyright Act contained provisions for IP
protection that transcended literal copyright, and we will surely benefit from
the promulgation of IP-like rules to govern NFT usage and transactions. For
instance, the artist may effectively grant the NFT owner a license to display,
reproduce, and otherwise exploit the underlying artwork in a certain way, even
if they doesn’t transfer outright ownership of the work itself.

Other questions abound,
such as: What rights does the NFT owner have to exclude others from displaying
the work? And do those rights persist after a further sale of the work? As the
technology and economy of NFTs continue to develop, so will the corresponding
IP protection regime.