A non-fungible token (NFT) is an entry in a digital ledger called a blockchain that functions as a receipt for the trading of digital items over the internet. The blockchain is not managed by a central authority and this makes it difficult to tamper with, although many recent news stories have shown that it is still vulnerable to fraud. Currently, one of the most common uses of NFTs is to facilitate the sale of digital artwork.

Unfortunately, this has meant that some unscrupulous sellers have minted NFTs associated with artwork that they do not own or have licence to sell. The question of whether this constitutes copyright infringement is difficult to determine, and the law has yet to properly account for this given that the rise of NFTs has been such a fast and unexpected phenomenon.

Does creating an unauthorised NFT constitute copyright infringement?

While most people would recognise that minting an NFT using someone else’s artwork without their permission to do so is morally wrong and an infringement of the rights of the artwork’s creator, the law is more complicated and ambiguous in this area. Therefore it is difficult to definitively determine whether creating an unauthorised NFT constitutes copyright infringement.

The difficulty arises because of the specifics of how copyright law is applied. As the name suggests, copyright law protects works of art - including written, visual or audio works, or combinations thereof - from being copied without the permission of the creator or copyright owner.

When those who mint NFTs use artwork that they do not have permission from the copyright holder to use, they do not necessarily make a copy of the work. Instead, they create a blockchain ledger that references the artwork, and it is this - the token, rather than the artwork itself - that is bought and sold. This can make it difficult to argue that a reproduction of an underlying copyrighted work is trading hands when an NFT is sold, which could make it difficult to take legal action against those minting NFTs under copyright laws.

What have intellectual property authorities said? 

The World Intellectual Property Organisation (WIPO) issued a statement in December 2021 outlining its view on the confusion that surrounds NFTs. The WIPO wrote that, fundamentally, many people assume that buyers are purchasing more than simply the metadata associated with a work, and are also acquiring the rights to the underlying work, simply because NFTs have been sold for so much money.

Even when rights are transferred, this is not a simple process. As the WIPO explains: “While most NFTs do not involve a transfer of rights, in some instances the seller offers to turn the token into an actual transfer of copyright ownership of the original work. However, it is difficult to assess if this is compliant with the legal formalities needed to transfer copyright. [...] In the UK, the transfer of copyright under the Copyright Designs and Patents Act 1988 (CDPA) requires a copyright assignment that is ‘in writing signed by or on behalf of the assignor’. It is difficult to see how an NFT would fulfil those requirements.”

The WIPO concludes that, as things stand, minting an NFT cannot be considered copyright infringement. It writes: “As the NFT is not the work, but a string of numbers that have been generated in relation to a work, the resulting file could not be considered a reproduction or even an adaptation of the work. [...] Only the right of communication to the public could be infringed through a link in an NFT. [...] However, as an NFT is simply code, it is not a substantial reproduction of the work, so it would not infringe those rights.”

What have intellectual property authorities said? 

The main risk for NFT investors is market instability. Because of volatile ebbs and flows, there is a risk that any investments could lose their value. The possibility of losing money is much greater than in other markets.

From an intellectual property perspective, the biggest risk for buyers is that, if the seller does not own the rights to the underlying artwork, it could be removed from the auction platform or hosting server. In such a circumstance, your NFT would no longer be associated with the artwork and would therefore lose the element with the most perceived value. You could also purchase an NFT without buying the rights to use or display the artwork, which might conflict with your intentions for the investment.

The best way to avoid this is to hire an intellectual property solicitor before you make your purchase. They will be able to provide you with the information you need and the questions you should ask to avoid this outcome.

This might include investigating whether the seller has either ownership of the intellectual property rights within the NFT, or alternatively, an exclusive licence to these rights. If not, there is a risk that the artwork associated with the NFT could be removed, and there is very little recourse to enable a buyer to recoup their investment in this eventuality. A lawyer can also draw up a transfer of rights from the copyright owner to ensure that the buyer is able to exercise more control over the NFT.

If you are seeking to invest in NFTs, or are concerned about infringement of your intellectual property by another party, speak to the expert IP solicitors at JMW today. Call us on 0345 872 6666, or fill in our online enquiry form to request a call back.