The NFT concept still presents many gray areas to the public, especially in terms of intellectual property, an ambiguity that worries both artists and collectors.
An acronym for Non-Fungible Token, an NFT is therefore a token anchored to the blockchain: each token has unique characteristics and cannot be reproduced. This uniqueness is of interest because associated with a good, the token embodies a digital title to ownership and is potentially indestructible if issued on a well-distributed blockchain such as Bitcoin or Ethereum.
NFT can thus represent an artistic work (painting, music, video, digital art), real estate, an entry ticket. Its digital and tamper-proof character makes the concept attractive as ownership then becomes easily transferable. Additionally, since the vast majority of blockchains are public, the history of NFT-related transactions is easily verifiable.
Token ownership must be separated from work ownership
Of course, as required by blockchain technology, the actual possession of the token is realized only through the possession of the private key associated with that address; As soon as an NFT is hosted by a third-party service, the purported holder of the NFT is exposed to the latter’s default.
After all, owning a token does not imply the wealth it is associated with. In this regard, Emmanuel Ronco, IP/IT/Privacy partner at Paris law firm Eversheds Sutherland is clear: “Access to a physical or virtual work granted by an NFT does not confer any rights; the rights are up to the discretion of the sender of the work.” As Emanuel Ronco writes, several types of cases exist:
- So-called “native” or “crypto-art” work NFTs, in which case the author creates a work for the purpose of issuing NFTs and defines the parameters of the smart contract himself. This does not create a copyright issue since the same person owns the rights and the NFT
- NFTs in pre-existing works (not originally intended to issue NFTs) but on which the author himself decides to issue NFTs. Again, this will not pose any particular problem as there is a coincidence between the author and the NFT issuer
- NFTs are works that have fallen into the public domain (in France, more than 70 years after the death of their author), in which case economic copyright no longer applies and only moral rights over the pieces.
- NFTs that carry copyrighted works and are issued by persons other than their authors. In this case, identifying the authors or their heirs and checking the chain of rights and this covers the possibility of using the work in the context of NFT production.
“Collectors acquired a license rather than intellectual property.”
In any case, it should be emphasized that it is very rare for holders of intellectual property rights to assign them: “This is the most favorable case for the buyer; in the worst case, the smart contract does not imply any conditions. And in the most common case, we speak of a license. Users Thus left in the dark because they may have thought they were acquiring intellectual property through NFT when in fact they acquired a license “, continued Emmanuel Ronco.
Different types of licenses exist and some may be very favorable to NFT holders; This is especially the case with the one offered by Yuga Labs studio for the March 2022 purchase collection, Cryptopunks and Meebits. Holders of these two collections thus have the right to use the work associated with their tokens for commercial purposes, virtual or physical, with no limit to the amount.
In contrast, other licenses limit the maximum amount of turnover generated by the use of the work: this is the case of the Glue Factory Show, an animated series with Hollywood actors and scriptwriters created by the Australian company Centaur Studios, whose NFT collection offers. Marketability limit of up to $100,000 per work: “A license that does not extend to the use of our brand name and also cautions about what can be done in the entertainment and animation sector to avoid confusion with the series we are creating.”, admits studio founder JDN Sam Korotkov.
In contrast, the VeeFriends collection issued by investor Gary Vanarchak only grants its holders personal and non-commercial use rights. Finally, others, such as the creators of Moonbirds, have opted for the Creative Commons 0 intellectual property code, which stands for free use for everyone, and this, after initially announcing that they would transfer rights to collection holders. A decision misunderstood by Raphael Malavielle, co-founder of the World of Women collection, who believes it “takes rights away from Moonbird owners”. Conversely, he and his partner and illustrator Yam Karkai opted for “an agreement to transfer intellectual property to all our NFT holders”, authorizing them for all uses except those that spread messages of hate, violence or intolerance. “We found that collectors were not sufficiently protected and we wanted to encourage them to buy art”, continued the French entrepreneur.
In France, the start-up TokenArt has created its licensing portal, to clarify the various possibilities for both authors and collectors: “We have simplified the information through images so that anyone can understand the rights and these rules are either written inside the NFT’s metadata, or directly referred to in the blockchain”, explains Clement Fontaine, founder of TokenArt. In the US, Andreessen Horowitz’s crypto investment firm a16z also released a framework for licenses dedicated to the NFT case on August 31st.
But regardless of the license chosen and declared, it is important to emphasize that the author of a work owns his moral rights. In order for him to abandon their practice, this expression must be contracted. In the absence of writing, only the author can determine whether the work can be modified and how it can be used to create a derivative work. In the case of work associated with an NFT, it is possible for the author to modify it, especially if the metadata associated with the smart contract is accessible to him. In September 2021, buyers of the NFT Raccoon Secret Society, for example, were unpleasantly surprised to see their portraits of raccoons replaced by a drawing representing a pile of bones. Behind this activity A wish of the developer team People who “want to tell people what they’re really buying”.
File hosting is an access token
This event raises questions about the storage of work associated with NFTs. In the case of digital products, three areas exist:
- If NFT artwork is created on-chain (an increasingly rare case on a platform such as Ethereum where there is a fee for each operation due to transaction costs), then it cannot be destroyed until the blockchain exists. On the other hand, in the case of little-used or private blockchains, the risk of alteration is very present.
- If the NFT work is created off-chain, it can reside on a distributed network of servers such as IPFS. In this case, the metadata cannot be changed, unless the main part of the server agrees or a new file is uploaded.
Off-chain work can be stored on a central server such as Google Drive. In this case, it is at the mercy of the server owner.
In terms of stability, on-chain NFTs are therefore the safest asset, hence its appeal. Ledger’s NFT project manager, Gaspard Brostin, specifically cites the example of Larva Labs’ Autoglyph collection (at the source of the Cryptopunks collection) or artist Josie Bellini’s Cyberbroker, who spent more than $250,000 to integrate various graphic layer works on the blockchain. He admits that the question of saving a job remains complicated: “As a new user, it’s true that getting this information is complicated. To collect jobs on-chain, you must be an expert.” According to him, “The standard is now metadata storage in IPFS or Arweave, a blockchain dedicated to file storage, thanks to tools like NiftyKit or Manifold.xyz. (Two no-code NFT generation tools, editor’s note)”.
“A smart contract is neither a contract nor intelligent”
So both NFT creators and buyers need to be extra careful to ensure their rights, especially since current legislation has yet to address all areas of use of this technology. For lawyer Emmanuel Ronco, “There is no need for a complete revision of the law but certainly some elements need to be adapted, a clarification of the law, specific terms, when there is a conflict.” He pointed specifically to the recommendations of the report of the Superior Council of Literary and Artistic Property, in particular that “to promote simplified educational documentation on copyrights committed by issue, the purchase and resale of non-fungible tokens and its technical functionality. Blockchain that includes buyers, platforms, rights holders and Authors of applicable laws and may inform the actual technical possibilities that permit it.” Responsibilities of marketplaces are often separated: “Important information, such as licenses, are not made available enough”, confirms Gaspard Brustin. “The first step would be to add the possibility for marketplaces to display the license on an NFT’s purchase page, just as a site would display a link to its terms,” says Sam Korotkov in abundance. Early provision but still very rare.
The same goes for other NFT uses like real estate. On this occasion, the lawyer Emmanuel Ronco recalls that the smart contract is not authentic: “It is not a contract or smart: in France, in a real estate transaction, one cannot be satisfied with the NFT at all, you have to go first. A notary with an authentic deed” .