What Are NFTs? The Latest Blockchain Tech You Need to Know to Protect Your IP
Posted on May 20, 2021 in Articles
A blockchain company purchased an original Bansky artwork for $95,000. Then they set it on fire. Why? The answer lies in NFTs.
A New York art gallery sold the piece “Morons (White),” a highly coveted artwork from the anonymous British artist, in early March 2021. The group that purchased the piece then posted a public video, featuring a masked man holding a lighter to the artwork, watching it burn. Yet, before the group rendered the piece to ashes, they replicated the work in digital format and later sold it for $380,000 as a non-fungible token, or NFT.
NFTs are digital assets with ownerships recorded and certified on blockchain, similar to how ownership of Bitcoin is authenticated. Essentially, an NFT is a digital collectable item, appealing to individuals desiring the exclusivity of “owning” a digital asset in artwork in an indestructible capacity. While NFTs have been used to commodify music files, videos, and various other media since 2017, the recent trend in NFTs centers on the digital art collecting world. However, the idea of NFT “ownership” changes the dynamic of who owns and controls creative works, highlighting novel issues in Copyright regulation.
Copyrights arise from creation once a work is fixed in a tangible medium of expression. However, to protect the work, formally registering for a copyright grants the copyright holder exclusive rights to remedies if the work is distributed, reproduced, sold, performed, displayed, or modified into a derivative work by an unauthorized person. In 1998, Congress passed the Digital Millennium Copyright Act (DMCA) to provide a mechanism of protecting copyright owners in the digital age, where works of art are more easily copied and distributed. The Act creates liability for providing services to copy and distribute works in circumvention of access controls, as well as for downloading, copying, and/or distributing works in contravention of a work’s copyright.
NFTs, however, are non-tangible assets that comprise a record of ownership. While the image associated with the NFT may theoretically be reproduced, the decentralized blockchain ledger where the ownership of the NFT is recorded prevents the digital asset itself—the NFT—from being replicated. For example, an NFT of the first tweet posted on Twitter® sold for nearly $3 million. While the image of the tweet can be replicated, its digital ownership cannot. Thus, NFTs provide exclusive ownership of a digital, indivisible asset that can be sold to others and capitalized upon. While NFT possession provides ownership of the digital asset, it does not provide ownership of the underlying work. Thus, purchasing an NFT is not the same as acquiring a copyright.
With copyrighted works, the author of the work owns the copyright unless the copyright is assigned to another, as is commonly the case with works made for hire. Copyright owners may also create NFTs of their own works. However, if an author sells an NFT of a work, the copyright does not follow the NFT unless the terms of the agreement specify otherwise. For example, some artists have opted to release their music on websites that use blockchain ledgers to sell NFTs alongside percentages of copyrights to others, allowing artists to reap greater profit off of their music and still retain a percentage of their original copyright. However, the ease of copying works in the digital age and separability of NFTs and copyright poses two questions:
- Can the NFT itself be copyrighted?
- If an NFT is made of a work and sold without the copyright holder’s consent, what rights does that copyright holder have?
Whether an NFT can be copyrighted is also a matter up for debate. Copyrights protect tangible mediums of expression, and an NFT is an intangible asset. However, NFTs arguably are a medium of expression and have been used in areas ranging from fine art to music, derivative works, and memes. To date, copyright law only protects “tangible” mediums of expression, and an NFT is “like a deed to a house. A deed not to the house itself, but a record of ownership of the house[,]” and therefore only a tokenized ownership status. Thus, while current law suggests the NFT itself is not eligible for copyright protection, amendments to the Copyright Act may be necessary if NFTs continue to exponentially grow in popularity.
In a market based on selling exclusivity or status, the minute an NFT purchaser posts to broadcast to others the image associated with the NFT ownership—arguably the point of owning the NFT in the first place—the purchaser has made a digital copy, which could infringe the copyright of the underlying image. While NFTs are too novel to have been addressed directly in the Copyright Act, copyright holders have the option of filing DMCA takedown notices against websites selling NFTs of their works to protect their rights. Likewise, a takedown request can be filed against the NFT owner for making an unauthorized copy of the image. Copyright holders also have the option of creating the NFTs of the underlying works themselves, giving them both control over the copyrights and the NFTs. Alternatively, for those desiring to create NFTs of a work to which they do not own the copyright, it is important to contact an intellectual property attorney to determine what licenses may be necessary to safely capitalize on an NFT and avoid infringement disputes.
Whether a temporary fad or a fourth dimension of expressive ownership, NFTs illustrate the importance of IP law in facilitating safe acquisition of new forms of intellectual property and protecting works from digital misappropriation.
 Cristina Criddle, Banksy Art Burned, Destroyed, and Sold as Token in ‘Money-Making Stunt’, BBC News, Mar. 9, 2021, https://www.bbc.com/news/technology-56335948.
 Jeremy Goldman, A Primer on NFTs and Intellectual Property, Lexology, Mar. 11, 2021, https://www.lexology.com/library/detail.aspx?g=d96ed012-8789-4e87-bc1d-70ba76569c0f#:~:text=The%20quick%20answer%20is%20the,NFT%20holder%2C%20owns%20the%20copyright.
 Id. See also Carly A. Kessler, NFTs Are Reshaping Artists’ IP Rights, Bloomberg Law, Mar. 24, 2021, https://news.bloomberglaw.com/us-law-week/nfts-are-reshaping-artists-ip-rights.
 Gatto et al., NFTs and Intellectual Property: What IP Owners and NFT Creators Need to Know, J.D. Supra, Mar. 26, 2021, https://www.jdsupra.com/legalnews/nfts-and-intellectual-property-what-ip-5945088/; see also Britany Martin, Thinking of Buying or Minting an NFT? Here’s What You Need to Know, LA Mag, Mar. 22, 2021, https://www.lamag.com/article/nft-law-copyright/.
 17 U.S.C. § 101 (1980).
 17 U.S.C. § 106 (1976).
 Digital Millennium Copyright Act of 1998: US Copyright Office Summary, Copyright.gov, Dec. 1998, https://www.copyright.gov/legislation/dmca.pdf.
 Digital Millennium Copyright Act of 1998, 17 U.S.C. § 512 (1998).
 Leslie Gornstein, What is an NFT? The Trendy Blockchain Technology Explained, CBS News, Mar. 26, 2021, https://www.cbsnews.com/news/nft-nonfungible-token-blockchain-explained/.
 Alexis Benveniste, The First-Ever Tweet Sold as an NFT for $2.9 Million, CNN, Mar. 23, 2021, https://www.cnn.com/2021/03/23/tech/jack-dorsey-nft-tweet-sold/index.html.
 See Gornstein, supra note 13.
 See Goldman, supra note 6.
 17 U.S.C. § 201 (1976).
 For a discussion of how artists are using NFTs to attain greater financial control over creative works, see Mikel Jollett, Here’s What NFTs Are—And What They CouldDo for the Music Industry, Artists and Fans, NBC, Mar. 16, 2021, https://www.nbcnews.com/think/opinion/what-are-nfts-what-could-they-do-music-industry-artists-ncna1261205.
 See Goldman, supra note 6; see also Gatto et al., supra note 8.
 See Jollett, supra note 20; see also Kessler, supra note 7.
 17 U.S.C. § 101 (1976); see also Gornstein, supra note 13.
 See James Tarmy, The Line Between NFTs and Fine Art Gets Even Blurrier in Baranoff Auction, Bloomberg, Mar. 24, 2021, https://www.bloomberg.com/news/articles/2021-03-24/line-between-nfts-and-fine-art-gets-even-blurrier-in-baranoff-auction; see also Erin Griffith, Why an Animated Flying Cat with a Pop-Tart Body Sold for Almost $600,000, N.Y. Times, Feb. 22, 2021, https://www.nytimes.com/2021/02/22/business/nft-nba-top-shot-crypto.html.
 See Goldman, supra note 6.
 17 U.S.C. § 501 (1976).
 17 U.S.C. 512(g)(1); See also Digital Millennium Copyright Act of 1998: US Copyright Office Summary, supra note 11.
Reprinted with permission from the May 17, 2021 issue of The Legal Intelligencer. © 2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.