The Interface Between Non-Fungible Tokens and Copyright Law

While we were still trying to wrap our head around the concepts of blockchain and cryptocurrency, another concept of Non-Fungible tokens (NFT) has rocked the world and has beenadded to the list of things to understand. Over the past few months, there have been various stories of artists tokenizing and selling their creations in form of Non-Fungible tokens for exorbitant rates. In the latest news, Mike Winkelmann a.k.a Beeple, a graphic designer was in the news for selling his artwork, a digital collage, “Everydays: The First 5000 days” in the form of an NFT for $69 million. In India as well, a Bangalore based illustrator made headlines after he sold an NFT of his viral Leonardo Di Caprio GIF for $3195.32.

The concept of Non-Fungible Tokens has immense potential to break in the creative world and the influence of the same can already be seen in the emerging generation of artists, musicians and creators who are choosing to rely on NFTs. With the elimination of middlemen and authenticity of ownership, the technology of Non-Fungible tokens has heralded a unique era of expression and exchange of work by the creators.

What are Non-Fungible Tokens?

Non-Fungible tokens are a part of the blockchain technology, wherein NFTs have a unique identity attached to them and can be verified on the blockchain. Via a process known as tokenization, any form of intellectual property rooted in artwork, music, etc. is converted into digital tokens and assigned a unique asset which is consequently traded on marketplaces such as Rarible, OpenSea, etc.

The reason why NFTs are increasing in popularity is owing to the fact that they effectively record ownership and validate the authenticity of the same. They contain coded and publicly verifiable data about the ownership and transaction history. This helps in easily verifying the ownership of the NFTs to ensure that the work being traded is original. Further, what makes Non-Fungible tokens unique is that each NFT has an individual characteristic linked to the object being sold. Unlike fungible tokens, NFTs cannot be broken down or exchanged for another NFT of equal amount. Each NFT is unique and has a different characteristic of its own, which makes them rare. When an NFT is traded over blockchain, in the ledger entry, the address indicating the original owner of the NFT is also recorded. 

Simply, the difference between a Fungible and a Non-Fungible Token is that former can be replaced by another token or a collection of tokens amounting to the same value. For example, a hundred rupees note can be exchanged for another note amounting to the same or for two fifty rupees notes. On the other hand, each NFT has a unique and individual characteristic which cannot be exchanged for another NFT. While fungible tokens are divisible, Non-Fungible Token are not.

What happens in an NFT Transaction?

NFT are tokens containing individual characteristics and are metadata that are written onto a blockchain. Simply put, metadata is data that describes other data, giving description of one or more aspects of the data. When one mints a token of their artwork, it is encoded with a series of data containing private keys and accounts, resulting in a unique file of that token. While the artwork is the basis of the NFT, it is not the NFT in itself. NFT is the metadata that is attached to the original artwork being traded. When one buys an NFT, they acquire the metadata that represents and points to the digital artwork that is the basis of the metadata. NFT is not the actual digital artwork that it points to. 

What happens to the Copyrights in the artwork?

While after the sale of an NFT, the buyer is the owner of the token, concerns have arisen regarding the ownership of the artwork and copyright rights related to the same. It becomes important at this juncture, to understand the difference between owning the NFT and owning the rights relating to the artwork that NFT is associated with.

The rights to make reproductions and adaptations are vested in the owner of creative work by virtue of Section 14 of the Copyrights Act. Since the sale of the NFT creates the copy of the artwork and transfers the same to the buyer, these acts done without the authorisation of the owner would lead to infringement of copyright. When it comes to assignment of the copyright in the artwork, Section 19 of Copyright Act makes it mandatory to lay down unequivocally and expressly the terms regarding the same via contract. Hence, in order for the sale of the NFT to constitute an assignment of the copyright in the work, there must be express terms regarding the same in the digital contract concerning the sale of the NFT. In the absence of express terms in the contract, the owner shall retain the ownership of the copyright in the artwork, and the buyer has merely acquired the ownership over the copy of the artwork, with a license to use the same in a non-commercial manner.

What is the way out in case of an infringement?

While NFT transactions have considerable potentials to transform the transactions in the art world, by making the same more accessible and secure, there are also concerns relating to the authenticity of the seller. Manifestations of this concern are time and again seen, wherein someone has tokenized an artwork not belonging to them and sold the same misrepresenting themselves as the original owner. 

In such instances, the owner of the copyright has the remedies available under Section 55 or Section 63 of the copyright act, for either civil or criminal remedies respectively. The principles of infringement of copyright as given in Section 51 of the copyright act shall be employed to determine whether or not an infringement has taken place and whether it falls under fair dealing as per Section 52 of the Copyright Act.

Further, the responsibility shall also fall upon the NFT marketplaces and platforms as per the Section 79 of the Information Technology Act, 2000 and Intermediaries Guidelines/Rules. These collectively law down a responsibility upon the intermediary platforms to observe due diligence and act expeditiously in case it comes to their notice that platform is being used to facilitate an illegal act. In case of a failure to do so, they become liable as a facilitator of the act.

The NFT transactions have immense potential that the IP owners can use to their advantage. However, there are still concerns relating to infringement, examples of which have already emerged, that need to be addressed before the technology of blockchain can be used to leverage success in terms of IP rights. While NFTs ensure the individuality of the work being traded and security of the transactions taking place, there is a need to set up proper checks and balances to ensure that tokenization of the work is done by authorised persons. The copyright law needs to evolve as per the changes in technology to in order to deal with the threats emerging out NFT transactions.

About Sonal Sinha 15 Articles
I am currently in the fourth year of BA LLB at Symbiosis Law School Noida. Over the years at law school, I have developed a keen interest and passion for IPR laws and like to research upon and write blogs on topics related to Trademarks and Copyrights law. I hope to bring some intriguing content your way through my articles at this platform. Apart from that, I am also an avid reader and a fitness enthusiast

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