Investing in NFTs – what should buyers consider to avoid intellectual property infringement when purchasing NFTs ?
What is an NFT?
NFT, a non-fungible token, is a unique digital certificate registered in a blockchain (e.g. Ethereum, Arbitrum, Avalanche, Base, or BNB Chain), that certifies and authenticity of a digital asset, such as artworks or collectibles.
What are the advantages of NFTs minting and/or investing in NTFs?
- Brand owners can embrace NFTs as a means of product authentication, aiming to combat counterfeit goods effectively The integration of NFT technology enables unique digital certificates or tokens to be created and linked to products. These certificates contain detailed information about the product’s origin, manufacturing process, and authenticity which is securely stored on a blockchain network;
- Brands, designers, developers or other businesses may license their trademarks for integration with NFTs and digital assets (e.g. as graphic art, GIFs, tweets, videos, collectibles, such as cards, virtual avatars and video game skins, designer sneakers, music, ringtones, logos, etc);
- Purchasers may increase their portfolio by a new asset. Before doing so it is suggested to obtain advice on taxation issues.;
- NFTs can be used as domains enabling the buyers to acquire complete ownership of the domain name upon purchase.
Can you freely commercialize NTFs?
No, not automatically. The NFT is not a digital asset itself, but it is a digital certificate of ownership and the NFT metadata link to the location where the digital asset is stored, such as a website address. The NFT holder does not obtain copyrights as to the artwork either.
Buyers should be aware that when purchasing NFTs they are acquiring ownership of the tokenized representation of the artwork (metadata), not the artwork itself. This is comparable to, when purchasing a painting (fine art), one is not granted any entitlement to copycat the art or modify it.
Therefore, buyers and businesses must always check if the smart contract or a separate contract transfers copyright to the NFTs purchased. Be aware that creators usually restrict commercial use (or limit it by a percentage) including a license that only grants holders the rights to “use, copy and display” the NFT.
Lack of a license to commercialize NFT means that if a buyer buys a protected logo as a NFT, the buyer cannot use the logo itself (e.g. by printing it on a shirt) without permission granted by the originator.
NFT and Copyright – Which copyrights may be violated?
Copyrights can only be transferred through a specific licensing agreement drawn up by the creator of the NFT in smart contracts or as a separate licensing agreement. Therefore, buyers should carefully review the terms and conditions of a smart contract to ascertain whether copyrights (e.g. reproduction for a commercial use) are included in the purchase or if they need to be negotiated separately to avoid violation of unauthorized use.
In the context of NFTs, the URL generated by the NFT is publicly accessible on a blockchain. Thus, if the artwork is being used without the author’s permission, the illegal NFT infringes the right of communication to the public.
In a follow-up article, we will look at whether NFTs can be registered as trademarks and provide a summary of key considerations for those who want to buy NFTs.