Over the past few months you’ve likely seen the phrase NFT bandied about online quite a bit, with Non-Fungible Tokens quickly becoming the trendy digital asset that people have been making a lot of money on lately.
Much of its recent hype is down to the fact that NFTs are essentially unique digital tokens that are powered by blockchain that determine ownership and validate authenticity, opening up a myriad different avenues for artists to sell their creations.
While an NFT records ownership of the digital address via blockchain, the legalities of ownership are still a little murky given how new and how rapidly these digital assets have exploded of late.
Here we turn to Kim Pietersen, associate at Spoor & Fisher (pictured below), to provide greater clarity and help us understand what you actually own when you buy an NFT.
“An NFT can, but does not necessarily, convey ownership of the intellectual property rights in the underlying digital asset. The person who buys the NFT doesn’t necessarily own the actual asset, although this is certainly possible if the creator of the underlying digital asset transfers the intellectual property along with the NFT,” she highlights.
Pietersen explains that while an NFT can grant ownership, it does not do so by default. This as it does not confer any rights to the intellectual property (IP) of the underlying asset.
“By way of example, most often when you buy an NFT, you cannot legally edit the digital asset even though you paid for it. You can display it on social media, or you can transfer it to another entity through re-sale, but you cannot reproduce any additional verified copies for a profit,” the associate points out.
Looking at the local perspective, Pietersen says that, “The South African law affords an author automatic copyright protection without the need of registration if, by way of example, that author independently creates an original work.” This would apply to the first tweet that Twitter CEO Jack Dorsey sold as an NFT, as it is eligible for copyright protection insofar as the written piece is concerned.
Ownership vs. IP
“NFTs don’t necessarily grant any IP rights to the underlying creative work. As such, in many cases, the purchaser of an NFT, not being the copyright owner, won’t be in a position to object to third parties reproducing the underlying creative work,” says Pietersen.
“NFTs can, however, enhance the protection, enforcement and commercialisation of IP, particularly in the context of copyright insofar as the digital tokens can be used to manage and validate ownership claims; be programmatically set for royalty disbursements and assist with the detection of plagiarism, to name a few benefits,” she adds.
A local marketplace that has brought this debate to light is the recently launched Momint, according to the Spoor & Fisher associate.
“Users of Momint are able to create NFTs, called ‘minting’, on the platform which authorises Momint to fingerprint and store a user’s digital asset on an open source, peer-to-peer distributed storage system called IPFS (InterPlanetary File System). This brings us to the question of how the underlying creative work is actually represented in an NFT,” Pietersen stresses.
As such, while the sale of NFTs is still quite new, the underlying principles for possible infringement and claims that an IP holder may have, still remain, according to the associate.
“By way of example, an NFT that is advertised for sale online could infringe trade mark rights if a registered trade mark is used in respect thereof without the trade mark owner’s consent. Furthermore, if an NFT relates to unauthorised digital reproduction of prior artwork, then the re-sale of that NFT could constitute copyright infringement in much the same manner as the initial unauthorised reproduction would have constituted an infringement,” she says.
“An NFT does not by itself validate that the creator of the NFT has any rights to the underlying creative work; anyone can mint an NFT for any creative work. In both instances, the IP holder would be in a position to object to such infringement and could address a letter of demand to the infringer or approach a high court for relief in the form of an interdict and damages, facts dependent,” Pietersen continues.
The sage words of advice from the legal perspective on NFTs appear to be the same whenever something shiny and new appears online and generates plenty of interest – do your homework.
“While NFTs may still be a fairly new phenomenon today, there certainly appears to be benefits that content creators, artists and persons alike can leverage, and those benefits do seem to outweigh any associated risks. Purchasers of NFTs should be sure to conduct a due diligence on the NFT before purchasing it,” warns Pietersen.
“Consideration should be given to who the minter was, whether they had any rights to the underlying creative work in the first place, and what rights such as ownership and future royalties attach to the NFT,” she concludes.
It therefore looks like purchasing an NFT grants you ownership of that creation, it does not mean the associated IP is also owned by the purchaser.