Mark Biernacki May 9 2022 Generative art NFTs – what brand owners need to know about copyright protection Smart & Biggar | Intellectual Property - Canada Mark Biernacki Intellectual Property IntroductionIP issue with generative art NFT collectionsClassifying artworks underlying generative art NFT collectionsCopyright protection for CAWs versus CGWsOwning NFT collections of computer-assisted worksOwning computer-generated NFT collectionsCommentIntroductionNon-fungible tokens (NFTs) continue to generate significant commercial value for brands through the licensing or transfer of IP and commercial rights. The market demand for NFTs is creating new opportunities and an increase in the use of automated methods for generating underlying artworks. This article examines the IP impacts of this trend and looks at whether copyright may subsist in generative art NFT collections in Canada.This article is the final article in a series exploring the evolving landscape for the Internet, digital media and e-commerce.(1)IP issue with generative art NFT collectionsRecently, the NFT field experienced one of its first major mergers, with the company behind the Bored Ape Yacht Club (BAYC) NFT collection acquiring Cryptopunks, another prominent NFT collection. The purchase included the IP rights underlying Cryptopunks, with the goal of providing owners of a Cryptopunk NFT with the same comprehensive IP rights as those provided to owners of a Bored Ape.A basic principle(2) of property rights is that no one can give what they do not own. It follows that to validly purchase, license or transfer IP rights, the rights must exist. Since certain NFT art collections such as BAYC and Cryptopunks rely heavily on automated methods of generating artworks, some US IP practitioners have questioned whether these NFTs possess any underlying IP rights.Classifying artworks underlying generative art NFT collectionsGenerative art NFT collections are made up of a set of unique digital artworks released by an artist or group of artists, with each collection consisting of a limited number of "minted" NFTs. The NFT collections are then sold on an open marketplace with accompanying agreements that cover IP and commercial rights (for further details, see "Commercialising NFTs – generating value from digital assets and IP rights").Some NFT collections consist of thousands of unique NFTs minted by computer software. The artwork underlying each NFT can be generated algorithmically by combining a set of randomly selected images created by the artists with the assistance of a computer, resulting in a set of "computer-assisted works" (CAWs). The artwork can also be wholly generated using artificial intelligence with minimal intervention from an artist, resulting in a set of "computer-generated works" (CGWs).Copyright protection for CAWs versus CGWsWhether the underlying artworks of an NFT collection are afforded copyright protection depends on whether they meet the criteria set out in Canada's Copyright Act, which provides copyright protection for every "original" artistic work. The Supreme Court of Canada has established that for a particular work to be considered original, it must be the result of an exercise of skill and judgement,(3) which depends on factors such as whether creating the work involved the use of the creator's knowledge or ability, or whether different possible options were evaluated in producing the work.A further issue is identifying the copyright owner of the artwork underlying an NFT collection. Generally, the first owner of the copyright subsisting in a work is the author of the work. The Act does not define the term "author", but other provisions within the Act imply a requirement that an author is a natural person – that is, a human.(4) This requirement may limit the scope of copyright ownership for authors of CGWs, as there is minimal human intervention at the time of the creation of the work.(5) On the other hand, it is well settled that authors of CAWs own the copyright within the work.(6)Owning NFT collections of computer-assisted worksThe artworks underlying many generative art NFT collections, such as Scrappy Squirrels, are likely to be considered CAWs. In the case of Scrappy Squirrels, a computer algorithm generates an individual artwork by combining a base frame with a limited set of traits (such as a "body", "hands" and "shirt"), which are created by an artist.(7) To generate the entire NFT collection, an image from each set of traits is randomly selected and stacked on top of the base frame, which is usually done autonomously and iteratively with simple software – that is, with the assistance of a computer. Whether copyright protection is afforded to the artwork underlying these collections depends on the extent to which the artist exercised their skill and judgement in creating the base frame and/or traits, and the resulting copyright would presumptively be owned by the artist(s).Owning computer-generated NFT collectionsIn contrast, the artworks underlying generative art NFT collections that rely wholly on artificial intelligence to generate the artworks would most likely be considered CGWs. For example, the Eponym project allows an individual to generate unique digital artwork simply based on a word, sentence or short text. This enables the creation of entire NFT collections without an artist having to create any artworks themselves – that is, a computer is not merely assisting an individual in creating a work but rather generating the work itself autonomously. Arguably, creating an NFT collection by the mere selection of a word or phrase, which itself may not possess any originality, would not involve the minimum level of skill or judgement required for copyright to subsist in the computer-generated collection of works. However, if a person used their skill and judgement in selecting the most aesthetically pleasing or interesting computer-generated works to include in the collection, then it is conceivable that such a curated NFT collection would involve a sufficient level of skill and judgement to give rise to copyright. Accordingly, even in the case of CGWs, there may be circumstances where some works in NFT collections or the collections themselves enjoy copyright protection in Canada.CommentGiven the uncertainty around whether a particular generative art NFT collection is afforded copyright protection in Canada, purchasers should determine how the NFT artworks are created and the extent of any skill or judgement exercised. Further, if copyright protection exists, it is important to carefully examine the terms and conditions, licences and smart contracts governing the NFT collection to ensure that a valid transfer of copyright occurs from the legal author(s) of the artworks underlying the NFT collection.Brand owners and companies involved in generative art NFT projects should carefully consider the copyright issues at play and consult with experienced IP counsel for guidance.For further information on this topic please contact Akiv Jhirad or Mark Biernacki at Smart & Biggar by telephone (+1 613 232 2486) or email ([email protected] or [email protected]). The Smart & Biggar website can be accessed at www.smartbiggar.ca.Endnotes(1) For earlier articles in this series, see:"NFTs: art meets crypto – traditional copyright issues in tokenised world";"Branding in the metaverse – protecting and enforcing IP rights"; and"Commercialising NFTs – generating value from digital assets and IP rights".(2) This principle is often referred to by the Latin maxim "Nemo dat quod habet".(3) CCH Canadian Ltd v Law Society of Upper Canada, 2004 SCC 13 at para 16.(4) For example, the general term of copyright protection is "the life of the author" plus a certain timeframe.(5) See Shoyama, R, "Intelligent Agents: Authors, Makers, and Owners of Computer-Generated Works in Canadian Copyright Law".(6) John S McKeown, Fox on Canadian Law of Copyright and Industrial Designs, 4th edition, (Toronto: Thomson Reuters Canada, 2003, loose-leaf), at section 17:5.(7) Scrappy Squirrels, "Tutorial: Create Generative NFT Art with Rarities".