In recent days, there has been a lot of talk about NFTs technology and its relationship with sectors such as music, arts, fashion and luxury goods. This link between the aforementioned technology and the aforementioned sectors inevitably means that we also have to relate them, in turn, to the wider world of Intellectual Property.
First of all, what is an NFT?
The NFT (“Non-Fungible Token”) is a concept that relates to the creation of a digital token through the use of Blockchain technology and that cannot be exchanged with each other in the same way that other cryptoassets can, such as the well-known bitcoin or ethereum.
Before continuing, we remind you that the Blockchain is a shared digitized record that cannot be modified once a transaction has been recorded and verified. That is, all parties that have made a transaction on the platform keep a copy of the record – of this blockchain – which is virtually impossible to modify. This makes blockchain one of the most secure and transparent technologies for transactions, as every movement is recorded in the blockchain and cannot be modified, thus also making the risk of counterfeiting more difficult.
Therefore, an NFT is a cryptographic token whose main capacity is that it is unique and unrepeatable, so it cannot be divided like a bitcoin, but it can be used to represent objects in the real (or digital) world along with their characteristics, as well as the ownership of it. All of this is embodied and held within the representation on the underlying blockchain.
It is precisely this that gives NFTs the attribute of originality that makes them so irresistible. Through software code, called “smart contracts”, they govern the verification of ownership and the management of the transferability of the contracts.
What is the relationship of NFTs to Intellectual Property?
Before we get into it, let’s look at two examples of NFT acquisitions:
– from Jack Dorsey’s (one of the founders of Twitter) sale of his first Tweet for $2.9 million,
– to model Emily Ratajkowski’s NFT sale of her digital photograph entitled “Buying Myself Back: A Model for Redistribution” for $175,000.
These are just two examples of works that have been acquired through an NFT. And how? Through a transaction on the aforementioned blockchain.
An NFT, as we can see, is a form of digital asset, so that, as we indicated earlier, unlike cryptocurrencies (Bitcoin or Ethereum, for example) NFTs would represent a work of art, music, images, etc., while cryptocurrencies – which are fungible – can be exchanged for each other. In other words, I can exchange one bitcoin for another bitcoin, but I cannot exchange the photo I have acquired of the model Emily Ratajkowski for Jack Dorsey’s Tweet, so they are non-fungible tokens.
And it is exactly at this point that we must ask ourselves what is the relationship between NFTs and Intellectual Property:
Does the acquisition of a work through an NFT imply that the copyright is transferred to the buyer?
Not always. In principle, the buyer obtains ownership over the unique token, but not over the copyright. Something similar happens in the everyday world if we imagine that we buy a painting that is accompanied by the certificate of originality issued by the art gallery, which implies the value of the authenticity of the work and the non-existence of another painting like it, but not that we own the copyright of the painting. In other words, even if the buyer of the painting has physical possession of the painting, he does not have the right to make and sell additional copies of it. So, it is the same for the buyer of an original NFT work, this ownership does not give him the right to make and sell copies of the work he has bought.
This means that the existence of an NFT on a blockchain means that its authenticity can be verified, and all details of every transaction related to that NFT can be traced. Thus, for each sale of the TFN to other buyers, both the seller and the buyer, as well as the price for which it was sold, can be identified through inspection of the blockchain.
Notwithstanding the above, it is also possible for the creator(s) of the work in question that the buyer acquires by NFT to exercise the option to charge a percentage for each sale of the NFT on the secondary market, so that they can continue to benefit – both buyer and creator – from future sales of their work. This is known as royalty income. As in most contractual relationships, it will be subject to the terms of the agreement between the parties, as long as the applicable rules are respected. However, it is typical that when someone acquires an NFT linked to content, they do not automatically acquire the underlying intellectual property rights to that content; which is the same as is the case in practice with copyright transfers: ownership is only transferred if the author of the original work expressly provides for it and consents to it.
NFTs in the music, art and fashion world
Music, art and fashion are three of the sectors in which this new technology is making most progress. As we have seen, the example of works of art has been made sufficiently clear in terms of how it works and what it is about: through NFTs, we can acquire a unique certificate of ownership and authenticity linked to a work of art.
With music, it is somewhat the same, but substituting what would be the work of art with the song file, in this case, a musical work. This is what has happened with the track “Everydays: The First 5000 days” by the artist Beeple, sold in NFT format for more than 69 million dollars.
But NFTs have not only reached the world of music and art, but also the world of fashion. The founder of blockchain platform Lukso, Marjorie Hernandez, confirmed in an interview for Vogue Business that NFT has already spread to the fashion industry and there is a great deal of interest from fashion and luxury brands to experiment with new technologies such as blockchain to sell virtual fashion. He argues that scarcity and the ability of NFTs to create value can bring digital fashion closer to real fashion. In this way, the buyer only needs to purchase the NFT once, and will be able to use it in a number of different ways.
The Fabricant, the digital fashion house, and Dapper Labs, a Blockchain-linked digital gaming company, pioneered this technology by creating a digital dress represented by an NFT in 2019, which sold for $9,500.
What is clear is that new technologies never cease to surprise us and that intellectual property laws were not drafted with the future existence of blockchain and NFTs in mind. So, although general legislative concepts may apply to certain works acquired by NFTs, there are still many aspects that need to be addressed in the current legal regulations when we talk about the intellectual property of NFTs.
As we have said many times, in the law vs. technology race, the latter does not cease to pose challenges to the former and it is necessary to analyze whether the current legal framework provides a response to all these challenges or whether an evolution or adjustment is needed in the regulation of intellectual property rights to cover and regulate all the new technological variants that will – very soon – govern our day-to-day life.