Copyrights and NFTs

This is the sixth installment of our 8-part series covering different phenomena in the field of cryptographic assets, and today it is time to have a look at copyrights regarding non-fungible tokens, i.e., NFTs.

In this brief article, we will guide you through the basics of NFT related copyright matters and highlight the new “Can’t be Evil” license solutions released by Andreessen Horowitz in August 2022. The license package is freely available and specifically designed to serve the protection and administration of NFT related intellectual property rights.

What is an NFT?

Opposite to better known cryptographic assets, for example, cryptocurrencies such as Bitcoin and Ethereum, NFTs are unique and non-fungible to their nature. In other words, NFTs are unique digital identifiers recorded in a blockchain, commonly used to proof ownership and authenticity of a specific digital item.

Contrary to cryptocurrencies, i.e., fungible assets, an NFT represents one specific unique piece of value, and is not equivalently tradeable to another identical NFT. In most cases, NFTs refer to unique digital items or artworks as tokenized assets, mainly photos and videos, or different kinds of contents available to use in virtual worlds, e.g., the Sandbox metaverse. Two of the most popular NFT marketplaces are OpenSea and Rarible.

Given the uniqueness of every single NFT, they come with an inherent interest regarding copyrights. Therefore, below described some of the basics regarding copyrights of NFTs.

Copyrights of NFTs

By default, given the nature of NFTs, a person can be tracked and authorized to be the owner of a specific NFT by looking at the blockchain where the NFT is recorded. However, this does not automatically mean that the same person would be the owner of the copyrights regarding the NFT. Therefore, it is essential to understand and be aware of the ownership structures around copyrights of a specific NFT – provided that one wishes to obtain or retain copyrights to the said asset.

In most cases, the original creator of an NFT has an interest to protect the NFT by inserting clauses and restrictions in the sale agreement (or within the NFT itself), that keep the copyrights of the NFT at the original creator. Besides traditional legal agreements, it is possible to draft a smart contract directly applicable as a part of the NFT itself.

With smart contracts, the clauses related to copyrights are possible to program in such a way, that whenever the ownership status of an NFT is changing, the original creator is rewarded with a specific royalty fee. In the same way, the copyrights of the NFT can be protected so that even if the NFT is not more in the possession of the original creator, any offenses to the original sale agreement may cause restrictions to the new owner, for example, narrower usage rights of the NFT.

Naturally, all kinds of prohibitions to later usage may very well decrease the value of the NFT, as it would then not be as valuable on the secondary markets. Still, simultaneously, inserted restrictions protect the interests of the original creator.

For example, a well-known company may have interests to set bounds on how a valuable brand, let’s say Coca-Cola, is allowed to be used in the virtual world. In this regard, the said beverage corporation could issue some of its famous bottles as NFTs and prohibit the buyer of the NFT bottles to use them in a way that offends the brand itself. In the same way, an NFT marketplace can demand its users to follow a specific set of terms and conditions, where breaching of specific terms could lead, ultimately, to the loss of the NFT.

As with the examples above, the same applies to a buyer of an NFT. The new owner may, based on the copyright license clauses of the NFT, or applicable law, take legal actions in the case of infringements to possible copyrights owned as a part of the NFT.

How can one protect NFT copyrights?

By default, such as with any other traditional need for copyright protection, one can draft a copyright agreement, often known as a license agreement. Regarding NFTs, one alternative to do this is by utilizing the “Can’t be Evil” NFT license collection published by Andreessen Horowitz.

The “Can’t be Evil” license solutions were presented in August 2022, bringing a new and smart contract compatible package of alternatives for IPR protection, especially tailor made to answer the need for protection of NFTs. The license package consists of six (6) different solutions, and can in brief be described as follows:

• The license package is put under the Creative Commons’ CC0 agreement –they are free to use for the public.
• The licenses are easy to adapt and modify, still aiming for a standardized approach to IPR protection of NFTs.
• All six (6) license models are deployed on Arweave, thus publicly available and immutable on the said blockweave – a slightly more complex graph structure than the traditional blockchain.

It is yet to be seen if the license package succeeds and gets utilized in a broader scale, however it can already be deemed as a proper and important step towards a more uniform set of rules to be implemented throughout the whole NFT industry.

What benefits can the NFT bring to copyrights?

Simply put, by tokenizing your content, visual arts, or other items, you are able to freely publish and sell your content on different platforms without the need of traditional intermediaries. Thus, by tokenizing your content into an NFT, you are simultaneously able to avoid that other parties gain (solely or partially) on the sale of your content, and also have an opportunity to create new routes to passive income by inserting royalty clauses to your NFT. As everything is stored in a blockchain, there are neither unclarities regarding the authenticity of the content created by you.

In other words, opposite to the traditional markets, with NFTs you are given the opportunity to gain benefit of every transaction in the secondary market, in a very simple and straightforward manner.

Conclusions

Thanks to blockchain technology, disputes regarding copyrights of NFTs will seldom focus on the lack of evidence. Instead, without forgetting the importance of drafting a solid copyright license agreement or inserting license clauses to a smart contract, one may face obstacles when seeking refunds or compensation of damages. This is more or less caused by the nature of the Web3 sphere itself, still in its early development and eagerly waiting for standardized solutions on NFT related IPR protection. Luckily, it can be observed that the NFT market is already acting as a gatekeeper, providing opportunities to navigate in safer ecosystems.

Last but not least, as with any transaction, the necessity to understand the object of sale can never be overly emphasized.

As a law firm focused on emerging tech, we are happy to assist if you have any questions or needs regarding NFTs or their copyrights.

Our Associate Trainee Jere Lehtimäki took part in writing this article.