NFTs and Copyright Law: What Are Your Rights?

By Andreas Koutsoudakis and Karen Canales-Reyes

What is a Non-Fungible Token (NFT)?

NFTs (Non-Fungible Tokens) took the world by storm in 2021, starting a digital art revolution and simultaneously becoming one of the fastest growing cryptocurrency assets of the year. What are NFTs? Essentially, NFTs are blockchain-based units of value, or “tokens”, that possess a unique ID which is linked to an underlying asset of digital art. Like cryptocurrency (e.g., Bitcoin, Ethereum), NFTs use blockchain technology to record ownership and validate authenticity. NFTs are then bought and sold on various marketplaces – such as OpenSea, Mintable, Rarible, and so on – using cryptocurrency.

While the technology of NFTs has created unlimited opportunities for artists around the world to create and sell art outside the traditional avenues, there is an important issue arising in the crypto world which centers around intellectual property rights. While the law is continuously evolving with regards to the new world of crypto, artists and buyers of NFTs should nonetheless be cognizant of the current issues before they engage in transactions.

Copyright Law and NFTs

In the United States, when a person receives a copyright, they also receive certain rights with that copyright. Among other things, the ownership of a copyright allocates exclusive rights to the owner to reproduce the work, prepare derivative works, distribute copies, display the work publicly, and perform the work publicly. [1] Navigating the ownership of a copyright within the NFT space can be a convoluted process and is proving to be a new heavily litigated area of law. While ownership of an NFT can be used to give the owner significant control over a creative piece, that control is not automatic. For an NFT purchaser to gain rights to the copyright, the creator would have to take affirmative steps to transfer those rights in a separate contract. This means that, unless there is an assignment of copyright with the NFT, the copyright generally remains with the owner.[2] As such, subsequent royalties that may come from the work later will also belong to the owner of the copyright for the underlying work, regardless of who owns the NFT of the original work. This caveat of NFTs is praised among artists because it presents a new way for artists to continue monetizing their work beyond the initial sale. 

While the copyright law seems to vastly protect the original creator, artists must remain wary of the possible infringement and exploitation of other’s art for commercial purposes. The U.S Copyright Act states that “no one other than the copyright owner may make any reproductions or copies of the work,” therefore, this would apply to using sounds, symbols, characters, or any other creative elements in a NFT which a creator owns. [3] Moreover, Section 504 of the U.S Copyright Act warns consumers that anyone selling an infringing work will be liable to all damages incurred. Damages and fines can amount to as much as $150,000 if it is found that the individual knowingly was aware that they were infringing.[4] Despite these harsh consequences there has been a surge of lawsuits between brands and NFT creators and consumers. One notable case involved the French luxury brand Hermès who sued NFT creator Mason Rothschild for imitating bags in his pieces that were nearly identical to the famous Birkin bag produced by Hermès. Rothschild found himself in significant legal troubles and the case is still ongoing. It is evident that there are significant legal aspects to take into consideration when creating and purchasing NFTs.

If you are looking to enter the NFT space, or are unclear about the particular situation that you find yourself in within this world, reach out to the experienced attorneys of KI Legal for a consultation so you can be made aware of your rights and potential risks.

[1] Copyright Act of 1976 (the United States copyright law is contained in chapters 1 through 8 and 10 through 12 of Title 17 of the United States Code)

[2] Brennan, Mary Kate, Thomson Reuters, https://www.reuters.com/legal/legalindustry/demystifying-nfts-intellectual-property-trademark-copyright-concerns-2022-06-17/

[3] 17 USC § 106 – Exclusive rights in copyrighted works

[4] 17 U.S. Code § 504 – Remedies for infringement: Damages and profits

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