February 7, 2022

NFTs and Copyright Law

What is an NFT?

A non-fungible token (NFT) is a unique piece of data that is stored on a blockchain. More specifically, NFTs are digital files such as photographs, videos, or audio files that can be bought and sold with cryptocurrency. In many cases, NFTs are large files and, thus, a link to the actual photo, video, or audio file is what is stored on the blockchain rather than the actual piece of artwork.

While NFTs have been around for most of the past decade, they have dramatically gained in popularity over the past year. One reason so many people have become interested in NFTs could be because of the massive sales prices associated with some NFTs. For example, the most expensive NFT of 2021 was sold for $69 million and it has been estimated that the monthly sales for NFTs averages about $2 billion.

This increased popularity has led some to question the role that copyright law will play in the protection of this new type of artwork.

How does Copyright Law treat NFTs?

While NFTs are relatively new and may be an unfamiliar type of art, copyright law will treat NFTs the same as any other traditional artwork. If an artist creates a new piece of artwork, they will automatically acquire a copyright of that new artwork. There are certain rights that are acquired by a copyright owner automatically upon creation of a copyrighted work. A copyright owner has exclusive rights to reproduce the work, prepare derivative works, and distribute copies of the work. Thus, a copyright owner has exclusive rights to make an NFT based on an original piece of artwork because “creation of an NFT can be categorized as a copy or even a derivative of the original work.”

For example, let’s imagine that I own the copyright to a famous piece of art. Because I own the copyright, I have the exclusive right to reproduce the work, prepare derivative works, and distribute copies of the work. I can create an NFT based on the artwork and I will be able to sell that NFT without transferring the copyright to the underlying piece of art just as I would be able to create and sell a reprint of the underlying piece of art. Because my rights are exclusive, I can also ensure that others do not infringe on my rights by bringing suit for copyright infringement if anyone creates art, such as an NFT, that is copying or infringing my copyrighted work.

While most, if not all, NFTs may be newly created art or may be created by rightful copyright owners, it is also important to analyze how copyright law fits into NFTs that are based on a copyrighted work but are not created by the rightful copyright owner. A non-copyright owner may own a validly acquired re-print of a copyrighted work or may just want to create an NFT based on a piece of artwork that they admire. Creating a piece of artwork based on a copyrighted work may only be non-infringing if it is subject to the fair use exception to copyright law or if the non-copyright owner has received a license from the copyright owner. Thus, the NFT may be infringing on the original work unless it has been changed such that it has a “new expression, meaning, or message” that would subject it to the fair use doctrine.

Why should businesses be aware of NFTs and their relation to IP?

NFTs have been making headlines over the past year because they are exciting and new with the top selling NFTs having generated massive price tags. Despite the newfound popularity that NFTs have acquired, it is important to remember that they are subject to copyright law and other IP laws in the same way as traditional artwork. Being a trailblazer in a new area of technology is exciting and businesses may want to create NFTs while the market is booming. Businesses should take advantage of this market but should continue to consider IP laws as they always have.

It is important to keep in mind that digital artwork is still artwork as it has always been, and copyright owners and their licensees are the only ones who should be creating NFTs based on copyrighted artwork.