NFTs (non-fungible tokens) are becoming increasingly popular for individuals and brands to profit from their digital creations.

And it’s easy to see why.

You create a unique digital asset, such as a work of art, and then tokenize it to prove ownership.

More and more developers are turning to NFTs to verify authenticity and minimize fraud. Non-fungible tokens have even become the currency of choice in the metaverse.

But what happens when an NFT is sold? Who actually owns the copyright – the original author or the new owner? And how do copyright and IP rights apply?

Understand NFTs

In order to identify where the discrepancies and confusions lie with NFT copyright law, it helps to go back to basics to understand what NFTs are.

NFTs are digital assets that contain unique identification codes that verify ownership. These digital assets range from art, music, and photos to collectibles such as comics, trading cards, and in-game items.

While fungible assets such as currencies and cryptocurrencies can be traded and exchanged, each NFT contains a unique digital signature.

This means that no two NFTs are alike and therefore cannot be substituted or interchanged with one another. This is the difference between fungible and non-fungible.

Like cryptocurrencies, non-fungible tokens, or NFTs, are stored on blockchain technology — a public ledger that secures information in a way that makes hacking impossible.

Thanks to the unique identification codes included in each NFT, they can be easily verified and authenticated to prove ownership.

Even though NFTs have the technology to own, there is still confusion surrounding copyright.

How does copyright apply to NFTs?

Let’s take a look at the Hermès case.

In November 2021, Hermès sued artist Mason Rothschild (real name Sonny Estival) for creating a faux fur NFT line inspired by his most famous and well-known luxury bag: the Birkin.

The line, named MetaBirkins, competed directly with Hermès and its own plans for NFTs. According to the company’s lawsuit, this confused its customers and diluted its brand.

Rothschild’s defense? That his work is a social commentary and is therefore protected by freedom of artistic expression.

The jury did not believe this and upheld the lawsuit in favor of Hermès. Their verdict was that the NFTs violated copyright law, including trademark dilution and infringement. All of this ended up costing $133,000 in damages.

A costly lesson for Rothschild and an important precedent for NFTs and copyright.

Who owns the intellectual property of an NFT?

It is evident that many brands, including well-known luxury brands such as Dolce & Gabbana, Tiffany & Co., Gucci and more, are starting to explore the potential of non-fungible tokens.

That means it’s becoming increasingly important to understand where creativity ends and copyright protection begins.

Because while buying an NFT grants the owner certain rights, it doesn’t include full creative control — unless the copyright owner takes active steps to ensure this, which rarely happens.

Understand copyright protection

As the copyright owner, you have the exclusive right to reproduce and display your work—unless you elect to assign copyright or grant a license to the buyer.

But do the same laws apply to NFTs? These are the questions that are currently being asked.

If creating a non-fungible token means copying or reproducing the original work in any way, then under copyright law (at least in the US), the only one who should be legally allowed to do so is the copyright owner.

However, making copies of works is much easier and cheaper today than it was before the Internet. Today a simple right-click is all it takes, whereas in the past making copies actually took time, money and effort.

For this reason, copyright used to be taken seriously and is hardly observed today.

What do you own when you buy NFTs?

That’s a good question.

Just because you buy a non-fungible token doesn’t mean you automatically own the copyright or even a license. The Creator does.

Because when you buy NFTs, you are actually acquiring a digital token — proof of ownership of something. And in some cases, you might just be the co-owner of that thing.

Take The Merge for example – an NFT artwork made up of 312,686 tokens that was purchased by 28,983 collectors for a total price of $91.8 million.

Now imagine each of those 28,983 collectors going out individually and reproducing their piece of the same work of art: a nightmare.

While the various IP laws on trademarks, patents and copyrights can be difficult to understand – particularly their application to NFTs – the rules are simple and based on common sense.

Don’t copy other people’s work and always keep your own work safe, as Hermès recently impressively demonstrated.

How licenses and NFTs work

Currently, copyright laws and policies are still being questioned and debated.

However, if you are thinking about buying non-fungible tokens or are already an NFT owner, there are some workarounds when it comes to licensing:

Personal License

Although you may not be the copyright owner yourself, you can use your NFT for non-commercial, charitable purposes if you are granted a personal license. This could include displaying your artwork in your home or using it as your social media profile picture.

However, keep in mind that you cannot use your NFT commercially in any way.

Commercial Rights

Here you have some commercial rights to your NFT, granted to you by the creator. It’s important to remember that they still retain the copyright and intellectual property in the original work.

Depending on the specific rights granted to you, you may be able to sell prints, create merchandise, or even create a TV show.

For example, in the case of Bored Ape Yacht Club, owners have unrestricted commercial use of their NFT artworks. (However, there still seems to be some confusion surrounding copyright registration, which we’ll defer to another time.)

Besides personal and commercial licenses, there are other structures that require the purchaser of an NFT to pay royalties to the original creator. So every time the NFT is sold, it generates passive income for its owner.

For example, William Shatner sold 125,000 digital photos on the WAX ​​blockchain in just 9 minutes and is now earning an ancillary revenue from his trade.

At the other end of the spectrum, a royalty-free license can eliminate the need to pay royalties to the creator. And other alternative license structures may grant or deny specific permissions to their owners.

While copyright law provides strict guidelines, licenses can help grant certain creative freedoms.

Trademarks give priority to NFTs and IP rights

As we discussed earlier, the Hermès case sets an important legal precedent for luxury brands regarding the unauthorized sale of irreplaceable tokens. And it’s more relevant now than ever.

Big brands like Gucci, Louis Vuitton, Burberry and others are starting to enter the NFT space by collaborating with NFT marketplaces and creating digital collections. And why shouldn’t they?

NFTs enable them to authenticate limited-edition products, extend the lifecycle of their products, and build more sustainable business models.

It’s no wonder, then, that brands are optimistic about the potential of NFTs to transform the industry and create new opportunities for growth and innovation.

What does this mean for anyone creating NFTs?

Although NFTs have the potential to transform the market and open up new opportunities, as a brand or creator you still need to know your intellectual property rights.

You also need to be knowledgeable about NFTs and realize that just because you’re buying one doesn’t mean you own the underlying intellectual property.

Unless of course you are the original creator.

Instead, non-fungible tokens represent ownership or rights to a specific underlying asset. And that means creators must avoid infringing on the intellectual property rights of others.

At the same time, they must take steps to protect their own intellectual property.

What else could stop someone from buying the copyright of an NFT artwork and then suing the buyer for making the same artwork their profile picture?

Or copy other works to create NFTs and then make sure the buyer has the rights to the work? The boundaries of copyright infringement are blurred.

There are far too many gray areas to navigate right now without messing with the copyright laws that already exist.

So play it safe while the terms of NFT copyright are still being defined.

Protect your copyrighted work as an author or trademark.

Request resale royalties if you have the opportunity.

Do not use your NFTs for commercial purposes without the appropriate license.

And never compete against Hermès.

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Featured image: Crazy_Dark_Queen/Shutterstock