NFT Creators Beware: IP Rights
Despite the relative ease with which NFTs can be created, there are still some important legal issues of which creators should be aware:
Third Party IP Rights
Whilst NFTs come in various forms (images, GIFs, videos, animations, 3D models etc.) the work to which an NFT is connected is likely to be protected by copyright.
Copyright arises upon creation of a work: for example, the creation of a digital image, and the first owner will be the artist (subject to any employment contract, in which case the employer will own the copyright). Unless copyright is assigned (transferred) to another party under a signed, written contract (an assignment), it remains with the original holder. An artist can sell their digital illustration (the digital file) but retain the valuable copyright in the illustration.
A Copyright owner has the right to protect their work by stopping others from using it (copying, displaying, exploiting it) without permission; it is a right that can be licensed or sold.
Copyright infringement occurs when someone uses the whole, or a substantial part, of a work without the copyright owner’s permission.
Copyright infringement can lead to not only the removal of the NFT from the hosting platform but can also trigger a claim for damages and an injunction against the infringer. A recent example of this is a claim made in respect of an NFT featuring, and purporting to assign rights in, the artist Jean-Michel Basquiat’s 1986 mixed media work on paper, ‘Free Comb with Pagoda’. The NFT was created without the permission of the copyright owner (the late artist’s estate) and was removed from its hosting forum. See the article here
It is not only copyright of which you need to be aware: trade mark rights may also be infringed in the creation of an NFT. If without permission, the NFT reproduces, and/or takes unfair advantage of, or is detrimental to, a trade mark, then it may infringe those trade mark rights.
Our recommendation is therefore to be careful in your selection of work for an NFT where you are not the copyright owner of the work in question, and to obtain permission to use the work before taking further steps.
Clarity in the NFT
Smart contracts determine the terms under which the NFT is sold, and the rights and obligations that accompany the NFT.
The smart contract in an NFT should ideally set out and provide for the IP rights accompanying the NFT: whether there is an assignment (transfer) of copyright; or whether it’s a licence to use the work; or whether no rights at all are being granted.
Many ‘standard-form’ smart contracts fail to adequately provide for, or set out sufficiently a provision for, IP rights, and they can be overlooked. If there is any ambiguity or lack of clarity in the rights accompanying the NFT, it can lead to dispute.
If an NFT is misrepresented, you also risk falling foul of advertising and other ‘sale of goods’ regulations.
If you are uncertain of your position in respect of an NFT you are looking to create, or have created and issues concerning IP rights, or other disputes have arisen, you can contact us today.
Call us on 020 7315 4812 or make an enquiry online.