Copyright law is trying to catch up to non-fungible tokens
written by Jamie Wilde
NFTs, or non-fungible tokens, appear to have more staying power than NYC’s two-week spring.
The latest virtual water cooler chatter? Whether the works of art represented by these blockchain-backed digital tokens are protected by copyright law. While lawyers say the answer is technically “yes,” it deserves the Facebook relationship status “It’s complicated” for several reasons.
Picture this: NFTs and intellectual property (IP) are like the opposite sides of a Venn diagram. An NFT can include IP, but it doesn’t have to. In other words, the IP is the optional topping on the NFT pizza—and it’s probably pineapple, because it’s sprinkled sparsely, if at all.
It’s all about control
Refresher: “Intellectual property” is the original idea itself. “Copyright” governs the expression of that idea. A copyright allows its owner to use a work in whichever way they choose, and to profit off of its use. Since Disney owns Mickey Mouse’s copyright, the company can do things like partner with Gucci and charge about $2,500 per co-branded purse.
An NFT without the copyright is like one of the purses, not Mickey Mouse himself.
Copyright permissions for NFTs can be set by the “minter” (the person who turns a creative asset into an NFT), or they can be set by “walled garden” platforms that do all the minting themselves. Two such platforms, both owned by Dapper Labs, take different approaches to what permissions their buyers receive:
On NBA Top Shot—which partnered with the NBA to create digital slideshow-like assets of basketball footage—buyers are only allowed to use, copy, and show off their NFTs in non-commercial ways, such as by posting on their Instagram.
On the other hand, CryptoKitties allows owners of its digital kitten NFTs to make up to $100,000 annually by leveraging them commercially, such as by putting their likeness on merchandise.
Some platforms set terms for buyers’ intellectual property rights because the platforms themselves create and mint the NFTs. But on platforms like OpenSea and Nifty Gateway, where creators can mint NFTs of their own works…
Artists aren’t so willing to give away their IP
Surprise, surprise: There were no copyrights attached to the sales of multimillion-dollar music NFTs by 3LAU, Steve Aoki, Kings of Leon, and Grimes. And Linkin Park’s Mike Shinoda, who released a new song as an NFT in April, told Input magazine, “There’s nobody who’s serious about NFTs who really humors the idea that what you’re selling is the copyright or the master.”
For creators like Shinoda, that’s because selling the copyrights to his work would mean ceding all future profits that work could generate. The royalties checks would stop rolling in, and the NFT owner could, for instance, sell Shinoda’s song to General Mills, run it in a Lucky Charms commercial, and profit every time the commercial airs.
Bottom line: From an income and creative integrity standpoint, attaching copyright to an NFT is not an attractive option for most. Plus, no one wants to hear Sir Charms sing “crawling in my skin” when he can’t make it to the end of the rainbow.
There are always exceptions
Some creators willingly fling pieces of their IP at fans like shrimp at Benihana. Bluebox is a new NFT platform that automatically copyrights an artist’s song and then divides that into 100 NFTs that include 1% of the song’s copyright.
Artists can decide how much of the copyright to keep themselves: Taylor Bennett and Big Zuu are both selling NFT albums on Bluebox and keeping just 25%.
The bull case for this model: Letting fans buy the copyrights of their favorite up-and-coming artists’ work lets fans invest in their future, and provides artists with much-needed upfront capital, especially during the pandemic.
NFT copyrights can be complicated transactions
Remember the cranberry juice-gulping skateboarder whose Fleetwood Mac-driven TikTok gave us all a brief respite from 2020? That’s Nathan Apodaca, aka 420Doggface208, and he recently asked Stevie Nicks’s permission to turn his clip into an NFT. She said no, according to TMZ, even though she was promised a portion of what was sure to be a landslide of a sale.
Many would-be-NFTs will encounter similar challenges. Anyone who’s heard Ray Charles singing in Kanye West’s “Gold Digger” or viewed Andy Warhol’s Campbell Soup Cans knows creative work is already full of mash-ups. NFTs add another layer for artists to consider, and one that’s purely about monetization, not creation.
But there’s an even bigger wrinkle: Some creators might not be asked for permission at all. The decentralized aspect of blockchain technology means anyone can create an NFT, without regulation from a higher power than the platform itself. Smolinski Rosario Law founder Nelson Rosario imagined a possible situation for Coindesk: “What would happen if someone minted a bunch of Mickey Mouse-related NFTs on OpenSea and then Walt Disney lawyers contact the platform?”
Some legal scenarios similar to that are already playing out. Consider the case of the NFT house that sold for 288 Ether, or more than $500,000, last month. Artist Krista Kim sold the blueprints of a 3D house, accompanied by Smashing Pumpkins music, to an anonymous buyer. Shortly after, 3D modeler Mateo Sanz Pedemonte claimed he created the designs and threatened to take legal action under pre-existing copyright infringement law. The case gets more complicated than that, but it’s significant here because it's the first high-profile intellectual property squabble in the NFT space. But almost certainly not the last.
Looking ahead...when legal experts weigh in, they say that only creators who own the copyrights to their works should be able to mint NFTs. An attorney with a special interest in the space, Moish E. Peltz, explained to Los Angeles Magazine that government scrutiny could soon bear down on NFT marketplaces.