Jul 13, 2023

My NFT and Intellectual Property

As with any new idea to the market, it might not be so easy to apply existing legal rights because existing rights have not accounted for such ideas yet (and that’s how it is – law, rules, regulations and/or compliance matters are reactive as opposed to proactive because it is simply impossible to try to think of everything that could ever happen in the future). As such, the intersection existing between intellectual property rights and NFTs is still evolving.

Intellectual property rights is a complicated subject matter in general. Now, add NFTs to the mix and we have to carefully consider how we apply them. Intellectual property rights encompass anything from patents, trademarks, copyright and other related rights and are designed to protect creative or unique ideas and works of both individuals or legal entities.

NFTs are unique digital assets and so at the moment, TCS would advise that several key considerations be taken into account, when considering the intellectual property rights of an NFT:

1. Copyright
NFTs can represent art, music, data or other forms of creative work, which are embedded in the digital creation. The ownership of an NFT should not however, be confused with the ownership of the underlying copyright. Copyright ownership automatically exists in the creator of such works and so artists or creators of the NFT, would usually retain the copyright ownership of an NFT unless specifically stated that this will transfer with the transfer in ownership of the NFT and/or a license is granted with such transfer and/or deferred ownership.

2. Permissions and Licensing
The creators of an NFT can choose to add a license to the NFT and thereby, set specific terms and conditions for the use of such license. For example, it could be the case that the creator of an NFT retains certain intellectual property rights associated with the NFT (despite not owning the actual NFT) but could license the rights of such intellectual property with the ownership of the NFT. These could relate to the use of the NFT or certain aspects of it and/or the distribution of the NFT in general. Smart contracts embedded within NFTs can be used to ensure enforcement of these and at the same time, ensure appropriate permissions or restrictions are granted automatically, also including the potential of royalties to be included.

3. Authenticity/Attribution
NFTs can actually be used as a tool for provenance and authenticity, being able to provide a verifiable record of its original creator and history of ownership through the blockchain it was launched on. Each is as its name suggests, a ‘Non-Fungible Token’, meaning by brief definition that it’s the only one. This protects the creator of an NFT from unauthorised reproductions and helps establish and maintain their reputation (and exclusivity) in the market.

4. Trademarks
NFTs sometimes contain recognizable brands, logos, trademarks or other forms of intellectual property (which are sometimes theirs, but sometimes owned by someone else). Where it’s the latter, it is important to ensure that correct permissions have been obtained to prevent intellectual property infringement.

5. Cross Jurisdictional Matters
Intellectual property rights tend to be very territorial. For example, a trademark registered in the UAE, does not mean that the trademark is protected everywhere in the world. Brands will register intellectual property in each of the jurisdictions in which they operate but having intellectual property registered in one jurisdiction may also help assert the fact that such intellectual property belongs to the person/entity in which the intellectual property is registered and thereby be to such person/entities favour when bringing a claim for infringement in another jurisdiction.

Another key consideration is that intellectual property (legal) frameworks differ from jurisdiction to jurisdiction. It is important to understand the legal and compliance frameworks of the jurisdictions in which the NFT will be launched for example (or the best way to set up a virtual asset business structure where multiple virtual assets are involved, including an NFT component) or in general when dealing with NFTs on a global scale.

The NFT landscape is still evolving and as with any aspect that relates to NFTs, there are ongoing discussions and explorations or innovative approaches to the intellectual property rights behind these. Case law is exploring various aspects of intellectual property laws as these relate and can be applied to NFTs, causing stretches and forks in the legislation to adapt to virtual assets and in general, things existing in a digital realm.

It is extremely important that you read the terms and conditions of any NFT marketplace before purchasing an NFT from it… the whitepaper of any project you are looking to invest in and/or will be receiving NFTs from, and the website of the project launching the NFT (if they have one), paying particular attention to the intellectual property provisions of these, to know what intellectual property rights will come with the NFT and which will remain with the creator. Not all intellectual property is always transferred when acquiring ownership of an NFT and thereby, even if you own an NFT, this may not mean that you can use the image on the NFT to your heart’s desire for example.

It would be nice if there were clear guidelines, fair compensation models and transparent legal frameworks that would protect both the rights of the creator and the collectors’ interests in the NFT space, but as with anything, this will take time.

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Alternatively, you can reach us though our email: info@thecounselservices.com