NFTs and their scope of ownership in current IP legislation

Frankenstein’s digital chase

For centuries, civilization emerged rather gradually despite humankind’s passion and ambition, making it readily possible to regulate almost any development on a legal infrastructure that is unbiased and commonly held.

In the recent past on the other hand, during modernization with the industrial revolutions, it was now a chase, but people were out front, taming the technological progress even though the advancements thrived in the midst of the inevitably evolving technology.

To find out the moment when that “chase” became a “drag” for humankind, we should take a glance at the last few decades, and the latest as a matter of fact. 30 years ago, the presently known form of the internet began irrevocably spinning its world wide web, engaging people and things for sure. That was followed by mobility with the very first portable computers and subsequently, smartphones and smart devices. Through this connectivity and mobility, people started being not only physically present but also digitally “online” and these digitally numerous – even maybe infinite and borderless environments have indefinite possibilities limited by the imagination of humankind.

A digital universe created thus and so has a similarity with the real universe: they both expand without one’s control. This expansion of the digital universe is the cause of the above-mentioned “dragging” of people and most importantly the authorities because technology has now been reduced from high-quality and costly equipment to the personal potentials of individuals.

This world has, by all means, a financial aspect since such reachable technology is the fruit of the capitalist era. We are not talking only about the conventional purchasing methods, commodities and payment means anymore; there are now digital currencies, and such digital currencies can buy both physical and digital assets.

This brings us to those digital assets that entitle the owners with transferable blockchain properties, and these properties bring along legal concerns existing practices cannot easily cope with.

By creating a chain with digital blocks that record each and every transaction of a digital asset, the so-called blockchains are formed and thereon, ownerships of tokens are stored. When those are divisible and non-unique, they are called Fungible Tokens but those are not the focal point of this article. Non-Fungible Tokens (NFT) on the other hand are unique and can’t be replaced and therefore should be regarded as physical assets that have deeds. Simply put, when NFT is purchased, it gives verified ownership of a URL to a host site that accommodates the related digital item. This digital item is held with a smart contract which is a software code that contains details of the underlying digital or physical asset to which the NFT relates as well as certain rights regarding the NFT, such as payment of a royalty rate to the copyright owner at a determined percentage.

Why is this a matter of uncertainty today?

As mentioned above, when it’s a non-fungible token, the asset can be anything from collectibles to generative art, event tickets to music, domain names to membership passes, and so on but most simply, it could, for instance, only be an ordinary drawing.

There is a common considerable particular for all of the above-mentioned NFTs right along with many other types: they become an asset that is minted by whether a person and/or artificial intelligence that is created and legally protected by a person and thus, entitles copyright as well as a property right to the owner.

Even though the World Intellectual Property Organization (WIPO) ruled that the Berne Convention for the Protection of Literary and Artistic Work applies to NFTs, such copyright is now one of the main concerns of IP practices because what makes it ambiguous is that an NFT being a digital commodity and sale of an NFT does not mean a transfer or licensing of the intellectual property of the underlying artwork. Directive 2019/790 by the European Union on copyright and similar rights might be taken as a guide in this regard.

To understand this all-too-common cause of this vagueness, let’s have a look at the decision of the Chinese court on Shenzhen Qice Diechu Cultural Creativity Co., Ltd., (hereinafter Qice) v. Bigverse that is already named as a copyright infringement case relating to an NFT.

Even though the case is an infringement case, the decision and the advice of the court concerns disputes to arise between the NFT owners and the copyright owners of the very same asset in the future.

The starting point of the case goes way back to the sale of an artwork of a cartoon tiger getting a vaccine shot. The artwork “I am not a chubby tiger” by Ma Qianli gets listed on BigVerse, the Chinese NFT marketplace, and sold at a price of 899 Yuan and upon the sale, Qice files a lawsuit stating that the NFT, which contains the related cartoon exactly, infringed the copyright as the company has exclusive authority over the rights arising from the ownership of the work.

BigVerse on the contrary states in its defense that the NFT in question was uploaded by the user and not by the company and that given a large number of NFTs uploaded daily, the company doesn’t have the capacity to authorize each and every copyright owner and can only stop the sale upon a complaint.

On the hearing, the court decided that BigVerse did not check whether the owner of the relevant NFT had also the copyright, and was therefore at fault for facilitating the violation of the “right of dissemination via information network”.

What should be inferred from this case is that: purchasing an NFT does neither transfer nor grant a license of the intellectual property of the underlying work; the sale of an unauthorized NFT does not infringe the copyright owner’s “right of distribution” but instead, infringes “the right of communication by information networks”; the legitimate creator of the NFT is not the digital copy owner of the artwork but the owner of the copyright or the license; unlike any other e-commerce platform, pre-examinations regarding especially the authorization and ownership of the artworks should be much stronger and complicating.

Although this article has a conclusion, the topic doesn’t have any for now. Let alone the discussion of the WIPO concerning if IP laws should adapt to the NFTs, or if the NFTs should adapt to IP laws, the above-mentioned chase between the human race and the rapidly evolving technologies continues and it seems that blockchain technology could exist without regulation or regulatory bodies and doesn’t need to adapt to anything. Hence, even though only one instance is discussed in this article, there are many unaddressed challenges, especially on the transferability of IP rights concerning digital assets, and given the exponential technological progressions, these challenges seem to be everlasting.