NFTs and Copyright: A Beginner's Guide

Technology around Web3 is moving at such a rapid pace that government institutions are not able to keep up. It's not a first-time phenomenon. It's impossible for lawmakers to get ahead of technology and prepare a rulebook in advance to prevent future legal issues.

Only now the average person will start to notice news on NFT-related court cases, and questions around ownership, art, and commerce will hopefully become clearer.

Currently, the NFT communities, both buyers and artists, fall victim to scammers and thefts on a daily basis. However, infringement on copyright can be self-regulated because the same copyright laws that work in the physical world, also apply to the Web3. (Even if we are still in the "Wild-West" phase of Web3)

What to know as a buyer?

An NFT and the work itself are usually two separate entities.

The non-fungible token is a string of code linked to the original work. Therefore, the buyer is acquiring the metadata, not the original piece. (in most cases)

Some buyers think they acquire all the accompanying rights to the original work, which have already resulted in some funny situations. Like Spice DAO buying a copy of a manuscript of science fiction novel Dune, thinking they will be able to create their own movie adaptation without stopping to think that all underlying rights do not belong to them.

Well whatever the community thought they were acquiring, they could’ve just as easily created fan-fiction without alarming the parties who own the rights to Dune IP.

What to know as an artist?

The sale of an NFT does not necessarily transfer underlying rights of the original work. These are the same rules that apply in the case of selling any type of creative work - the transfer of any underlying rights is up to the creator or the most recent copyright holder.

On the artist's end, the best and probably the only solution to protect their work is to turn to the Digital Millennium Copyright Act.

Scroll below to read an interview with our lawyer, who explained to us the basics of copyright and how to protect your intellectual property in Web3.

Sasha Blot ©

Who owns the copyright to the work?

Copyright includes: (1) the exclusive right to authorize and prohibit the use of a work, as well as (2) personal (non-property) rights, such as the right to indicate the name of the author and the inviolability of the work.

Non-property rights cannot be sold or transferred unless explicitly stated in the smart contract between the seller (author) and the buyer or mentioned in the terms of the marketplace.

In the event of selling an NFT, marketplaces do not have standard conditions for copyright transfer. The maximum is a license from the user-seller so that the work sold as an NFT can be shown on the internet.

If ownership is defined and regulated by a smart contract, will it potentially be recognized in all jurisdictions where the blockchain exists (will the requirements of various copyright treaties be taken into account)?

There is no consensus among lawyers in different countries about NFT and whether ownership applies to NFT. Assuming that ownership applies, it will only arise on the NFT itself, not on the original work.

How are things with “non-property rights”? Is this issue on the legal agenda of the NFT community (are they aware of these rights), which are so important in Europe?

I assume that the issue of indicating the name of the author of the work and the inviolability of the work is part of the agenda.

Formally, the NFT implements a “non-property right” as the “right to follow” - the ability for the author to receive a percentage from secondary NFT sales.

How should an artist act if something goes wrong?

Marketplaces operate in accordance with DMCA (Digital Millennium Copyright Act). Therefore, if there is an infringement upon an artist's copyright, then:

The author/copyright holder can file a complaint with the marketplace that the copyright is being violated.
The marketplace sends the appeal to the person who allegedly violates the rights. From then the marketplace will either remove the content in respect of the party who filed a complaint or awaits a response from the alleged infringer.
If the alleged infringer does not provide a response, then the disputed content is removed from sale.
If the alleged infringer submits a response, then the disputed content remains (or is subject to return if it was removed). And the response is sent to the author/copyright holder with a statement -the dispute can be settled in court since the site does not have the appropriate authority.

Marketplaces are information intermediaries, while the violators will be specific individuals who have uploaded content in violation of rights.

But, the NFT buyer usually does not receive exclusive rights to the work. So if the buyer uses the author’s work outside blockchain/marketplace, for example, creates a derivation of the work, starts selling merchandise or in any other way gains additional financial gain. Then the author has the right to sue the buyer who violates the terms of use.

Plus, a third-party copyright holder can indicate their claims in the context of copyright. Do NFT marketplaces provide a platform for this already?

If we are talking about a violation of the rights of a third-party copyright holder, then he has the right to use the DMCA procedure described above.

If the author has sold (alienated) the exclusive right to work to a third party, then it is he who has the right to file a complaint. In other cases, the buyer of the NFT, as a non-exclusive, cannot complain about the use of the work.

With regard to personal non-property rights, only the author can file a complaint, as they cannot be sold or transferred.

Sketchar as a platform is building a democratized NFT marketplace, where all artworks created on the app are original and authentic.

It is advisable to read more on DMCA as it is unlikely to receive any adjustments anytime soon: https://www.copyright.gov/title17