IPR limitations in using NFTs

The popularity of the non-fungible token (NFT), the newest craze in the world of distributed ledgers and cryptocurrencies, has grown, making it one of the most prominent technological stories of 2021. The tech and art worlds are ablaze with excitement over this revolutionary innovation.

A Non-fungible Token (NFT) is primarily a digital asset or cryptographic asset that differs from a fungible token by having a special identification code and metadata. They cannot be traded or exchanged for equivalent value, just like cryptocurrencies.

NFTs use blockchain technology to function. Every NFT has the potential for a number of applications because of its distinct design. For digitally representing tangible assets like real estate and artwork, a digital asset management platform is the best option. NFTs can act as identity management platforms, eliminate middlemen, and make transactions more efficient in addition to bringing artists and audiences together.

Given the nature of NFTs, intellectual property issues related to their creation, display, trading, sale, and storage must be thoroughly investigated.

IPR limitations in using NFTs

NFTs are distinctive in a variety of ways. The rights you trade when purchasing or selling an NFT may vary from platform to platform or even from NFT to NFT. Purchasing an NFT does not automatically grant you the right to do things with it, such as using it for personal or commercial gain. Even after giving the digital asset’s deed to the buyer, sellers may (and actually frequently do) retain some rights. In fact, smart contracts that might be included in an NFT could carry out specific tasks automatically, like paying royalties with each subsequent sale.

Ownership information is very obvious with NFTs. When a digital asset is purchased, the owner’s information is encoded into the token and permanently stored on the blockchain. NFTs thus offer unquestionable ownership of digital assets. However, things become a little murky when it comes to usage licences and intellectual property (IP) rights of the above-mentioned digital asset.

According to a report by Galaxy Digital, only one collection of the top 25 most valuable NFT projects makes an effort to give customers IP rights to the underlying works of art. The rest just confuse buyers and give them the freedom to always modify the NFT collections’ usage licence.

NFTs and Copyright

It goes without saying that the underlying copyright in a work that exists “off-chain” does not always pass to the buyer upon the sale of an NFT. It is up to the creator or most recent copyright owner to transfer the underlying copyright when selling a physical copy of nearly any kind of creative work.

The solutions to these questions have started to take shape, despite the fact that the recognition of NFTs has only recently skyrocketed. A copy or even a derivative of the original work may be considered when creating an NFT. In other words, the only person with the authority to convert the original work into an NFT under U.S. copyright law (absent a license) is and should be the copyright holder.

It is possible for anyone to view NFTs on various NFT platforms. While this helps copyright owners to spot possible unauthorized copies or derivative works, it could also add more platforms to their growing list of places to keep an eye out for such unlicensed works. These problems highlight the value of using and relying on crucial enforcement strategies, from straightforward fixes like watermarks to the DMCA. It is likely that NFT platforms will also be required to comply with the Copyright Management Information (CMI) provisions of the DMCA (including 17 USC 1202).

On the plus side, the creation of an NFT by the creator of creative work may have wider favorable effects on the current state of artists’ resale rights internationally. The production and distribution of NFTs are largely unregulated but also very accessible to a global market.


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