Protecting the IP of NFTs: What Every Creator and Buyer Needs to Know

"Man is not, by nature, deserving of all that he wants. When we think that we are automatically entitled to something, that is when we start walking all over others to get it." – Criss Jami

Introduction

NFTs, those flashy digital assets making waves in art, music, and entertainment, are as exciting as they are misunderstood. For all the buzz, few people grasp what actually happens when you own or sell one. More importantly, many NFT creators and buyers are left scratching their heads over how to protect or understand the intellectual property (IP) rights involved. If you think that buying an NFT gives you full ownership of the artwork and all its rights, IP and all, think again.

This article aims to demystify the intersection between NFTs and intellectual property, using real-world case studies to highlight potential pitfalls and offer practical guidance and lessons for both creators and buyers. Understanding how IP applies to NFTs is crucial for protecting your digital assets and ensuring you're not stepping into legal trouble.

NFTs and IP: What Are You Really Buying?

When you buy an NFT , you’re essentially buying a digital certificate of ownership for a specific asset, usually something like artwork, music, or virtual property. The token lives on a blockchain, making it unique. But here’s the kicker: owning the NFT doesn't necessarily mean you own the intellectual property rights to the underlying asset.

Take Beeple’s $69 million NFT sale at Christie’s in 2021 . Sure, someone forked over a fortune for the digital art, but they didn’t get the copyright. Beeple still owns the rights to the art itself, meaning he can reproduce it, sell prints, or license it for other uses. What the buyer got was digital bragging rights, essentially, the right to say, "I own the original digital file."

Lesson 1: NFTs are a transfer of ownership for a digital token, not necessarily for IP. If you’re minting or buying NFTs, understand the distinction or be prepared for a headache later.

Unauthorized Minting: The Wild West of NFT Creation

Here’s where things get a bit messy. The open nature of NFT marketplaces means anyone with access to a blockchain can mint (create) an NFT, often without the permission of the original creator of the work.

Remember when Quentin Tarantino tried to sell “Pulp Fiction” NFTs ? Miramax, the film studio that owned the distribution rights, was not amused. They sued, arguing that Tarantino didn’t have the right to create NFTs based on the movie. Tarantino argued that his contracts granted him the right to publish parts of the screenplay and that he had the right to use NFTs under the copyright fair use doctrine.

In September 2022, Tarantino and Miramax settled the lawsuit. The terms of the settlement were not disclosed, but the parties agreed to put the matter behind them and collaborate on future projects. This case highlights a key issue: just because you create something doesn’t mean you can turn it into an NFT and sell it.

Lesson 2: Make sure you actually own the rights to the work you’re tokenizing. If you’re the buyer, be extra careful about who you’re buying from, especially on open platforms like OpenSea.

The Smart Contract Myth: You Still Need Licensing Agreements

NFT evangelists love talking about smart contracts, the self-executing contracts built into the blockchain. Theoretically, they’re supposed to handle IP licensing and royalties automatically. But don’t get too comfortable.

The truth is, that most NFTs don’t come with clear licensing agreements . That means unless the terms are explicitly laid out, buying an NFT might give you nothing more than the ability to hold and resell it. Even platforms like NBA Top Shot, which lets users buy NFTs of basketball highlights, specify in their terms that you don’t own the IP, you just have a license to use the clips “for personal, non-commercial use.”

Without explicit terms, disputes over usage rights can arise. Look no further than the Hermès v. MetaBirkins case. Artist Mason Rothschild made a splash by creating NFTs of digital Birkin bags, but Hermès, the luxury brand behind the real Birkin, sued for trademark infringement. Rothschild argued that his NFTs were art, but Hermès wasn’t having it. In February 2023, a New York jury ruled in favor of Hermès, awarding the company $133,000 in damages. The jury also permanently blocked Rothschild from selling the NFTs.?The judge denied Rothschild's requests to throw out the verdict or hold a new trial. The judge also decided not to order Rothschild to transfer the tokens, citing First Amendment concerns.?The case could offer guidance to brands and artists looking to enter the metaverse.

Lesson 3: If you’re creating or buying an NFT, insist on a clear licensing agreement. Don’t assume the blockchain will sort it out for you.

Enforcement: Good Luck Suing on the Blockchain

The global nature of NFT marketplaces poses another challenge, jurisdiction . When you’re selling digital assets to someone halfway around the world, which laws apply?

Enforcing IP rights across borders is already tough in the physical world, but in the digital NFT space, it’s like playing legal whack-a-mole. Platforms like OpenSea have made strides in responding to takedown notices, but enforcement is often slow and inconsistent .

Look at what happened to ArtStation , a platform for digital artists. After some of its users’ work was minted as NFTs without permission, the platform scrambled to introduce new protections, including a system for issuing takedown requests. It helped, but many creators found it nearly impossible to stop the spread of unauthorized NFTs once they hit the blockchain.

Lesson 4: Once an NFT is out there, stopping its resale can be a legal and logistical nightmare. Creators should be proactive about securing IP rights and have a plan in place for enforcing them.

What Needs to Change? Legal Reforms and Best Practices

NFTs have introduced a new frontier in digital ownership, but the current intellectual property (IP) laws are struggling to keep pace. The legal framework is still riddled with gaps, leaving creators and buyers in murky waters when it comes to IP ownership, licensing, and enforcement. For NFTs to truly realize their potential without legal pitfalls, targeted reforms and best practices are essential.

Legal Reforms: Defining IP in the NFT Context

1. Clarification of IP Ownership: The most pressing need is for lawmakers to specify how traditional IP laws, particularly copyright and trademark, apply to NFTs. When an NFT is minted, it often lacks a clear delineation of what rights are transferred to the buyer. Courts, as seen in cases like Tarantino v. Miramax and Hermès v. MetaBirkins, are starting to address these ambiguities. A comprehensive legal standard is required to ensure clarity on the rights that come with NFT ownership, such as reproduction, display, and commercial use.
2. Standardized Licensing Frameworks: Current NFT transactions often omit explicit licensing terms, leading to disputes over usage rights. Legislators should consider developing standardized, legally binding licensing frameworks for NFTs. Such frameworks could allow for customization based on the asset type but would mandate transparency about what rights are being sold, leased, or retained by the original creator.
3. Cross-Border Enforcement Mechanisms: One of the biggest challenges with NFTs is enforcing IP rights across borders . Since NFT platforms operate globally, a harmonized international framework is needed to manage disputes. This could involve multilateral treaties or agreements that extend the enforcement of IP rights beyond national jurisdictions, ensuring creators and buyers are protected no matter where they operate.

Best Practices for Creators and Buyers

While the legal reforms are in motion, creators and buyers can mitigate risks by adopting proactive strategies.

For Creators:

1. Include Clear Terms in Smart Contracts: Don’t rely solely on the blockchain to convey IP rights. When minting an NFT, ensure the smart contract explicitly outlines the scope of rights the buyer receives, whether it's full ownership, a limited license, or merely the token itself. The more transparent you are upfront, the less room there is for future disputes.
2. Protect Your Work with Copyright Registration: While blockchain technology serves as a digital ledger, it’s still advisable to register your work with official copyright offices. This provides an additional layer of legal protection, making it easier to enforce your rights in court if someone infringes on your IP.

For Buyers:

1. Understand What You’re Really Purchasing: Not all NFTs come with IP rights, and even fewer include commercial usage rights. Always review the terms of the sale carefully, paying particular attention to what rights the seller retains. If no licensing agreement is attached, assume the purchase is limited to the token itself.
2. Demand Licensing Clarity: When purchasing high-value NFTs or planning to use them commercially, insist on a clear licensing agreement. This can prevent unpleasant surprises down the line and give you a solid foundation to protect your investment.

Conclusion

NFTs are transforming the world of digital ownership, but that doesn’t mean they’re immune to the old legal headaches. Protecting your IP, or understanding what IP you’re getting, is crucial in the NFT space. While the law may still be catching up, common sense and proactive legal planning can go a long way.

As NFTs continue to evolve, understanding the nuances of IP protection is essential. Whether you’re minting your next masterpiece or buying your first NFT, knowing the legal landscape can save you from future headaches. And as the world figures out how to enforce IP in the blockchain era, both creators and buyers should stay informed and proactive.