NFTs and Intellectual Property: What Do You Actually Own?

As non-fungible token holders look for new ways to monetize their digital collectibles, creators might seek to define what collectors can and can’t do with the original artwork.

Cam Thompson is a news reporter at CoinDesk.

Non-fungible tokens (NFT) gained popularity in early 2021, when generative art and profile picture (PFP) projects such as CryptoPunks and Bored Ape Yacht Club were touted by celebrities and used as a sign of affiliation to different crypto communities. These crypto tokens cannot be replicated and represent ownership of an asset, real or digital.

As the early NFT frenzy has cooled, digital artists have sought to bolster the value of these collectibles beyond speculative trading on the secondary market. From TV shows to merchandise, some projects have expanded possibilities for commercializing NFT artwork.

But not every NFT project allows its holders to monetize the underlying artwork, and NFT creators will need to outline the terms and conditions of how their artwork can and cannot be used by new owners. In turn, NFT holders must follow certain preset rules outlined by intellectual property laws.

What is intellectual property?

Intellectual property (IP), as defined by the World Intellectual Property Organization, refers to “creations of the mind, such as inventions, literary and artistic works; designs and symbols, names; and images used in commerce.” These works are protected by laws that prevent others from profiting off or taking undue credit for something they did not create.

Three common types of intellectual property protected by law are patent, copyright and trademark. Patent law applies to inventions with some type of public utility; copyright law applies to literary and artistic works such as books and music; and trademark law is usually associated with business and involves the act of “marking” one’s goods or services to distinguish them from other businesses.

While these types of intellectual property are protected by laws, the enforcement of these laws remains a challenge within the realm of blockchain-based creations, where NFTs are sometimes made from stolen art and questions over creative ownership rights have led to lawsuits with murky resolutions.

Who owns the IP of an NFT?

Ownership over the intellectual property of an NFT is not always clearly defined. Cornell University legal scholars James Grimmelmann, Yan Ji and Tyler Kell wrote in a blog post in March that it is often challenging to fit NFTs into the traditional framework of copyright law.

“Ownership of an NFT can be used to give the owner substantial control over a creative work, but that control is not automatic,” they wrote. “Copyright law does not give an NFT owner any rights unless the creator takes affirmative steps to make sure that it does.”

They added that in surveying some NFT projects, “very few of them take all of the necessary steps needed to make NFT copyrights behave the way that community members expect.”

In an article titled “Demystifying NFTs and Intellectual Property: What You Need to Know,” authors Elizabeth Ferrill, Soniya Shah and Michael Young suggest that NFTs “may be subject to IP protections, including copyright, design patent and trademark rights.” They explain that when an NFT is minted or sold, a blockchain’s smart contract will automatically execute the transfer of ownership, including any rules applicable to the NFT like terms of purchase or resale opportunities. This often means that when an NFT is traded, a license that informs collectors about what they can and can’t do with their new asset goes along with it.

According to Ferrill, Shah and Young, most NFT creators restrict commercial use and include a license that only gives holders the rights to “use, copy and display” the NFT.

As an example, they cite that Twitter founder Jack Dorsey sold his first-ever tweet as an NFT to a buyer named Sina Estavi. While Estavi owns the non-fungible token linked to the tweet, Dorsey retains the copyright, which means that Estavi can’t print the tweet on T-shirts or sell other merchandise without Dorsey’s permission.

Jeremy Goldman, a lawyer at Frankfurt Kurnit Klein & Selz who focuses on intellectual property and blockchain technology, told CoinDesk that copyright is always an “opt-in” structure, meaning that NFT artists can choose whether to specify what buyers of their artwork can do.

Whether or not a token you purchase has these defined outright, as an NFT owner, you should familiarize yourself with different types of licensing designations:

Personal

Some NFT creators don’t explicitly outline an intellectual property license. According to Goldman, not specifying an IP license operates as a personal license by default. He explained that if an NFT project doesn't specify its IP license, it is safest for a buyer to assume that they do not own the intellectual property rights and that their use of the NFT is restricted to personal only.

Under a personal license, buyers can only use the NFT artwork for non-commercial purposes. For example, a collector can use the NFT as their profile picture on social media or display the art in their home using a digital frame. But holders can’t use their asset to make a profit, like selling prints of the artwork or using the artwork to create a spin-off book series.

“For a lot of the one-of-one projects, artists are not super thrilled about letting people just go out and make use of their artwork,” said Goldman.

Commercial

A commercial license allows a creator to designate some rights to a buyer while still retaining ownership and control of the IP. In some cases, this includes allowing the buyer to sell the NFT artwork on merchandise, creating a TV show with an NFT character or even plastering the image on a food truck, as seen with the Bored & Hungry restaurant project.

There are many types of commercial licensing structures.

Yuga Labs, the company behind Bored Ape Yacht Club, recently acquired the CryptoPunks and Meebits NFT collections. In August, the company released the full commercial rights to NFT holders, allowing them to use their characters in commercial or personal projects.

In some commercial licensing structures, the buyer must pay royalties to the original creator of the NFT. This is often a percentage amount established by the original creator, usually calculated per sale. A royalty-free license bypasses those requirements.

Last month, NFT platform X2Y2 introduced a flexible royalties feature that provides buyers with a choice of how much they want to contribute to the original NFT project. The announcement drew criticism, with some arguing that the structure would hurt NFT artists.

NFT collection ZINU offers holders a royalty-free license, allowing them to “use and commercialize their respective NFTs within their own industries.”

Mario Rossi, chief technology officer at ZINU, told CoinDesk that its licensing designation encourages buyers to be creative with how they choose to utilize the asset. From backpacks to chess boards and figurines, NFT holders are allowed to use the ZINU narrative in their own creations.

“You don't have to kickback anything to us, even though you're using our name to build your brand,“ said Rossi. “We want to really incentivize people to do things with it because it spreads the word of the project that gets people out there, it gets them familiar with it.”

Tara Fung, co-founder and CEO of NFT infrastructure startup Co:Create, told CoinDesk that most NFT collectors prefer commercial licenses as it provides them an opportunity to monetize the NFT's IP. Some artists prefer it too as it creates strong incentives for NFT collectors to promote the collection and seek out licensing opportunities.

Alternative licensing structures

There are a growing number of alternative licenses that NFT artists are using to designate usage rights to their artwork.

For example, the nonprofit organization Creative Commons offers six different licensing structures that NFT creators can use to grant certain permissions to collectors.

One example is the Attribution-NonCommercial 4.0 International (CC BY-NC 4.0) license that NFT artist Kelly Milligan chose for his generative art collection titled Act of Emotion. Under this license, buyers of his NFTs are free to “remix, transform and build upon the material,” but in doing so must give appropriate credit to Milligan and not use the material for any commercial purposes.

One designation that has sparked controversy in the NFT space is CC0.

Creative Commons defines this license as any creative work in the worldwide public domain that has “no copyright.” In other words, anyone can copy, modify and distribute the artwork, even for commercial purposes.

In August, NFT collective PROOF switched the license of its Moonbird collection from commercial to CC0, allowing anyone to creatively remix the project. The decision sparked debate amongst holders and opened up a conversation about defining IP licensing designations.

Crypto venture capital firm a16z released a collection of six licenses designed specifically for NFTs that are embedded on-chain and deployed through smart contracts. The “Can’t Be Evil” licenses are publicly available and aim to help creators protect their IP, provide NFT holders with easy-to-understand rights and help foster community.

Laying out terms clearly prevents misunderstandings

Deciding what IP designation to use is an important part of a creator’s journey in releasing an NFT collection. With NFTs becoming more functional in terms of long-term utility, it is becoming increasingly necessary to define what that utility looks like for holders that buy into a project's ecosystem.

New data suggests that more NFT trademark applications have been filed this year than last year, a promising sign for creators and holders building for the long term.

Goldman told CoinDesk that there’s “a lot of mythology,” surrounding NFT IP licenses, and there is often a misunderstanding buried within the terms of the agreement – or a lack thereof.

“Unless [artists] say something out loud or put something in writing, no one gets any rights until they say otherwise,” said Goldman.

This article was originally published on Oct 14, 2022 at 7:06 p.m. UTC

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Cam Thompson is a news reporter at CoinDesk.

CoinDesk - Unknown

Cam Thompson is a news reporter at CoinDesk.


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