The nonfungible tokens (NFTs) taken under juridical and legal perspectives are still in evolution. For now, there are more questions than answers surrounding the budding space.
A nonfungible token by description can be a representation of a physical or digital asset that exists only on the internet, known as a programmable piece of art. It offers full ownership of an underlying asset, including painting, and it can also represent a digital asset that comes in the form of a software code. Thus, experts like to conceptualize NFTs in an extensive technical view:
“An NFT is a pattern of smart contracts that provides a standardized way of verifying who owns an NFT, and a standardized way of ‘moving’ nonfungible digital assets.”
Before even discussing the legality of a nonfungible token, it is important to check what NFTs mean digitally. Looking at its most general sense, an NFT is the digital representation of any nonfungible asset in the form of a serial number.
There are many legal and judicial challenges and issues related to how a serial number can represent any type of asset on digital media and what should be included in that code. It is critical to keep in mind that, in addition to showing the property of a nonfungible asset, an NFT also indicates and shows where the content of that asset has been located since its inception.
Owning A Nonfungible Token
Is owning an NFT different from owning some rights of the underlying asset that compounds it? In today’s society, we are used to a piece of paper that shows or represents property rights and some work. Many people have already had some contact with these types of papers in their daily lives.
Some of the papers include a certificate of vehicular ownership, a deed to a property, and a lease to a house. It is already understood that there is some value to these legal pieces of paper. That may be a great way to look at NFTs too, even though some differences regarding the rights are linked to them.
There is a growing general perception that an NFT is an original asset by itself. But is this perception correct? Wouldn’t a nonfungible token be a receipt of owning some form of a determined asset? As is the case with everything else in the space of law, the correct answer is: it depends on the current situation.
It depends on what type of underlying asset the NFT represents. An NFT can either be the original asset or even an asset that just exists in the digital virtual world, like CryptoPunks and CryptoKitties.
Concurrently, an NFT can be the receipt confirming that you own a determined asset in the actual world, including real estate or any physical piece of art that is exhibited at the Louvre Museum in Paris. Putting that in mind, some problems exist for internet-era creators that may be solved by registered NFTs through blockchain technology.
How Blockchain Helps Creators Of NFT-Represented Content
Since the inception of the internet and peer-to-peer (P2P) networks, the sector and content creators of intellectual property have been seeking ways of changing assets, copyrighting them, and proving their scarcity and property value in a digital realm.
It was important to have a registering system that may provide immutability and precedence while proving scarcity on the internet. But that seemed to be possible after the double-spending issue that was solved by the invention of blockchain technology.
A nonfungible token registered through blockchain makes the marketed content on the internet unique and immutable. This change enables the artists to protect their creations from duplicity and falsification in the digital world.
Therefore, blockchain-registered NFTs are designed to solve the issues of digital piracy and the huge costs of financial intermediation, among other issues. With these developments, the new type of economy becomes feasible. One that is governed by the participant who produces and creates value and not the traditional trust validators.
Necessary Rights For A Person To Create An NFT
This is an up-to-date issue. This spring, DC Comics sent a notice for the artists that are involved in the creation of their superheroes comics banning the commercialization of the art with their characters like the digital production of NFTs.
Maybe, the news about the former DC comic artist, José Delbo, who made $1.85 million for auctioning NFTs that depict the popular fictional heroine Wonder Woman got the firm’s attention, which led to such a reaction.
The reason for the question raised in the section is just simple: Not all creators and artists own the copyrights of their work. Normally the artists do not need to worry about the rights of copyrights or property of their works, since they are the creators. Originally, they already hold all that is known in the world of intellectual property and the entire idea of rights.
Nevertheless, the key practice of the creator economy is that the rights to any form or work of art or music are allocated to multiple parts: One of these parts may hold the rights of distribution while the other has the exhibition rights. Another part may control the performance rights and the other owns the marketing rights.
What if one can create an NFT of the work with all the copyrights allocated to everyone involved, the best question would be: Which of the rights holders would have the ideal and appropriate legal status to do it? Can every member of the involved parties do this unilaterally, without involving support from the other right holders?
That issue might take a lot of time to resolve, both legally and judicially. In the meantime, as the hype of nonfungible tokens is quite new and is still in the early stages of development in most sectors, including games, music, physical art, and the recently unveiled programmable art, the legal issues are yet to be resolved.
Who now has the right to coin NFTs and what does that mean exactly? While decentralized marketplaces and blockchain technology evolve simultaneously, these questions might be the integral object of judicial demands and will be decided case by case. For today, it appears impossible to create universal legislation that encompasses situations that are in constant change.
There is still a lot of confusion that exists within the NFT space, not just about what rights the creators are assigning, but also what the buyers are acquiring through the nonfungible tokens. The judicial analysis gets more complicated, mainly when we discuss the property of NFTs, which comprises multiple authors and their copyrights.
Another point that needs to be considered is how these platforms have managed to issue the terms of content and how content-intermediate firms deal with NFTs. Most of those intermediate firms between the content creator and the NFT buyers have to do their judicial work by applying some reasonable diligence whenever they create these platforms.
It gets quite complicated whenever there is an incident of co-authorship in a determined creation, mostly when the owners of the copyrights for these creations are firms. Will the NFTs get translated to protect intellectual property portfolios that are owned by these firms, and in case the answer is yes, then how exactly will that happen?
What Rights Do NFT Purchases Give The Buyers?
Whenever an NFT is bought, three parties need to be considered: the creator of the NFT, the author of the original work, and the buyer of the purchased NFT. It is important to note that owning an NFT does not mean acquiring the property of the underlying asset, but instead it involves getting the property of the NFT.
Nonetheless, as NFTs exist in digital media without borders and in multiple jurisdictions concurrently, or even where the law is practically nonexistent, it is quite imperative for the platforms listing nonfungible tokens to specify the involved terms. These terms can then be used in smart contracts to define what rights the NFT buyers are getting from the creators.
At this point, it is important and interesting to know that the buyer is getting ownership of the asset itself, nor even getting the intellectual property rights of the work. In that case, the reasoning is not different from the acquisition of the physical piece of art in the traditional market.
In case a traditional painting in an auction is bought, the buyer does not get the intellectual property rights of the asset itself. The buyer gets the right to hang the new painting on their wall, but not the intellectual property of the painting unless it has been wholly commissioned. Thus, it is not authorized to make posters of the painting on the wall. Nobody can create or change it.
Therefore, to eliminate all doubts of ambiguity, buyers must protect themselves by clarifying that information. To sum everything up, by acquiring a nonfungible token, one is just getting the rights to the bought NFT, the ownership rights to brag about having some connection to that work.
However, one does not have any intellectual property rights to use the work. It means that nobody has the right to distribute, copy, or execute the work unless these rights have been designated. Hence, the legal analysis of an NFT is quite similar to what it would be with the traditional intellectual property rights as if there were no nonfungible tokens in existence.
How Can One Determine The Jurisdiction Of NFTs?
By taking this matter hypothetically, imagine a copyright in France is perpetual which means that it lasts forever, it expires with the author’s death in the US and that Canada protects the copyright for 50 years after the author’s death. When these NFTs are registered in decentralized blockchain platforms, what will the jurisdictional approach be? Which laws can be applied in this case?
For an entirely decentralized platform that gets distributed all over the internet, what rights should be applicable? Will the involved jurisdiction be based on where the original artist lives, or can the jurisdiction be applied between the platform and the creator of the NFT?
In any case, we might see a lot of jurisdictional issues coming up, mostly when dealing with something at an early development stage and is still in progress.
For now, we are still in the Wild West of regulating the nascent technologies, and there is a difficulty with identifying how the nonfungible market will go through the paths of legal protection majorly explains what is currently going on.
How does one identify the parts’ intention when dealing with the new rights in case they are different? Will the NFTs be considered a new base on what is already in existence and was contracted? Or will all of them be considered to be something that the past agreements did not contemplate, which has the possibility of generating more income?
Will somebody take ownership of something that already exists to create another thing that will be designated as an NFT? Can somebody take ownership of the NFT without the consent of the owner of the involved copyrighted work?
This analysis brings in some considerations and ideas surrounding the legal aspects and frameworks involved in regulating the nonfungible tokens. The nonfungible tokens under the juridical and legal perspectives are still changing and evolving. Therefore, the methods of resolving any legal challenges and judicial disputes that will come up have yet to be considered or determined.