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Non-Fungible Tokens: Copyright Legal Issues

In our last post, we wrote and talked about the basics of non-fungible tokens, or NFTs. They have some value on the market, and when things have value there will be a fight. When I first heard that a Nyan cat NFT sold for hundreds of thousands, and then when a simple picture of a Shiba Inu dog (the image at the heart of the the memecoin dogecoin and, predating that, just the general doge meme) also sold for a bunch of money, I began to wonder how copyright worked in this new NFT realm. Clearly, there was an artist that created the Nyan cat gif/meme/video, just like there would be a dog owner and photographer for the Shiba. Who should be getting paid from the sale of the associated NFTs?

Well, it turns out that the creator of Nyan cat also happens to be the one that minted the Nyan cat NFT. He has also registered the copyright for the animation. And it turns out that the one who minted the dog NFT was the owner of the pup in question. I guess there won’t be any copyright fights about these particular NFTs. But for the art that is tied to a NFT, how does its copyright get treated?

When one buys a NFT, they don’t actually buy the actual artwork. What gets transferred to the purchaser’s digital wallet is essentially a certificate of ownership that the world can see—that this person owns the artwork associated with this NFT. Under classic US copyright law, the selling of an artwork does not convey the copyright to that artwork. Similarly, the purchasing of a NFT associated with an artwork will not convey the copyright to that artwork-NFT. The exclusive right to reproduce the work stays with the copyright owner. But as the popularity of NFTs has skyrocketed, there probably are already counterfeits and violations of copyright in the market.

For instance, nothing is stopping one from minting an NFT purporting to sell an artwork depicting Mickey Mouse, just like nothing is stopping one from selling an unauthorized t-shirt of Mickey. But if one sells enough Mickey t-shirts, presumably Disney will step in and put an end to it. With the rise of virtual anonymity, can Disney patrol the vast ocean of NFT marketplaces? And how will a big sale of a Disney-owned and copyright-violated property be handled if the minter has disappeared? Will the market for that work subsequently die if it’s found out that the work was unauthorized? What if you subsequently sold the work to another purchaser while not knowing it was infringing on copyright? How will the first sale doctrine apply? (Note: NFTs often come with an explicit disclaimer that the purchaser can resell.) What about fair use—an area that may run into litigation as memes, which are often tokenized, are reproductions with new text added. All to say, copyright and NFTs are in somewhat murky waters.

The law always will lag behind technology. But it is an exciting time to ponder these questions. Much remains to be seen about the longevity of this NFT craze, but as long as artworks are tied to NFTs, copyright law will need to be examined to see how it applies.