“NFTs may actually mark the new era in online content; an era where we eventually see every digital copy tagged with a serial number to trace and prosecute counterfeiting.”
From the advent of the internet, digital commodities and technologies have ceaselessly presented new hurdles for intellectual property (IP) owners and protectors. The cycle of copyright law trying, and generally failing, to adapt and keep pace with emerging technology has meant copyright stakeholders have been always at a disadvantage because legal enforcement lagged so far behind innovative infringement. But during a year in which vast swaths of life moved online, the internet has forged and driven to prominence a powerful new tool for protecting copyright owners’ unique assets: the non-fungible token (NFT).
NFTs: Defying Categorization
NFTs are effectively digital collectibles, protected via blockchain. Someone sells an NFT, and the buyer receives an entirely virtual something, transmitted online. We say “something,” because the range of NFTs on the market is already vast and eclectic. Buyers can own the digital fingerprint of the world’s first tweet, or a verified original video of performance art, or videos set to original music. While some sellers are including real assets like concert tickets with the purchase of the NFT, the intrinsic value to an NFT is the bragging rights of owning “the original.” Indeed, in nearly every case, anyone can copy, download, and share the content of the NFT. The buyers do not care. In the same way that a mass-produced movie poster is a collectible when autographed by the leading actress, the value proposition of an NFT rests entirely with owning the digitally inscribed, blockchain-protected virtual asset.
In perhaps the most high-profile and certainly the most profitable NFT example thus far, digital artist Mike Winklemann—known as Beeple—sold an NFT of his work, titled The First 5000 Days, at Christie’s Auction House for $69 million. This is the third highest price any living artist has scored for their works, behind Jeff Koons’ sculpture “Rabbit” and David Hockney’s painting, “Portrait of an Artist (Pool with Two Figures).”
What it All Means for Copyright
It is a clever solution in a year when artists cannot perform live. Some of the most successful NFTs have been new album releases with a few thousand NFTs available. Right now, it is difficult to predict whether NFTs are a pandemic-era fad that will disappear by December, or if they represent a fundamental shift in societal perceptions on experiences and ownership. But the trend may present the beginning solution to significant online intellectual property challenges. Not only do NFTs provide the opportunity to unbundle the rights associated with a copyright in a way that is more advantageous to a works’ author, but a mass adoption of blockchain-protected assets would help reduce counterfeiting.
From a legal perspective, when a buyer purchases an NFT attached to a copyrightable work, at most they may be purchasing a license to display the copyrighted work in a limited capacity. The copyright holder typically retains the rights of reproduction, adaptation, publication, and performance of the work. Most frequently, a person who buys an NFT cannot legally edit the digital asset and redistribute the work, even though they paid for it. They can display the work on social media, or they can transfer the NFT to another entity through resale if they choose, but they cannot reproduce any additional verified copies for a profit.
This was true for many online works already—purchasing a copy of a song did not allow the buyer to re-sell copies of the song. The key is using blockchain to track digital copies. No one was legally allowed to reproduce digital copies of songs without a license, but when did that ever stop bustling online exchanges from disseminating pirated music? The digital versions of the songs were identical and virtually untraceable. But now, if someone buys a song attached to an NFT, there is a digital marker identifying that audio file. NFTs may actually mark the new era in online content; an era where we eventually see every digital copy tagged with a serial number to trace and prosecute counterfeiting.
Consider the National Basketball Association’s (NBA)’s Top Shot NFT offerings. Through a new platform, the NBA allows users to buy, sell, and trade game highlights, called “Moments,” and such Moments are consistently being created from new game footage. The idea is much akin to trading cards, but with video reels, in a market that is entirely virtual. But the NBA’s Terms of Service makes clear that you own the copy of the video, and nothing more:
“For the sake of clarity, you understand and agree: (a) that your purchase of a Moment, whether via the App or otherwise, does not give you any rights or licenses in or to the App Materials (including, without limitation, our copyright in and to the associated Art) other than those expressly contained in these Terms; (b) that you do not have the right, except as otherwise set forth in these Terms, to reproduce, distribute, or otherwise commercialize any elements of the App Materials (including, without limitation, any Art) without our prior written consent in each case, which consent we may withhold in our sole and absolute discretion.”
Again, online marketplaces for content are not new. iTunes Music Store has been selling digital copies of songs, in lieu of physical CDs, for 20 years. But the difference is that now customers want assets that are digitally traceable. To them, proof they own the original equates to cultural status. But for IP owners, it is an entirely new marketplace that sells distinguishable digital content—an online marketplace that will finally favor the IP owners over the digital pirate. And all this comes without damaging a brand’s reputation with claims they are trying to limit online freedom and privacy in order to enhance their profits.
A New Beginning
In the age of NFTs, the most successful IP owners will be those that can leverage huge stockpiles of digital content and consumer goodwill to connect with their customers, increase social clout through creative offerings, and leverage the moment to proactively protect their online libraries in the future. There are enormous profits to be made up front through the sales of NFTs. But there are likely much larger long-term gains for IP owners who can see this as the beginning of a story of blockchain and digital IP, rather than the end.
Ryan W. McBride is an Associate in the Orange County, CA office of Knobbe Martens. She provides strategic counseling on brand development and protection for clients in a variety of industries. Ryan’s practice includes trademark selection and clearance; opposition and cancellation matters in front of the U.S. Trademark Trial and Appeal Board and abroad; trademark and copyright licensing; copyright registration and enforcement; unfair competition; domain name disputes; and data privacy and security creation and compliance.
Silas K. Alexander is an Associate in the Seattle, WA office of Knobbe Martens. He provides clients with guidance in trademark strategy, brand protection, and IP portfolio management. With a professional background in marketing, communications, and digital advertising, Silas’s legal practice focuses on amplifying clients’ messaging impact and reducing common, costly IP-related headaches.