Intellectual property, storage of the work… What rights does an NFT give?

The concept of NFT still presents many gray areas to the public, particularly in terms of intellectual property, a vagueness that concerns both artists and collectors.

Acronym for non-fungible token, an NFT is therefore a token anchored on a blockchain: each token has unique characteristics and cannot be reproduced. It is this uniqueness that arouses interest because associated with a good, the token embodies a property title digital, and potentially indestructible when issued on a well-distributed blockchain, such as Bitcoin or Ethereum.

The NFT can thus represent an artistic work (painting, music, video, digital art), real estate, an entry ticket. Its digital and tamper-proof characters make the concept attractive because ownership then becomes easily transferable. In addition, the vast majority of blockchains being public, the history of NFT-related transactions is easily verifiable.

The ownership of the token to be distinguished from the ownership of the work

Of course, as required by blockchain technology, the real possession of the token only materializes by the possession of the private key corresponding to the address where it resides; as soon as an NFT is hosted by a third-party service, the supposed holder of the NFT is exposed to the latter’s default.

Above all, possession of the token does not imply ownership of the asset with which it is associated. On this subject, Emmanuel Ronco, IP/IT/Privacy partner of the law firm Eversheds Sutherland in Paris, is clear: “Access to a physical or virtual work offered by the NFT does not confer any rights; the rights depend on the use decided by the sender of the work.” Several types of cases exist, writes Emmanuel Ronco:

  • NFTs on so-called “native” or “crypto-art” works, in the case of which the author creates a work for the purpose of issuing NFTs and defines the parameters of the smart contract himself. This does not pose a copyright problem since the same person owns the rights and the NFT.
  • NFTs on pre-existing works (not initially created for the purpose of issuing NFTs) but on which it is the author himself who decides to issue the NFTs. Again, this will not pose any particular problem since there is a coincidence between the author and the issuer of the NFT
  • NFTs relating to works that have fallen into the public domain (in France, more than 70 years after the death of their author), cases in which economic copyright no longer applies and only the moral rights on pieces.
  • NFTs that carry copyrighted works and are issued by persons other than their authors. In this case, it will be necessary to identify the authors or their heirs and check the chain of rights and that these cover the possibility of using the work in the context of the production of NFT.

“Collectors have acquired a license instead of the intellectual property”

In any case, it should be emphasized that it is very rare for the holder of the intellectual property rights to assign them: “This is the most favorable case for the purchaser; in the worst cases, the smart contract does not refers to no conditions and in the most common case, we speak of a license. Users are thus left in the dark because they may have thought they were acquiring the intellectual property through the NFT when in fact they had acquired a license “, continues Emmanuel Ronco.

Several types of license exist and some can be very favorable to the holder of the NFT; this is particularly the case of the one offered in August by the Yuga Labs studio for the collections he bought in March 2022, Cryptopunks and Meebits. The holders of these two collections thus have the right to use the work linked to their token for commercial purposes, with no limit on the amount, whether for virtual or physical activities.

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Design from the NFT Glue Factory Show collection. © Centaur Studios

Other licenses, on the contrary, limit a maximum amount of turnover generated by the use of the work: this is the case of Glue Factory Show, an animated series developed by the Australian company Centaur Studios with Hollywood actors and scriptwriters , whose NFT collection offers a marketability limit of up to $100,000 per work: “A license that does not extend to the use of our brand name and there are also caveats about what can be done in the entertainment and animation sector to avoid confusion with the series that we are creating”, confides to the JDN Sam Korotkov, the founder of the studio.

Conversely, the VeeFriends collection issued by investor Gary Vaynerchuck does not provide its holders only a right for personal and non-commercial purposes. Finally, others, such as the creators of Moonbirds, have opted for the Creative Commons 0 intellectual property code, synonymous with free use for everyone, and this, after having initially announced that they would cede the rights to the holders of the collection. A decision misunderstood by Raphaël Malavielle, co-founder of the World of Women collection, who believes that it has “taken away rights from the holders of the Moonbirds”. Conversely, he and his companion and illustrator Yam Karkaï opted for a “contract for the transfer of intellectual property to all our NFT holders”, authorizing them for all types of use, except those which disseminate messages of hatred, violence or intolerance. “We found that collectors were not sufficiently protected and we wanted to encourage them to buy art”, continues the French entrepreneur.

In France, the start-up TokenArt has created its licensing portal in order to clarify the different possibilities, both for authors and for collectors: “We have simplified the information with pictograms so that anyone can understand the rights they have and these rules are either listed in the inside the NFT metadata, or referenced directly in the blockchain”, explains Clément Fontaine, founder of TokenArt. In the United States, a16z, the crypto investment firm of Andreesen Horowitz, also published August 31 a framework of licenses dedicated to NFT cases.

But whatever license is chosen and announced, it is important to emphasize that the author of a work remains in possession of his moral rights. For him to renounce to exercise them, this expression must be contractualized. In the absence of writing, only the author can determine whether the work can be modified and how it can be used for a derivative creation. In the case of a work associated with an NFT, it is therefore possible for the author to modify it, especially if the metadata linked to the smart contract are accessible to him. In September 2021, the purchasers of NFT Raccoon Secret Society, for example, had the unpleasant surprise of seeing their drawn portraits of raccoons replaced by a drawing representing a pile of bones. Behind this act a will of the team of developers who wanted to “tell people what they’re really buying”.

An access token to the file hosting

This event raises the question of the storage of the work linked to the NFT. In the case of digital goods, three cases exist:

  • If the NFT artwork is generated on-chain (an increasingly rare case on a platform such as Ethereum due to the transaction cost as each operation involves a fee), then it cannot be destroyed until the blockchain exist. On the other hand, in the case of a little used or private blockchain, the risk of alteration is very present.
  • If the NFT work is generated off-chain, then it can reside on a distributed network of servers, such as IPFS. In this case, the metadata cannot be changed, unless a consensus of the major part of the servers or the upload of a new file.

The off-chain work can also be stored on a centralized server, such as Google Drive. In this case, it is at the mercy of the server owner.

When it comes to sustainability, on-chain NFT is therefore the safest asset, hence its appeal. NFT Project manager at Ledger, Gaspard Broustine evokes in particular the examples of the collections Autoglyph from Larva Labs (the origin of the Cryptopunks collection) or cyber-brokers by artist Josie Bellini, who spent more than $250,000 to integrate the various graphic layers of the works into the blockchain. He acknowledges that the question of storing a work remains complicated: “As a new user, it is true that it is complex to obtain this information. To collect works on-chain, you must already be an expert. ” According to him, “the standard is now the storage of metadata in IPFS or Arweave, a blockchain dedicated to file storage, thanks to tools like Nifty Kity or (two no-code NFT creation tools, editor’s note)”.

“A smart contract is neither a contract nor intelligent”

Both NFT creators and buyers must therefore be extra vigilant to ensure their rights, especially since current legislation still has to deal with all cases of use of this technology. For the lawyer Emmanuel Ronco, “there is not a need for a total overhaul of the law but certainly a need to adapt certain elements, a clarification of the law, of certain stipulations, when there are disputes.” It points in particular to the proposals of the report of the Superior Council of Literary and Artistic Property, in particular that of “disseminating simplified educational documentation on the copyrights mobilized by the issuance, purchase and resale of non-fungible tokens and the technical operation of the blockchain in order to inform purchasers, platforms, rights holders and authors of the applicable law and the real technological possibilities that it allows”. The responsibility of marketplaces is generally often singled out: “Important information, such as licenses, is not made available enough”, confirms Gaspard Broustine. “The first thing to do would be to add to marketplaces the possibility of displaying licenses on the purchase page of an NFT, just like a site displays a link to its terms and conditions”, abounds Sam Korotkov. Elementary provisions but still too rare.

The same goes for other NFT use cases, such as real estate. On this occasion, the lawyer Emmanuel Ronco recalls that the smart contract is not authoritative: “It is neither a contract nor intelligent: in France, in a real estate transaction, one cannot at all be satisfied with an NFT, you have to go before a notary with an authentic deed”.

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Intellectual property, storage of the work… What rights does an NFT give?

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