What Can I (Not) Do With My NFT?
Recently, visual artists have minted non-fungible tokens (NFTs) of their artwork and offered the NFTs for sale in curated online exhibitions. What copyright interest, if any, is the artist selling to the NFT buyer? What is in the contract between the auction house and the artist? Below we discuss some copyright considerations in connection with such NFT sales.
What does it mean to “mint” an NFT?
An NFT is a unique, digital certificate that is stored on a blockchain and provides a digital record of ownership rights. The associated asset can be either physical or digital, such as a digital artwork. Typically, a blockchain does not store the actual digital asset; the NFT points to the location of the digital artwork.
“Minting” an NFT refers to the act of generating an NFT for the digital asset on a blockchain. The minter may be the author of the work (the artist), or someone else with the rights to mint. There are several platforms that allow artists and other rights holders to mint NFTs, and some also act as an NFT marketplace. NFTs also are sold by those who have historically sold physical artworks, such as Christie’s, Sotheby’s, and other art merchants.
What can the purchaser of an NFT do with the digital artwork associated with the NFT?
It depends on what intellectual property rights, if any, were conveyed to the purchaser. As general background, ownership of a copyright is distinct from ownership of a physical artwork, and therefore the sale of a physical artwork does not itself give the buyer any rights in the copyright to the artwork. Typically, artists retain their copyright interests in artworks they create, and do not sell the copyright along with the artwork.
Some savvy art purchasers, however, are sometimes able to negotiate a limited copyright license from the artist or the artist’s gallery when commissioning or otherwise purchasing a significant artwork. For example, an individual collector may wish to negotiate a license to create, display, and distribute images of the artwork on their website, in social media, in shelter magazines, and for other non-commercial purposes. Typically, with auction sales of physical artworks, no copyright interest is conveyed to the buyer.
For many NFTs available today, the digital asset underlying the NFT is created by the artist, who decides what rights to grant the NFT buyer – for example, the right to use, copy, display, and modify the content. Generally speaking, it is fairly common for the artist to either not grant any intellectual property rights, or only grant a limited, non-exclusive license for certain non-commercial purposes.
Here are some examples of things an NFT buyer ordinarily cannot do with the underlying digital artwork without the artist’s permission:
- Create prints of the digital asset
- Create merchandise
- Edit or modify the digital asset
Can the NFT buyer display the NFT at a “museum”?
With tangible artworks, a purchaser can rely on the “first-sale doctrine” and lend an artwork she owns to a museum for public display without the permission of the artist. Under the Copyright Act, while the artist retains the exclusive right to display the artwork publicly, the first-sale doctrine provides an exception to this rule: “the owner of a particular copy [which includes the original] lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to display that copy publicly, either directly or by projection of no more than one image at a time, to viewers present at the place where the copy is located.” But how would this rule map onto the NFT space? Who would be the viewers “at the place where the copy is located”? Would the NFT linked to the digital asset be a “copy”? While artists may not have reason to complain about museum exhibitions, and may even assume that such uses would be permissible, those who have larger plans for their NFTs other than personal enjoyment should do their due diligence before purchase. They should review the terms of sale and other consumer disclosure accompanying the NFT sale. They should also consider consulting with an expert to determine whether the contemplated use of the digital asset after the NFT purchase requires an additional approval from the artist.
What is in the contract between the auction house and the artist?
As background, when an owner of an artwork consigns an artwork for sale at auction, the auction house typically requires the consignor to make certain representations and warranties concerning the artwork (e.g., that the work is authentic, that the consignor has title to the work, etc.), and requires the consignor to indemnify the auction house and its purchaser for any breach or claimed breach of the consignor’s representations and warranties. Along with these typical contractual provisions, artists may be asked to make additional contractual assurances in connection with NFT sales. For example, an auction house or other art vendor may require the artist to represent and warrant that:
(a) the artist has all the necessary rights in the digital asset to mint an NFT for the digital asset;
(b) the digital asset is the artist’s original work, and the artist is either the sole owner of the copyright in the digital asset, or has obtained any necessary approval from any joint author;
(c) the artist has not and will not mint any other NFTs associated with the digital asset;
(d) if the digital asset is part of an edition, the artist will disclose how many items are in the edition; and/or
(e) the artist will not assert any moral rights in the digital asset/NFT.
Given that the issuer of the NFT may be subject to liability in the event she mints an NFT without the necessary underlying rights, those who mint NFTs should carefully consider whether they have the necessary rights prior to minting.
For example, if the artist relied on other individuals to assist in the creation of the digital artwork, the artist should consider whether the artist is the owner of the product of their efforts, either because those individuals are employees of the artist, or those individuals signed written work-for-hire agreements with the customary assignment of rights language. Those working with artistic collaborators should consider whether there is a sufficient record of ownership of the parties’ associated intellectual property rights, ideally through a written collaboration agreement.
If the issuer is not a content creator, then the issuer would only receive the rights that the creator assigned or licensed to the issuer, and may only mint an NFT if doing so would be permitted under the grant of rights received from the content creator. Further, the issuer may only assign or license to an NFT buyer those intellectual property rights it obtained from the content creator.
Take-Away Points
Given the current enthusiasm for NFTs for art and other collectibles, the application of the copyright law to NFTs is likely to evolve as disputes arise and are adjudicated in the courts. Given that NFTs are selling for significant sums, those interested in acquiring them should review the terms of sale and information disclosed about the NFT carefully to understand what, if any, intellectual property rights are being conferred along with the sale and consult with an attorney regarding any legal questions, especially if the potential purchaser plans on using the NFT for a particular purpose other than personal enjoyment. As those creating NFTs may face liability if they ultimately do not have the necessary rights to mint the NFT or the NFT infringes on the rights of others, artists should carefully consider whether they have the necessary rights to the underlying digital asset and if any third-party rights must be obtained prior to tokenization.
