As the NFT market continues to grow and NFTs are gaining more attention, more people are becoming skeptical of their purpose, legality, and regulation.
One major concern, especially for artists, is how NFTs can infringe on the copyrights of their works.
And these concerns are far from illogical. Every month or so, we hear about a handful of NFT-related copyright infringement disputes around the world.
This article focuses on the NFT copyright issue and answers some of your questions about it.
For more on the legal issues of NFTs and cryptocurrencies, check out NFT Legal Issues, Coinbase and Robinhood Disputes, Cryptocurrency Transactions Disputes, and NFT Legal Issues and Disputes.
NFTs and Copyright Law
Copyright law protects all original artworks and grants their creator exclusive rights to reproduce and distribute copies or derivatives. These rights are known as copyrights.
Unlike trademarks, copyrights are acquired the moment the artwork is created on a “fixed tangible medium”, such as paper, canvas, CDs and DVDs, and digital codes.
While this means no registration is required to acquire copyright for your work, seeking protection or relief against infringers can only be done by registering your work with the US Copyright Office.
Any artist or copyright owner can create, distribute, and sell NFTs of his work. The minted NFT, in this case, will be owned by the buyer but will never be the underlying work.
So as far as the creator of the NFT is the copyright owner of the work it represents, no copyright infringements should take place.
Most copyright issues, however, are caused by the mismatch between the owner of the underlying work and the creator of its NFT. In this case, the fair use exemption will set apart infringers from non-infringers of copyrighted artworks.
Fair Use Exemption: Are NFTs Fair Use of Art?
The fair use doctrine allows the use of copyrighted works in certain circumstances. To determine whether the unlicensed work is fair use, the following factors must be considered:
- Purpose and character of the use:
Nonprofit and educational uses are often considered fair use, unlike commercial ones. Transformative uses where the unlicensed work adds something new that’s not found in the copyrighted work are also considered fair.
- Nature of the copyrighted work:
Creative and imaginative works (novels, movies, or songs) are less likely to support fair use than factual works, such as scientific articles.
- Amount and substantiality of the unlicensed work in relation to the copyrighted work:
This considers how much of the original work is used in the unlicensed work. Small amounts are often considered fair use unless the amount used captured the most important part of the original work.
- Effect of the unlicensed work on the value and the market of the copyrighted work:
The extent to which, if at all, the unlicensed use of the copyrighted work harms its present or future market.
While it’s quasi impossible to judge whether NFTs in general or a specific NFT is a fair use of its underlying work, NFT minters can consider these factors before creating or selling NFTs of items they don’t own.
When NFTs are transformative or only partially related to copyrighted works, they might be considered fair use.
However, each copyright infringement claim is assessed on a case-by-case basis and the outcome can vary greatly.
NFT Copyright Infringement Lawsuits
As NFTs are relatively new, users are not adequately informed of the ownership implications of creating or selling them. Sometimes, NFT minters and creators of copyrighted works end up in courts, often on opposing sides.
Here are some of the copyright infringement lawsuits:
- Roc A Fella Records vs Co-founder Damon Dash
Roc A Fella Records, a defunct American label company, was launched and owned by Jay Z and his once friend Damon Dash. In June 2021, the label company sued its former co-founder for allegedly trying to sell the copyright to Jay Z’s first album “Reasonable Doubt” as an NFT.
Damon Dash owns one-third of the company, yet as Roc A Fella owns the copyright, they think NFT is infringing on their rights.
In response, Damon Dash claims that his auction was planning to sell his share of the company rather than the copyright of the Album.
The lawsuit was filed in the New York Southern District Court, which has ruled in favor of Roc A Fella by granting them a restraining order.
This is a unique NFT lawsuit as it doesn’t only involve the creation of an NFT that represents a copyrighted item but an NFT that deliberately transfers the item’s copyright to the new owner.
- Miramax vs Tarantino Claim
The American entertainment company Miramax filed a lawsuit against the well-established director Quentin Tarantino for alleged copyright infringement and breach of contract. Tarantino announced an NFT auction for his classic “Pulp Fiction” in which he would sell uncut scenes and the handwritten script of the film.
The lawsuit is ongoing in the federal court of California. However, it is unclear if Tarantino actually breached or infringed on Miramax’s rights.
The 1993 contract between Miramax and Tarantino gives Tarantino a limited right to, among others, publish the screenplay “in audio and electronic forms as well”. In his defense, Tarantino argues that minting and selling Pulp Fiction NFTs falls within his print publication rights.
This case is an example of NFT disputes that stem from ownership confusion of the underlying item itself.
- Art Wars vs Artists
Art Wars is a gallery launched by the artist and curator Ben Moore in 2013. It exhibits paintings of life-sized stormtrooper helmets by a group of artists. Lately, Ben Moore is auctioning these paintings as NFTs allegedly without the permission of the painters.
While the NFTs were removed from OpenSea’s marketplace after the artists sent a copyright infringement notice, Moore has moved to sell the NFTs on another platform known as Looksrare.
- Free Holdings vs Sotheby’s
This case involves the world’s allegedly first NFT ever, which was created by Kevin McCoy in 2014, Quantum.
A Canadian company known as Free Holdings is suing Kevin McCoy, Sotheby’s, and Nameless, the company behind NameCoins over the ownership of Quantum.
Kevin McCoy minted this NFT on NameCoin, a blockchain software that requires owners to renew their ownership every 250 days. McCoy didn’t renew his ownership of Quantum, and weirdly enough, it remained unclaimed by anyone else for 6 years.
In April 2021, a member of the Canadian Free Holdings was registered as the owner of Quantum on NameCoins. However, Sotheby’s, the auction house selling quantum, claims that Quantum’s entry on the NameCoins’ network has been removed and “burned from the chain.”
Free Holdings filed the lawsuit one week after Quantum was sold on Sotheby’s for $1.47 million. They claim that Quanturm’s entry was not burned and is owned by them.
Can NFTs Prove Ownership in a Copyright Dispute?
In the event of a copyright dispute, copyright owners can prove ownership by their Copyright Office registration number. Most courts weigh heavily on this registration more than anything else.
As NFTs don’t acquire you the ownership of the artworks they represent, they can’t help you prove ownership in copyright disputes.
However, if the dispute is purely over the ownership of the NFT, then the blockchain can easily trace the NFT to its rightful owner.
Does Buying an NFT Confer Copyright Ownership?
By definition, NFTs are units of data that are linked or associated with digital or physical artworks or items.
Owning NFTs, therefore, doesn’t transfer the ownership of the digital or physical artwork they represent but rather their data.
Speaking of ownership, you must always know where your digital assets are stored and what happens if an exchange is hacked. Check out our take on Cryptocurrency Exchanges: Custody, Ownership, and Insurance.
Does the Copyright Issue of NFT Have a Solution?
NFTs are inherently associated with copyright infringement or issues. As mentioned earlier, many NFTs are minted by the rightful owners of the underlying artworks.
However, in similar cases to the ones we’ve discussed, NFT copyright disputes are extensions of the copyright disputes of the underlying artworks.
In other cases, these disputes are caused by the decentralized and unregulated nature of NFTs and blockchain technology.
As these are different causes of disputes, the solutions might vary greatly.
However, as blockchain technology is continuously developing and improving, these issues, at least those directly linked to its nature, might soon be easily resolvable or avoided all at once.