Copyright in the Era of NFTs

Whether you’re an avid NFT investor with a large gallery, a curious traditional investor wondering what this new market is, or an artist who has discovered their art being repurposed as an NFT, it’s important to know the implications of copyright within this space. Because these NFTs commonly feature some sort of art or photography, and some NFT projects are not quite up to snuff, there have been multiple projects that have run into significant legal trouble after it was discovered that their art assets had existing copyrights. This is bad news, not just for the creators of the NFT, but for any of the investors as well.

What’s an NFT?

We know that you’ve probably heard of NFTs, but most people aren’t sure of what they actually are. An NFT is a Non-Fungible Token, essentially a one-of-a-kind, irreplaceable piece of code. Notice that we didn’t say art, because NFTs aren’t restricted to just art. In theory, almost anything can become an NFT through a process called cryptographic hashing. We won’t go too deep into that for now, but this hashing process is more or less a system by which the computer code that makes up the NFT is encrypted, and the result is a key that is also one of a kind. This key is what allows you to own the NFT, as it’s required to sell, move, or otherwise interact with the asset. It’s similar to your car key, in that there may be many different copies of your car, but you own your car in the sense that only you have the key which allows you to operate it.

Do I Own the Copyright?

In the vast majority of cases, the answer is a resounding no. There are some NFT projects where the purchaser receives the copyright as part of the transaction, but these are few and far between. Copyright for NFTs act similar to the way that it does for real-life, traditional art. If you purchase a piece of art, you do not gain the copyright to that art, so you can’t use it in promotional media, product branding, or any other materials that would infringe on copyright.

This poses a big risk for investors in this space, as section 504 of the Copyright Act provides that even a completely unaware, unintentional, and innocent seller of someone else’s copyright is liable for damages of up to $30,000 per sale. If the seller is intentional in their copyright infringement, i.e. they knew that someone else was the copyright owner and still sold the NFT, they could be liable for up to $150,000 per sale. For this reason, we would highly recommend any crypto investors do their due diligence and research the copyright of an NFT before they purchase it.

If you’re an artist who is seeking out compensation for infringement of your copyright, or an investor who may have bought into an NFT that broke copyright law, contact Integrated General Counsel today. Our firm has handled trademark & copyright issues since 2010 and stands ready to assist you with any questions you may have about your NFT purchase and usage.