NFT and Intellectual Property: an up-and-down relationship

The advent of blockchain technology and with it the opportunity to create ‘unique’ digital objects, such as NFTs, has raised many legal questions, most notably those concerning intellectual property rights, in particular copyright.

What is an NFT?

First of all, and before continuing with the article, it is worth dwelling on the notion of NFT. Not everyone knows that NFT stands for ‘Non-Fungible Tokens‘, where non-fungible stands for non-interchangeable, i.e. an asset that is considered in its identity and therefore not interchangeable with another asset. For example: one euro, which is a fungible good, is equivalent to another euro; a Banksy, on the other hand, although it is a work of contemporary art, is not equivalent to a Basquiat.

Thus, NFTs turn digital artworks and other collectibles into unique, identifiable and verifiable assets. In this way, NFTs can also represent real-world objects such as paintings, songs, clothes, bags, etc. They can be created (rectius ‘mined’) based on any work and are bought and sold online, often through the use of cryptocurrencies.

Consequently, NFTs are used to create verifiable digital scarcity, digital ownership and/or opportunities for interoperability of resources across platforms, acting as a ‘certificate of ownership’. This certificate therefore gives an economic value and attractiveness to the digital medium of a work due to its unique and non-replicable character.

Intellectual property and NFT: risks and opportunities

The advantages that NFTs bring are manifold: as mentioned above, they offer the opportunity to confer uniqueness to digital works of art and thus increase their value. Secondly, the combined use of smart contracts and NFTs makes it possible to automate the royalty management process, guaranteeing and protecting the owners of intellectual property rights.

Another advantage of using blockchain technology, which applies not only to the art sector, but to any field involving intellectual property, is that the ownership of rights, as well as licences, are transparent and accessible to all users of the blockchain. This facilitates access to the history of ownership transfers and can make the work of collecting societies more efficient.

Having stated the advantages, however, it is worth making a few remarks about the risks and grey areas resulting from infringements that NFTs may entail against copyright and intellectual property owners.

With the ever increasing number of NFT minting, there is the risk of as many rights violations, which may affect both the moral rights of the artist and the economic exploitation rights of the owner. In this respect, it should be noted that ‘fakes’ have become a growing problem on NFT marketplaces.

Although new tools are trying to change the situation, for instance by using artificial intelligence to detect IP infringements, ‘counterfeit’ or ‘unauthorised’ NFT, which in most cases constitute copyright infringement, are certainly a serious problem.

Furthermore, as far as law enforcement is concerned, the decentralised nature of TLD raises issues of applicable law, jurisdiction and competent authorities. To this should be added that, from a practical point of view, enforcement is difficult in cases where the identity of the infringer is unknown.

For this reason, it is always good practice to constantly monitor NFT marketplaces (among the most important: OpenSea and Nifty) in order to counter activities that may damage IP rights.