NFT AND THE UNDERLYING ISSUES: IPR Club OurLegalWorld
According to research, holders of non-fungible tokens (NFTs) do not have any rights to the intellectual property of the material they create, and just one NFT collection among the top 25 platforms by market capitalization has sought to impart such rights to buyers of digital artwork.
The instances of people creating NFTs of their works and selling it online and people putting on great among of money buying them, has greatly increased. But what about the protection of these NFTs? They are sold openly online. Any person having a decent knowledge of editing and recreating can easily make changes in that original NFT and sell it online as a completely new work. It is very important to have laws for the protection of the NFTs. Our law is greatly unclear about it.
This article basically talks about what NFTs are and what all laws are available presently for their protection. It talks about the issues involved in their protection and what can be done to make it more secure.
What we call “Non-Fungible Tokens” (NFT) is a novel approach to tokenizing assets on the Ethereum blockchain. You simply need some elementary computer abilities to make your own unique NFT, which will then be signed with your digital fingerprint. Because it is incomparable to other NFTs, it cannot be compared to others and is hence non-fungible. On the other hand, fiat currencies and cryptocurrencies like bitcoin are fungible, such that one dollar is always equal to another dollar’s worth. They allow for the authentication of digital works of art and other items by encoding a certificate of authenticity in the form of a token on the blockchain.
Digital contracts on the Ethereum blockchain have given content creators unprecedented power. Projects using NFT use blockchain, a distributed ledger that can’t be hacked. Art, music, in-game items, and movies are all examples of digital assets that portray physical stuff. They may be bought and traded online, typically using bitcoin, and are encoded using the same underlying software as numerous cryptocurrencies. Anybody with access to a computer and the internet may create an NFT and sell it on the internet, with Open Sea being the most popular venue.
KEYWORDS: NFT, Copyright, Trademark, Patents, Blockchain
ISSUE WITH THE IP
As the NFT has become entrenched in popular culture, ushering in a new age of technical innovation in the arts, fresh issues have arisen concerning its use. There has been widespread oblivion over IP usage outside of academic circles. For instance, how can one forbid others from creating similar NFTs of their work, in whole or in part, or how does the simple act of purchasing the NFT not allow the purchaser the right to utilise the art in the development and sale of things other than the NFT?
The listing for an NFT will be deleted from the marketplace after a notice and takedown, but the NFT itself will still be active on the blockchain, breaching the Doctrine of Fair Deal and causing irreparable injury to the author’s moral rights.
Concerns about legal repercussions paled in comparison to the NFTs’ aspirations, which grew as their uses spread into the creative fields. Creators and consumers alike face issues with NFTs if intellectual property legislation is not properly understood.
NFTs AND LAW
Although the Indian legal framework around NFT is murky at best, it is possible to speculate on the likely stance of the courts by looking at precedents and existing laws.
i. Law of Trademarks
Web3.0 trademark infringement stems from web2.0’s legal standing, namely the similarities between the domain name and NFT. The most prevalent cause of domain name conflicts is cybersquatting, which occurs when a third party registers a company name, product name, or other identifier that belongs to another party as a domain name.
The Trademarks Act of 1999 affords trademark-like protection for domain names in India. Whoever breaches a domain name that has been registered in accordance with a lawful proclamation is subject to the penalties outlined in Section 29 of the aforementioned Act.
One is likely to face legal action under Section 29, Trade Marks Act, 1999, if you create NFT that infringes on the trademark of another party. Hermès, a French luxury goods business, recently became the first major brand to take legal action over the use of trademarks in the metaverse when it sued an artist for creating NFT of counterfeit handbags. At first, Hermès warned the developer to stop working on the project, calling him a “digital speculator” who was just interested in getting rich quickly. Hermès launched a complaint against the developer, charging trademark infringement related to his MetaBirkins NFTs, which are digital knockoffs of the brand’s signature handbag. The company is seeking monetary damages in addition to an injunction against the creator’s NFTs, the destruction of any already minted samples, and ownership of the project’s domain name, which is currently registered to a party other than Hermès.
As a result, it is recommended that when developing NFTs, creators refrain from using any third-party trademarks.
ii. Law of Patents
There are now accessible patents for NFTs, and more are likely on the way. Nike, to use just one example, has been granted a patent for “generating cryptographic digital assets for footwear,” which would allow buyers to verify the authenticity of their purchases and carry around a digital collectable version of their shoes in their digital wallets. The total number of blockchain-related patents is on the rise.
For an idea to be protected by a patent in India, it must meet a number of criteria, including being novel, valuable, and not intuitive. It also can’t be one of the unpatentable invention types described in sections 3 or 4 of the Act.
The position of patent law on NFTs is confusing since NFT is both an art and a computer programme. To add insult to injury, the law makes it clear that in India, software or computer programmes are not patentable in and of themselves. In particular, according to Section 3 of the Patents Act of 1970, “a mathematical or business process, or a computer programme per se, or algorithms,” are not innovations and hence cannot be patented. This means that until the government issues a formal announcement or passes legislation, the question of its legitimacy remains unanswered.
iii. Law of Copyrights
Literary, artistic, educational, and musical works are all protected by copyrights, a kind of intellectual property that gives the rightful owner the exclusive right to reproduce and distribute the work in question. In accordance with Section 17 of the Copyright Act of 1957, the author automatically acquires sole ownership of the work upon its creation.
The fields of NFTs, Copyright, patent, and trademark law need to start working together if they are going to reach their full potential as a new vehicle for creating and trading the inherent value of creative works. On the other hand, creatives and enterprises that are interested in entering these markets need to proceed with prudence and be mindful of the inherent dangers of IP at all times. Consequences of NFT copyright, NFT trademark, or NFT patent violation in India are not known.
Many of the current IP conflicts in the sector appear to require judicial intervention, despite the platforms’ efforts to resolve IP concerns. Challenges to the legal claims will come from problems ranging from jurisdiction to merely identifying the liable party.
In addition, if you are able to pinpoint a specific business or person who is infringing your IP, you will have a pressing need to validate and authenticate copyright ownership before minting NFT to collect evidence that proves the minter has the required authorization to do so. On the other hand, it may be impossible, impractical, or too expensive to go after random copycats who are stealing your IP within the NFT.
To sue someone for anything they did on the blockchain would be difficult since their activities are decentralised, pseudonymous, and global. NFTs provide an intriguing new opportunity to reach a wider audience, get traction in a new industry, and perhaps even monetize your efforts. If you’re an artist or brand owner, you need to know that putting your IP at risk might have disastrous results.
Further, artists or corporations may opt to licence their brands rather than develop NFTs. NBA Top Shot was made possible, for example, because Dapper Labs was granted a licence to use the NBA name and other trademarks. If you’re a cricket fanatic and you manage to get your hands on an NFT of MS Dhoni’s World Cup helicopter shot, you’ll have a guaranteed smash hit on your hands and will have trouble meeting client demand. The development of NFT-related laws will be an intriguing topic to follow.
Written by Harsha Parakh (Author view is personal)
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- Sneha Mahawar, “First-Principles Analysis of the Implications of IPR Law on NFT – iPleaders” (iPleaders, April 17, 2022) <https://blog.ipleaders.in/first-principles-analysis-of-the-implications-of-ipr-law-on-nft/> accessed December 6, 2022.
- Surana, “NON-FUNGIBLE TOKENS & INTELLECTUAL PROPERTY RIGHTS – AN ANALYSIS – SURANA & SURANA” (NON-FUNGIBLE TOKENS & INTELLECTUAL PROPERTY RIGHTS – AN ANALYSIS – SURANA & SURANA, April 6, 2001) <https://suranaandsurana.com/2022/04/06/non-fungible-tokens-intellectual-property-rights-an-analysis/> accessed December 6, 2022.