Non-fungible tokens (NFTs) have been growing in popularity over the past few years. However, not many people quite understand how an NFT works. “Non-fungible” means something is that is unique and cannot be replaced. NFTs are digital assets. Examples of NFTs include digital art, collectible/trading cards, Music and media, Gaming, Big Sports Moments and memes.
Each NFT has a unique “signature” which includes information related to its creator as well. The process of creating NFTs is called “minting”. NFTs can be created directly on NFT platforms/marketplaces, allowing creators to mint and upload the NFT on a blockchain. One of the benefits/value of NFTs is blockchain technology which stores information on the artists/creators of the NFTs and all the transactions relating to the NFTs. Therefore, the authenticity and ownership of NFTs can be easily verified using blockchain technology.
After minting, an NFT becomes tamper-proof and can then be purchased and traded, as well as digitally tracked when it is resold or collected again in the future. Blockchain technology is very difficult to tamper with, and some would argue, trading in NFTs is much more secure than trading in physical traditional objects such as art. Some platforms/marketplaces also allow the creators to set a royalty percentage, which is the amount the creators receive when NFTs are re-sold. This allows creators to continue earning income from their NFTS, unlike traditional art pieces, which when resold for higher prices, do not benefit the creator.
One aspect for creators to consider is who will own the copyright of the NFT once it is sold. Generally, unless there is a contract to the contrary in place, a creator will hold the copyright to a work. There are certain rights that are attributed to a copyright owner of a work. The owner of the copyright in a work shall have the exclusive right to do or to authorize other persons to copy the work, issue copies of the work to the public, perform the work in public or, in the case of a sound recording, film, broadcast or cable programme, to play or show the work in public, broadcast the work or include it in a cable programme service or make an adaptation of the work and, in relation to such adaptation, to do any or all of the acts mentioned previosuly.
A creator must look at the terms and conditions of the platform/marketplace that the NFT has been minted on and is being trade on. Things to consider include:
- What is the governing law of the platform?
- Does the creator retain the copyright to the work when and if the NFT is sold?
- Is a licence to use the work being granted to a purchaser?
- When a purchaser sells the NFT in the future, does the licence transfer to the new purchaser?
If the creator is assigning all the rights to the NFT to the purchaser, would the purported assignment via the marketplace/platform be sufficient? Under Jamaican law, a copyright in a work may be transferred as personal or moveable property by assignment, testamentary disposition or operation of law, and a transfer pursuant to assignment shall not be effective unless it is in writing and signed by or on behalf of the assignor/creator. Whether an assignment on the marketplace/platform will be deemed sufficient will depend on the governing law of the platform.
Another aspect for a creator to consider is that digital art, such as an image that has been circulated on social media and the web can be easily copied. There have been incidents whereby artists report that their work has been copied and infringers used the copied art to mint new art and pass these off as their own. A creator may face a situation whereby they incur significant costs in enforcing their copyright.
By and large, the minting and sale of NFTs is generally unregulated. The questions of ownership of copyright and infringing works have already started debate in other jurisdictions. While the ease of minting and trading NFTs and the access to wider platforms can be beneficial to creators, a creator should apply their minds to some of the potential issues before minting.
Helen Liu is an Associate at Myers, Fletcher & Gordon, and is a member of the firm’s Commercial Department. Helen may be contacted via Helen.Liu@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.