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What IP Rights Are Assigned When I Sell an NFT Art Project?

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As an emerging area, the topic of IP rights in the world of digital technology and specifically non-fungible tokens (NFTs) remains at the forefront. A non-fungible token (NFT) is a digital asset created on a blockchain that cannot be exchanged for an exact copy (the ‘non-fungible’ factor). NFTs can comprise of any digital assets. You can also use them for the creation and procuration of digital art works as well. The protection of intellectual property rights falls into a grey area regarding NFTs as the guidelines are still developing. NFTs possess commercial value through a proven chain of ownership and authentication process. This article will explain the IP rights available to buyers and sellers of digital artworks and NFT art and how these may be assigned in full or licensed.

NFT IP Rights

When purchasing an NFT, the subject matter forms the basis of the value and comes with copyright protection. When considering digital artwork, the rendition of the artwork is what is protected by copyright. This belongs to the original creator of the artwork, who may not necessarily be the seller of the NFT.

The owner of the NFT does not automatically own any of the copyright associated with the subject matter itself. The owner of the NFT only owns the NFT itself. If an NFT owner wants to own the IP rights associated with the subject matter of the NFT, they must obtain an assignment for the copyright or a licence from the creator of the subject matter. The creator of the subject matter associated with an NFT can assign the copyright entirely or impose limitations on the purchaser through a licence.

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What IP Rights Can You Assign?

The purchase of the NFT and any associated copyright assignments or licence must be made in writing through a contract. This ensures a clear transition of IP rights and clarifies the purchaser’s rights concerning the NFT purchase. A common method to arrange such agreements is through smart contracts. These are digital agreements written in code format and cannot be changed or altered after execution. This contract will be between the buyer and seller of the NFT. It does not necessarily involve the creator of the subject matter. 

However, the creator may still be entitled to the royalties received for the use of the subject matter. If such a term exists, you must make the purchaser aware of this at the outset.

Given the way smart contracts are structured on code, you must review the terms of the contract thoroughly, as you cannot amend it later. It is important to seek the assistance of a lawyer here to ensure that the rights of all the relevant parties are established in the contract.

Transferring copyright during an NFT purchase is a matter for the buyer and seller/creator. They should outline this in the scope of their contract. Purchasers should be aware that the unauthorised minting and sale of an NFT (including of artwork available on the public domain) can be classified as copyright infringement of a creator’s original work of the subject matter. To ensure a clear chain of IP ownership, the sale of the NFT should be accompanied by: 

  • a smart contract; and 
  • a deed of assignment transferring copyright ownership; or 
  • a licence agreement outlining the parameters of copyright use.
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Case Studies

Most recently, a digital artwork called The Merge created by the artist who goes by the name Pak, was sold on an NFT marketplace in early December 2021 for a record total of USD$91.8 million, marking it the most expensive NFT digital artwork ever sold. What was interesting about this artwork and sale was that ‘The Merge’ was ‘fragmented art’. Instead of a single owner, ‘The Merge’ is now held by 28,983 collectors. This is because the artwork was sold in units known as ‘mass’. This is a great example of how you can potentially split IP rights amongst various owners.

Another recent case study is the venture devised by artist Damien Hirst who developed an NFT called ‘The Currency’. This involved the sale of 10,000 paintings corresponding to an NFT. However, a caveat to purchasing one of these paintings came with the condition that the purchasers would have a year to decide whether they would like to keep the NFT or the physical artwork instead. If the purchaser chose the NFT, the physical artwork would be destroyed. Conversely, if the purchaser chose the physical artwork, they would relinquish all rights to the NFT. This exercise gauges consumer perception of whether or not the NFT has the same commercial value or, rather, perceived commercial value as physical artwork.

Key Takeaways

During the sale and purchase of an NFT, there are a few key items to consider. Firstly, ascertaining who owns the copyright associated with the subject matter. Secondly, consider whether the copyright is assigned or licensed. Finally, you must outline all these details in a contract. 

If you would like further information about drafting contracts associated with the sale and purchase of NFTs, our experienced intellectual property lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is an NFT?

A non-fungible token (NFT) is a non-replicable digital certificate of a digital asset. ‘Non-fungible’ means unique and cannot be exchanged in contrast to fungible assets like money.

What is The Merge?

The Merge is a digital artwork created by the artist Pak. It was sold on an NFT marketplace in early December 2021 for a record total of USD$91.8 million, marking it the most expensive NFT digital artwork ever sold. 

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