There is great ambiguity regarding the rights you receive and the rights you give up when you buy or sell a non-fungible token (NFT).
As it stands, NFTs have no mechanism to automatically define which rights are retained by the creator, owned by the seller, or acquired by the buyer. An NFT is a code that: 1) records the chain of ownership of the NFT; and 2) identifies the location of a securely stored digital asset. Even the Smart Contract associated with the NFT, which allows the blockchain to perform automatic actions when certain events occur at the NFT, will not automatically preserve or define intellectual property rights. Not only are the rights of creators at risk, but also those of third parties in NFT-related digital images, particularly where such images affect the trademark rights of third parties. Finally, there is no universal enforcement mechanism – all you can do is request that the NFT be removed by the platform it is sold on, such as OpenSea.
Clarifying rights to NFTs and digital assets is important for individual creators and collectors, but far more important for businesses and retailers to defend their hard-won brand and image in the retail market, both virtual and physical. The display and transfer of images, logos, jingles and other intellectual property are now protected by trademarks, copyrights, design patents and publicity rights. These elements specify who owns what and when; how these rights are registered and how you can assert your rights. It is important to note that these protections do not automatically extend to NFTs and digital assets. To do this, you must reformulate the registration of these protections to include these digital assets; and, you must create smart contracts that provide a license, requiring a digital signature that allows access to information for both the licensor and the licensee.
Once the intellectual property rights of digital assets are well defined, the benefits for companies are immense. Inventories of tokenized products can be managed quickly and efficiently, and the encrypted blockchain is a protection against fraud and counterfeits. As things stand, there is more transparency on things like a used car’s repair history than there is on NFT ownership rights.
For this system to work to its full potential both for creators of digital assets and for companies that use digital assets to enhance their brand, two things are needed: first, there must be a set of uniform and universally recognized for what a license of the intellectual property associated with a digital asset means, the scope of the intellectual property rights and to whom these rights are transferred or retained. The second is a quick way to identify that the intellectual property rights of an NFT are protected on the model of these universally recognized licenses.
At this point, it is worth remembering that although we are light years away from what our ancestors faced over a hundred years ago, there are nonetheless some interesting lessons to be learned from the past. Specifically, the origin of the term, “All rights reserved”. This term, now outdated and useless for protecting intellectual rights, was a product of the Buenos Aires Convention of 1910. At that time, it was created to provide protection for intellectual property as world trade became more global. It has been agreed that anyone who has indicated that they reserve their intellectual property rights will be protected in any signatory country. This is where the term “All rights reserved” came from. It was nearly fifty years later that “All Rights Reserved” was officially adopted. Indeed, the term still carries a certain moral, if not legal, weight when used on a creative work.
It is time for platforms and marketplaces such as Etherium and OpenSea to agree on what the basic protections will be; and what code is needed in the smart contract that, when used, enables these rights for the owner, in order to protect both his rights, the rights of the buyer and the rights of third parties. This will go a long way to clearing up some of the ambiguities and misunderstandings about what NFTs do and don’t do in relation to intellectual property rights.
Matthew Erskine is Managing Partner at Erskine & Erskine.