Quarterly International Ip Law Update

• Jurisdiction: United States,Federal
• Citation: Vol. 46 No. 2
• Publication year: 2021
• topic: Intellectual Property,Copyright law

Quarterly International IP Law Update

David Tseng

TSMC

Mariana Noli

Noli IP Solutions PC

Leaf Williams

Reichman Jorgensen LLP

MORAL COMBAT: IP RIGHTS IN THE AGE OF NFTS

As Trevor Noah has commented, there is a "new confusing internet money thing in town" known as an NFT—which "does not stand for Nudist Fishing Trip[.]"¹ Aside from being a pop-culture punchline, NFTs, or Non-Fungible Tokens, represent a new form of property. Though it is unclear whether NFTs will be a short-lived but highly profitable craze, they have certainly captured the public's imagination.

But really, what are these "NFTs"? An NFT is a unique string of computer code that resides on a blockchain, or a digital ledger that records every single transaction the currency has been involved in since it was created.² In contrast to cryptocurrency or dollars, NFTs cannot be exchanged for other NFTs, and they function much like a deed to a house—"an NFT is not the digital asset itself, but an electronic record representing ownership of the asset.³ "When you buy an NFT, you hold the right to claim ownership of the NFT itself and the right to exclude others from claiming ownership of the NFT."⁴

So why are people buying and selling NFTs? Two of the major benefits that NFTs provide is a sense of authenticity to digital art as well as a "a potentially useful online canvas for digital artists to share a new genre of performanceartworks."⁵ Influencer Paris Hilton has described NFTs as "democratizing art" because "artists can utilize NFT platforms to directly connect with large audiences and buyers while bypassing gatekeepers such as galleries, distributors and agents" and noted that individual creators may be able to retain a greater share of the profits.⁶

Indeed, artists and content creators have sold "comic books, music albums, digital artwork, tweets, basketball videos, and even farts" as NFTs,⁷ and even major fashion designers are considering tokenizing their designs.⁸ The financial potential of the NFT trade is immense. For example, the British auction house Christie's sold a digital collage as an NFT for $ 69.3 million,⁹ Twitter CEO Jack Dorsey's first Tweet sold for $2.9 million,¹⁰ the artist Grimes sold 10 pieces of digital artwork for $6 million,¹¹ and a cat meme sold for $590,000.¹²

Unsurprisingly, NFTs also present some major issues. For example, they pose sustainability problems because the creation of NFTs and the transaction itself require a substantial amount of energy and generate a profound carbon imprint.¹³ In addition, NFTs may spawn uncertainty regarding the rights and ownership of original creators, countries may have very different practices for categorizing and taxing gains made from the sale of NFTs, there is a risk that digital content may become inaccessible if a web address is changed or a server goes offline,¹⁴ and whether the technology has merely created a bubble that will burst in the future gives many pause.¹⁵

NFTs also offer a host of new legal and IP issues.¹⁶ Among the myriad of IP controversies that NFTs raise is a potential challenge to the current moral rights regimes of various states and nations—including the right of integrity, or the right of an author to prevent intentional distortion or modification of a work if it could harm the author's reputation. For example, in 2006 the artist Banksy created a work called "Morons" which depicted an auction house selling a framed work with the words "can't believe you morons actually buy this shit" written on the canvas.¹⁷ In March, a blockchain firm bought one of 500 prints of the work, scanned the work, posted a video of a man burning the originally purchased print, and then sold the scanned digital file as an NFT.¹⁸ The blockchain company explained that by removing the physical piece from existence and releasing the NFT as digital art, the value of the physical piece will be moved onto the NFT."¹⁹ Transactions such as these raise questions about exactly what rights are at issue in an NFT transaction, and, on a more fundamental level, the rights various polities grant to authors of works.

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Article 6bis of the Berne Convention For the Protection of Literary and Artistic Works provides: "Independently of the author's economic rights, and even after the transfer of the said rights, the author shall have the right to claim authorship of the work and to object to any distortion, mutilation or other modification of, or other derogatory action in relation to, the said work, which would be prejudicial to his honor or reputation."²⁰ However, the national law of the member states determines the means of redress and sanctions available for violations of these rights.²¹

The United States was a reluctant signatory to the Berne Convention in 1988, and article 6bis had been a major obstacle to ratification because at the time "the concept of moral rights was largely unknown in American law."²² As the Seventh Circuit has explained, moral rights "are understood as rights inhering in the artist's personality, transcending property and contract rights and existing independently of the artist's economic interest in his work....American copyright law, on the other hand, protects the economic interests of artists."²³

Despite "American unease with European moral-rights doctrine—more particularly, the obligations imposed by Article 6bis— persisted beyond Berne ratification. Indeed, Congress initially took the position that domestic law already captured the concept in existing copyright and common-law doctrines and in the statutory law of...