Non-Fungible Tokens (NFT) Sales and Copyright Assignment: Part II (Some Issues for Discussion)

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In Part I, I briefly introduced NFTs, how they operate and why they are being hailed by content creators in the digital space. I had postulated that the NFT sale may just be the sale of the original/authentic copy of the work, or attached with a copyright license, or even an assignment, depending on the contractual terms. I had surmised that it would most likely not have any copyright license or assignment, based on a few contracts I could locate online. I had made to underlying assumptions in Part I:

  1. There is copyright subsisting in the underlying work/digital asset.
  2. The owner of the copyright has created the NFT

What if these assumptions are misplaced?

First assumption

If the first assumption is incorrect, I do not see a significant problem. If there is no copyright subsisting in the item, the question of copyright license or assignment is moot. Suppose the seller represents otherwise, and the purchaser procures based on said representation. In that case, there may be contractual remedies available.

Second assumption

If the second assumption is incorrect, it raises additional questions, but there are answers. The NFT minter could have misrepresented himself to be the creator/author of the underlying work. Or the NFT could be associated with an infringing work. Or the NFT minter may have created a derivative work without taking a license. The possibilities are many, and there could be a massive rip-off in such transactions. A simple internet search reveals several such stories and news items. Here is one interesting ‘social experiment’ that Swaraj brought to my attention.

From a pure copyright angle, the original author/owner may seek legal remedies for infringement. Whether such NFT minting and onward sale amount to infringement must be assessed under the known principles of copyright law – is there a reproduction/communication of work to the public without the consent of the copyright owner; is it a substantial copy; and if it is exempt under any exception (probably not). On first principles, it appears to be an infringement, but I will move on. It may not be possible for the NFT marketplaces or platform to verify the authenticity or provenance of the claims being made by the NFT creator. I noticed in Rarible® that it has a relatively simple “verification” exercise, accounting for the person’s social media profile and perhaps other proxies for credibility/reputation. Undoubtedly, this not foolproof.

Most also have a takedown notice system. For instance, this is from OpenSea:

“OpenSea reserves the right to remove content without prior notice. OpenSea will take down works in response to formal infringement claims and will terminate a user’s access to the Services if the user is determined to be a repeat infringer.”

I did not verify this for each NFT marketplace, but I presume most would be sensible to have such a system. To the extent the services are available in India, Section 79 of the IT Act, 2000 and the intermediary guidelines thereunder would come into play, irrespective of the choice-of-law clauses. The statutory remedies under Indian law would be available. The special provision on jurisdiction under Section 62 of the Copyright Act, 1957 would also extend to Indian authors whose rights are being violated through the platform. These are just old issues but for a newer platform. Yes, as with most digital platforms, the scope for infringement is much more significant, and practical problems may arise. For creators/owners to constantly stay vigilant and police the incredible amount of NFT floating around is nearly impossible. As things progress, there may be a call for heightened measures being imposed on such platforms. In fact, there has already been a call for heightened measures on interemediaries.

There may also be contractual remedies from the perspective of the NFT buyer and/or even the auction house/platform. If, for instance, the NFT contract of sale contained terms of copyright license or assignment, but the NFT minter has no rights to the work, the contract would be hit by the well-known doctrine of nemo dat quod non habet. After all, there is no central register/repository to mandatorily register copyright or assignment agreements to verify copyright ownership claims, and so, innocent purchasers could be protected. I would also bet that the contract associated with the NFT sale would have explicit representations of ownership/authenticity in the underlying work. This is the case with the terms and conditions at Christie’s.  If so, the traditional principles of fraud/misrepresentation under the applicable contract law would kick in. Whether these representations were false and if such falsity could not have been discovered by due diligence. Depending on the outcome of the analysis and the choice-of-law in the auction contract, the purchaser may have the option of voiding the transaction. Enforcing these remedies? That is an entirely different ball game.

Value proposition?

I think the bigger (possibly non-legal) issue is the value proposition involved with such transactions. Even if the NFT sale contract transferred copyright ownership over or provided a license to the underlying work, this would not necessarily prevent parties from reproducing it. For instance, the work may have been initially released under attribution-only open source licenses like CC BY 4.0, and the new owner may have little choice for circulating copies. Similarly, suppose there is not even a copyright license associated with the NFT sale. In that case, the purchaser may not commercially use the underlying art to sell other products.

The NFT purchase, depending on the NFT contract, simply identifies a specific person as owning the authentic original work, much like how collectors/museums proclaim to possess ‘original’ masterpieces. This value proposition would be meaningless without proper due diligence over the NFT minter and the work’s provenance. Undertaking this exercise itself would be a great business solution, I recoken.

AI as an author?

What if one of the authors was a non-human creator/co-creator (see here)? The following relevant extract from Section 2(d) of the Indian Copyright Act, 1957 is relevant:

“author” means, –

(vi) in relation to any literary, dramatic, musical or artistic work which is computer-generated, the person who causes the work to be created;

I think this begs the question because one may need to have a better understanding of what is “computer-generated”. The above-extracted provision connects the word “computer-generated” with the phrase “the person who causes the work to be created”. This immediate context suggests that for computer-generated work, one is dealing with a cause-and-effect relationship – a ‘person’ is causing the work to be generated on a computer. This accommodates what is commonplace today – using software to render the work as conceived by the natural person/individual. What about AIs? Suppose the AI conceives of the work and renders it on computer media. In that case, this underlying cause-and-effect relationship between a natural person and a computer does not exist anymore.

Can an AI be the “person” who is creating the “computer-generated” work? The term “person” is not separately defined in the Copyright Act, 1957. Whether, in the ordinary and/or legal sense, the term “person” would include an AI is the bone of contention that has been debated in the annals of Science Fiction (I still vividly recollect the episode of Captain Picard fighting for Data’s rights; or for that matter, Asimov’s Positronic Man and Bicentennial Man) for several decades and has recently been debated several times over the context of intellectual property (remember the monkey case?). In my opinion, the concept of the “person” in jurisprudence typically involves recognition of being capable of holding rights and duties. For instance, it is on this basis that legal entities such as companies have been considered “persons” for more than a century.

It cannot be that an AI can be regarded as a “person” for the purposes of one or two isolated legislations (such as intellectual property legislation) but not in others, except, of course, such a deeming fiction may be created by law by way of amendment. But in the general legal sense, where no such deeming fiction is created by law, it may be difficult to recognise an AI as a person unless the AI is recognised as a “person” for all legal purposes. The EPO has already considered that AIs do not have legal personality, and barring an amendment, an AI cannot be included as an inventor (here and here). They must be capable of having the right to acquire assets, open bank accounts, do other things, and be liable to duties and obligations such as, for example, being subject to criminal law for offences. I do not believe that the situation is evolved to that extent today to consider AIs as capable of holding all sorts of rights and obligations/duties.

Note: I represent/have represented clients on related and unrelated issues. Views expressed here are personal.

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