NFTs or non-fungible tokens to give them their full name have hit the headlines recently and they have been touted to be the saviour of the art and music industries. Could they really be the revolution that makes creativity more profitable and how does it impact IP law?
What are NFTs?
A non-fungible token (NFT) is a digital asset that can be traded much the same way as a painting or any other form of art. Think of non-fungibles tokens as the original painting and digital copies of the asset as a mere print. You can buy prints of artwork cheap but the original painting may be worth thousands or millions.
They work in a similar way to cryptocurrencies using blockchain to store the data but unlike these forms of digital cash, they cannot be replicated. Essentially by owning the NFT you can claim ownership of the original digital artwork.
Ultimately the value of NFTs is down to perceived value and the usual rules of economics – supply and demand. They will only be valuable if there is enough interest in purchasing the original but it is one thing owning the physical copy of a famous artist to hang in your personal art gallery and another entirely just to have the prestige of saying you own a digital copy.
Many people simply won’t understand the demand but art has always been this way and perhaps this is just art entering the modern world. Digital artist Beeple sold an NFT at auction for $69m (£50m) and Twitter founder Jack Dorsey is sold the first-ever tweet with bids finally reaching $2.5m (£1.8m).
just setting up my twttr— jack (@jack) March 21, 2006
Others have compared owning NFTs to a digital autograph or a collectable item. When you own an NFT you receive a digital certificate which can then be traded with a record of ownership kept on the blockchain ledger. Additionally, ownership of an NFT could also confer additional rights such as a cut of future sales from digital copies or the sale of the NFT itself.
Whether this remains sustainable remains to be seen. There is a risk that is just a fad and individuals purchasing NFTs could be left with a worthless asset. The potential though is huge and if it catches fire then a whole new industry could be created.
How can NFTs benefit the music industry?
Let’s suppose for a minute the concept of NFTs is not just a blip but a permanent trend, what benefits could this bring for artists such as musicians? Artists such as Kings of Leon and Steve Aoki have already got in on the act so big hitters are already starting to see the potential but what could make it commercially viable.
Take the example of Kings of Leon. They’ve decided to release their latest album When You See Yourself as a special NFT edition. Yes, you will be able to purchase the album via all the usual methods or simply listen on Spotify but there are 3 different NFTs available in a series called NFT Yourself that will get you special perks. Sold on YellowHeart there will be a special album package, a live show package and an audiovisual package.
The special album package is priced at $50 and will only be available for a period of 2 weeks. It comes with a digital download and a limited edition vinyl. The NFT part of the sale is the collectible album artwork which can of course be traded in the future. In the audiovisual package the band are releasing unique pieces of artwork with prices ranging from $95-$2,500.
Perhaps more intriguingly is the live show package or “golden ticket”. Each of these golden tickets guarantees 4 front row seats for each Kings of Leon tour for life. Only 18 will be produced with 6 auctioned and the remaining 12 kept in digital storage to accrue further value like a vintage bottle of wine. The golden ticket holder will also get a VIP experience for those shows with a chauffeur, concierge, lounge access, free merchandise and probably best of all being able to meet the band.
Written into the contracts of each of these NFTs is the stipulation that a percentage of future sales will go to the artist. They can direct these proceeds as they see fit which could be further profit or if desired to charitable causes which Kings of Leon are doing to help raise funds for out of work music industry professionals. At this point, NFTs are just a creative concept but with enough imagination, artists could produce special material that their biggest fans will rush to buy.
How will this affect IP law?
Here’s where things get a little more complex. Buying the NFT does not necessarily mean you own the original art. In fact, the average buyer may struggle to clarify whether they own the intellectual property (IP) rights when visiting the online marketplaces with calls for greater transparency. That would infer that the collectables analogy is indeed correct and what you are purchasing is a limited edition digital licensed content.
As with all technical innovations, the law simply doesn’t provide sufficient rules and regulation. Never before has the concept of digital art ownership come up and legislation will likely be required to plug the significant IP law gaps. There is even discussion on whether copyright protections apply and if so, in what capacity.
In terms of copyright, there is value in the originality of the art. A CD can be copied millions of times but the real value of collectables is the CD itself, even more so if is a first edition release. So whilst nothing is stopping the digital artwork from being replicated and sold on, the concept is that the most valued collectable is the original, i.e. the NFT. The owner of the NFT does not however own the copyright to reproduce the art but merely the “first edition” collectable version of that art. This is non-fungible, the tangible value is in the originality and no amount of copies will reduce that value or at least this is the concept of NFTs and perhaps a bubble will burst once people realise they don’t have IP rights.
Perhaps they may then provide a benefit to contract law? Ownership of an NFT can provide indisputable rights and royalties with the right clarification, it can provide guarantees for certain terms as well as digitally authenticating any digital file. What’s more, it can cut out the middleman allowing you to purchase directly from the artist themselves.
What about being able to establish if the NFT was created legitimately? In theory, only the artist should be able to legitimately create a digital version of their work but a few chancers have already begun to create tokens without the permission of the original creator. Whilst creating the NFT in itself may not be an issue, claiming that the NFT represents ownership of the copyright or mispresenting themselves in some other way may be fraudulent. This creates an entirely new legal discussion, most of which have not been ruled on by the courts.
There is significant potential for artists to make a profit from their work but clarity will be needed to ensure neither the creator nor the consumer is being shortchanged. Litigation in this area is almost inevitable with legal precedents needing to be set so NFTs are definitely an area to keep a watchful eye on.
Are you interested in NFTs but are unsure of the legal implications? Alston Asquith has offices in London and Hertfordshire and can arrange a call to provide some initial advice on the steps to take.
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