NFT and IP Rights: Need for Improvement

I. Introduction

“Twitter’s CEO Jack Dorsey sold an NFT of his first tweet for the equivalent of USD 2.5 million”. You all must have seen many headlines like this on your mobile screens over the past few months, which is of no surprise being one of the most viral technological stories in the year 2021. While we were still trying to grasp various intricacies of blockchain technology and cryptocurrency, another concept by the name of NFT has occupied our laptop and mobile screens. NFT have caught the eyes of the people as early as 2012, how it was only in early 2017 that it took the world by storm. Now those of you who have little interest in technology and still wondering how can a tweet be sold for such a huge amount of money will be more surprised in knowing that tweets are only one of the plethora of things which are now tradable using NFT. A perfect example of this would be crypto kitties, which allow people to trade virtual kitties over the internet, making people turn head-over-heels. The craze of NFT has also reached our Bollywood industry and various celebs like Amitabh Bachchan who have even planned to launch his NFT collection of movie posters. It is no doubt in saying that this breakthrough technology has huge potential and has instantly taken the art and tech worlds by storm.

II. Understanding the basics

Over the past several years, we have been hearing about the terms like “blockchain technology” and “cryptocurrency”. Although it may sound complex to understand, to explain in simple and plain terms, a blockchain is nothing but a type of database or a collection of large amounts of information that is stored electronically in an organized manner like a chain of blocks. Each block in this chain contains a piece of information which can be anything like random numbers or letters, this information is unique within the block and are connected with the help of the chain in a way that if data within one block is changed, its hash also changes. This helps in preventing activities like hacking, as the hacker has to change the data of the entire chain in order to change or add a new block within the existing chain. This is the main reason behind the popularity of this technology.-

In addition, this blockchain is also decentralized, which means that it is not controlled by one person and is transparent, hence allowing anyone to view the blocks. Tokenization of assets is one of the most heralded uses of blockchain technology. In this, a token is a programmable digital unit of value that is recorded on a digital ledger. Tokens can be of various types like the one representing commodities or shares or coins. However it must be noted here that tokens themselves are not an asset, they only represent the blockchain location or unit of code that assigns a digital authenticity certificate to the asset within it. Hence, NFT can be explained as a code that is minted on a blockchain and is stored in the form of a link, which represents digital work on the internet. However, this very feature of NFT has opened a new gateway for discussion in the realm of the legal world, particularly, with respect to copyright, ownership, and moral rights of artists.

As the popularity bubble of NFTs rises higher, which is what happens in the recent situation, this tokenization process brings with it various challenges related to ownership and potential infringement of IP of the owner. Therefore it becomes essential for owners of the IP to overview this emerging dynamics of NFT in their IP protection strategies.

III. NFT and its relation with IP rights

Intellectual property in simple terms can be understood as anything which is the creation of mind ranging from literacy and artistic works like designs, symbols etc... This hard work of sweat and toil of an entity can be protected under a legal framework, i.e. intellectual property rights. With the help of these rights, the owner of the IP can exercise an exclusive monopoly over his IP. IP protection exists in various forms like trademark, patent to name a few.

Now with the coming of NFT in the market, the owner of the same can include brand logos and trademarks in the consumer market like book authors, movie actors, songwriters. These owners are likely to share their assets with others, which others can mint as an NFT, thereby giving these owners a chance of infringing the right of an IP holder. -

NFT vis a vis COPYRIGHT:

In order to understand this issue that NFT possesses, let’s peep into India’s copyright regime. India’s Copyright Act, 1957, like most copyright legislation around the world, defines the term copyright in its widest meaning. According to the same “right” encompasses all modes and mediums of exploitation of a work. Due to this wide definition, copyright is considered as a bundle of rights and each right within the bundle is capable of separate ownership or license. And the creation of NFT, due to its properties is also one of the rights from this bundle. Hence, the moment any creative work enters the NFT market, the issue pertaining to intellectual property rights also pops. When someone purchases an NFT, he will get ownership of the purchased work, however, it must be clarified here that it is not the original work, what the purchaser gets here is the copy of NFT in the form of a cryptographically signed receipt.

Hence, logically ownership of the underlying right should only transfer if the creator of the original work specifically agrees to transfer those rights to the NFT owner. So that accordingly owner can be allowed or disallowed to reproduce, share copies, publicly perform according to the terms and conditions of the transfer. However, due to NFT ownership's decentralized nature and immutability of blockchain transactions, enforcing the IP rights can become a challenging task once the NFT is sold. Hence the need of the hour is to device sophisticated digital forensics which can help to determine the NFT owner identity.

NFT vis a vis TRADEMARK:

It’s a common practice of businesses to establish their market and identity in the eyes of the customers so that they can be distinguishable from the other providers. Similar is the case with the NFT market. So when a business tries to mint NFT for any asset, his focus would be on making himself unique in the marketplace. Now here is where the problem arises, as an unauthorized person can try to mint, sell, or re-sell a particular NFT using the registered owner’s trademark, which results in the infringement of the trademark. The only solution to this dilemma is to make the industry players expand their trademark registration to incorporate NFTs too in their trademark manoeuvres and classifications.

So, what can be inferred from the above is that while NFT transactions can significantly impact on art market by making use of blockchain technology and thereby making transactions more secure and accessible, there is still a great chance that the NFT can be used as a tool to overthrew IPR regime in the situations discussed in the earlier part of this article. In addition to being contrary to many provisions of the IP field, the same is also ambiguous due to its connection with the cryptocurrency, about the legality of which eve the government is a little confused about.

NFT vis a vis PATENT:

Patent is the most crucial right of the IP rights, it is something that can boost innovation by granting a legal monopoly over certain technology, and boost future innovation. However, at the same time, it can also hinder innovation in a way that technology and its further development could be blocked by existing patents. Hence, it becomes important here to discuss the implication of technological advanced like NFT on the patent.

The patent not in India only but worldwide is based on registers that are operated by various authorities. They are responsible for the examination of the patent application to determine whether they are eligible for patent protection. India also has such a regime, under which the registrar is responsible for a grant for a patent. When it comes to the use of NFT, one can theoretically transfer the owner of patent interest to a third party without even having to involve in various intricacies of patent officers. And there are many cases in which this has even happened. Like the previous year only, IBM announced plans to represent patents as NFTs to create the infrastructure for representing patents as NFTs and storing the records on a blockchain network. In the words of the owner, “the tokenization of I should help position patents to be more easily sold, traded, commercial or otherwise monetized and bring new liquidity to this asset class for investors and innovators”.

The solution to this would be allowing the patent officer to use NFTs to document transitions related to a patent. Such a system would involve verification steps, the provision of a private key by the owner. So that any further transaction may directly block chained and registered which would also reflect the status of the NFT and can be updated automatically.

IV. Conclusion

In this world of technological revolution, wherefrom our banks to even process of registration of trademark everything is digitalized, it is crucial at this juncture to bring the more stringent legal regime to check infringement of the right of the owners. Likewise in the case of the NFT, there is a need to make the minter understand the various intricacies of the IR regime. Similarly, the buyer to needs to be acknowledged about the implications of using unauthorized NFTs and the consequences it may ensue. Need of the hour is also to take lessons from the practices of various countries like Singapore, Canada etc.

Insight of the great popularity of NFT there is a great question on its future, however, given the technology’s potential and admittedly, absurdity, it appears to be here to stay. And hence there is a need for securing one’s IP rights in order to prevent them from being knocked off in the market.

Having said above, there is no doubt in assuming that NFTs have opened a new world of possibilities for a large group of people. And only time will tell whether it will remain or fades away like bitcoins, but one thing is sure we need to make our IP right regime strong enough to take hit of these various day to day technological developments.

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Footnotes

1. Author is a student at HPNLU, Shimla, India.