9 May 2022
Metaverse – 2 of 5 Insights
Co-Autorin: Josefine Börner, Wissenschaftliche Mitarbeiterin
The hype about NFTs especially within the art scene is uninterrupted. Since an NFT of the digital artwork "Everydays: The First 5000 Days" – a JPG file – by the American digital artist Beeple was sold by the famous auction house Christie’s for USD 69.3 million in March 2021, many more NFTs were auctioned respectively sold for vast sums of money.
However, this hype is not only keeping the digital art market on tenterhooks but also underlines the importance that sellers and buyers of NFTs need to know what they are actually selling or buying and which rights they transfer or acquire in such transactions. Otherwise, there is a significant risk that the minting, transfer or use of such NFTs infringe third party (copy-)rights. Considering the enormous amounts that are sometimes being paid for NFTs it is obvious that rightsholders carefully watch what’s happening with their (art-)works and secure their rights, if needed. The result is more and more (copyright) disputes that are being reported from all over the world, particularly the US. A prominent example is a lawsuit between the American entertainment company Miramax and the filmmaker Quentin Tarantino who announced to mint and sell NFTs with yet unpublished scenes from the world-famous movie Pulp Fiction.
NFT or “non-fungible tokens” are programmable digital units of value stored in a digital ledger. In other words: NFTs are a piece of software code or numbers that is written into the blockchain.
NFTs “represent” digital works, typically artworks, photos, and videos. However, only in rare cases the digital work itself is in fact uploaded to the blockchain. Usually, NFTs contain “only” a variety of metadata related to the digital work that is being tokenized. This metadata recorded on the blockchain makes the NFT unique and not interchangeable. The digital “work” that is being tokenized can either be the original work, see the Beeple-example in the introduction, or a digital copy of a (tangible or intangible) work, e.g. an oil painting or photo. In most cases, however, an NFT will only contain some metadata related to a digital work (either the original work or a digital copy of another tangible or intangible work) and a link to where the work “represented” by the NFT can be found. NFTs then serve as a digital certificate of ownership either of the digital work itself or the specific digital copy represented by the NFT.
However, in the latter case – and that is a widespread misunderstanding – the buyer of an NFT does not acquire any rights in the underlying work, e.g. the oil painting and other versions or copies of the digital work that is “represented” by the NFT.
From a copyright law perspective, NFTs raise a variety of (open) questions. The most interesting one is how the “minting”, i.e. the creation of an NFT of a work protected by copyright, has to be classified under (German) copyright law. Considering that NFTs will usually contain only some metadata of the underlying digital work (or copy), the NFT as such will not be copyrightable. Hence, the transfer of an NFT cannot be regarded as a “reproduction” or “adaption” of the underlying work according to (German) copyright law. However, it is argued that the “minting”, i.e. the creation, of an NFT should be qualified as an unknown type of use being reserved to the copyright holder of the underlying work. Similarly, the transfer of an NFT could be considered as an unknown right of communication to the public.
If that was the case, anyone minting an NFT without the copyright holder’s permission would commit a copyright infringement leading to claims for injunctive relief and damages of the copyright holder.
In the U.S., first cases regarding NFTs and their use are already piling up. In addition to various trademark disputes, first copyright disputes are recently being reported.
In November 2021, the production company Miramax sued well-known director Quentin Tarantino before the Central District Court of California inter alia for copyright infringement after Tarantino announced to auction seven “exclusive” (i.e. secret) scenes of his handwritten Pulp Fiction script in form of NFTs.
Miramax inter alia argues that Tarantino’s limited contractual rights regarding Pulp Fiction do not include any right to mint and auction such NFTs. Miramax further alleges that Tarantino‘s right to ‘publish’ parts of the movie does not include NFTs. “The proposed sale of a few original script pages or scenes as an NFT is a one-time transaction, which does not constitute publication” the complaint alleges. In his answer Tarantino asserted several affirmative defenses, including that the NFTs fell under the fair use exception to the U.S. Copyright Act.
Other copyright cases regarding NFTs are reported from the music industry. In mid-2021, the production company Roc-A-Fella Records filed a claim against its co-founder Damon Dash after his alleged attempt to ‘mint’ and sell the album ‘Reasonable Doubt’ of rapper Jay-Z as an NFT. According to Roc-A-Fella Records’ complaint, Dash planned to sell an NFT of the aforementioned album through an auction. The complaint states that the attempted sale of the album as an NFT was improper: “Dash can’t sell what he doesn’t own.” A New York court decided in favor of Roc-A-Fella Records and issued an injunction, prohibiting Dash from altering, selling, or disposing of any copyright or other property interest in Jay-Z’s album, including the auction of an NFT reflecting such interest.
Similar complaints have been reported from other countries. Even though this is not the case for Germany yet, it seems to be only a matter of time until such cases are also brought before German courts.
Our international team looks at how brands can protect and exploit their IP rights in NFTs.
by Multiple authors