The Origin Story
Non- Fungible Tokens (hereinafter, referred to as NFTs) might apparently appear to be a recent phenomenon but the concept has stuck around for quite sometime. Even before Kevin McCoy, a digital artist, created the world’s first known NFT - ‘Quantum’, in 2014, something called ‘Coloured Coins’ already existed since 2012. [1] The concept behind ‘Coloured Coins’ was to manage and represent real world assets like, properties, coupons, subscriptions, shares of a company etc. through ‘Block-chain technology’. Now, adapt, evolve, re-vamp, and voilà- we have NFTs, the brainchild of Kevin McCoy and Anil Dash. [2]
What are Non-Fungible Tokens (NFTs)?
So, what exactly is an NFT?- A crypto-coin?; an object?; or a digital art? To put it simply, NFT means anything digital under the sky. ‘NFTs’ or ‘Non-Fungible Tokens’ are digital assets/tokens that transforms and embodies real world pieces of -art, videos, music, gaming characters or objects, animated persona, pictures of celebrities, doodle etc. into coded versions of unique digital arts, collectibles, creative extension of musical compositions, memes, etc. that can be owned and traded in the digital space.
This ‘digital sorcery’- as one might like to call it- all happens on an “immutable digital ledger” called the Block-chain; [3] Ethereum, Solana, Avalanche, etc. being some of the leading examples.
Armored with an ‘encryption’, this digital ledger maintains records of transactions related to an asset thus, enabling tracking of those assets in the business world. As a result, the number of hands that, tangible assets –like yatch, mansion, cash, etc. or intangible asstes like- intellectual property, etc. change all becomes public knowledge. [4] Block-chain’s popularity lies in its capability to provide fast, accurate, immutable, and transparent information- virtues that are most valued in the business world.
Coming back to NFTs. As the term ‘non- fungible’ suggests, these tokens (NFTs) are not “mutually exchangeable” assets. Although, NFTs have foundation in the same kind of block-chain programming as many crypto-currencies, but unlike crypto-currencies or physical money, one NFT cannot be exchanged for another. This is because just like finger-prints, each NFT is unique, and that is one of the factors which make it saleable.
Since no two NFTs are same, it creates an impression of being a rare, or a limited edition commodity, worth spending billions to have in possession. For instance, the Twitter creator Jack Dorsey’s first tweet ever was auctioned for $2.9 million last year after being linked to an NFT. [5] Not to mention, Mike Winkelmann, an American digital artist, graphic designer and animator auctioned off his work- ‘Everydays: The First 5000 Days’ for a whooping $69 million dollars becoming the third most expensive artwork by a living artist. [6] The fact that such exorbitant value is only for a digitized collection of photographs showcasing the creation of a piece of art taken for 5000 days, everyday- is unimaginable, and yet amusing.
Now, to game up on NFTs, where do we begin? How can someone create, buy or sell NFTs?- is the next obvious question. With a little technical knowledge one can easily create or, ‘mint’ their own NFT. The first step is selection of a block-chain platform (say, Ethereum) for encoding this digital token followed by selecting a market place to sell this ‘digital art’ (e.g- OpenSea). Between these steps is the part where certain ‘fee’ has to be paid for ‘minting’ NFTs, i.e. registering one’s NFT’s information on the block-chain; and for ‘listing’ them for sale. Since, all the transactions right from paying the ‘minting’ fee, to buying or selling NFT, can only be facilitated through crypto-currencies (e.g.- Eth), owning a crypto-wallet (say, MetaMask) becomes another necessary requirement. [7] And now we wait for our ‘digital art’ to be seen and bought. One can also view NFTs created by other creators and buy them on the NFT marketplace.
How are Metaverse, NFTs and Artificial Intelligence (AI) co-related?
Unlike stocks in the investment market, the lives of NFTS are not circumscribed by mere acts of buying and selling. We have now what is called- the ‘Metaverse’, which tries to give more meaning, usefulness and functionality to NFTs. Opposed to what one might think, Metaverse is not something new. It is basically a combination of existing technology that makes up a 3-dimensional virtual space which is “hyper-realistic, immersive and interactive.” [8] In other words, it is a stimulated- virtual ecosystem which tries to mirror the physical world and give users the taste of it through the ‘Virtual Reality’(i.e. VR) or ‘Augmented Reality’(i.e. AR) headsets. (They are basically your headphones and 3-D glasses combined, but only better.) The users (here, called ‘avatars’) can participate in social interactions, collaborate and play games, and do almost anything virtually, only with tremendous potential.
How do they relate to NFTs, you ask? NFTs form important components of this digital universe, or ‘Metaverse’ [9] that enhances the virtual experiences of its users. They allow the users to own “virtual goods in the form of real-estate, items like- cars, boats or even accessories and paintings—all through NFTs.” [10] The obvious reason why NFTs are preferred over any other technology is that being built on block-chain, each item consists of a ‘unique identifying code’ and a built- in authentication which serves as proof of ownership. [11] Therefore, one can own real estate, etc. in the Metaverse and also assert ownership over it, thus possessing the exclusive right to enter that location or allow access to others. [12] For example- Quite recentlt, a renowned Punjabi Popstar, bought a real estate in the Metaverse and named it “Balle Balle Land” which looks forward to hosting a store to sell his merchandise as NFTs. [13] Furthermore, NFTs also help creating a user’s digital identity (avatar) in the Metaverse. Given the immutable character of its underlying blockchain, no one else can duplicate or change your customised NFT-based avatar because you are the only one who owns it. [14] It thus, becomes pretty evident that the Metaverse and NFTs are meant to be together.
Quite obviously, Artificial Intelligence (AI) also has a role to play in the Metaverse and NFT-world. In the Metaverse, AI can act as a co-creator, predict patterns to enhance user interface, work on intelligent networking, make the digital world experience more immersive, etc. Organizations all across the world are combining technologies like AI, AR/VR, blockchain, and others to provide services in the metaverse. Gucci, for example, developed ‘The Gucci Garden Experience’ in 2021 to sell virtual things, and a digital replica of a Gucci handbag was sold for a higher price than its real world counterpart. Gucci also owns a virtual plot known as- ‘The Sandbox.’ [15] AI is now also involved in generating art-like images in the form of NFT through a smart-program called Generative Adversarial Networks or GANs. The idea of employing artificial intelligence to make art is relatively new, but it has shown a lot of promise, with many businesses entering the market since 2018. For instance, one of the largest AI art galleries, ‘Art AI’ has launched an AI software named- ‘Eponym’, that turns texts into art-like pictures and allows artists to sell their work directly on the NFT marketplace. Another example of an AI-based program is ‘MetaScapes’ which combines photographs to generate a new image. [16]
Undoubtedly, the present generation is witnessing a technological revolution. Combining all the aspects of existing technology in shaping a world which only a few years ago would have been described as wishful thinking.
Media Industry and its affinity with NFTs- The Indian Perspective
Despite, being a highly volatile and speculative market, vulnerable to the risks of forgery, the NFT rage has grown by leaps and bounds. Often being referred to as the “future of fine arts collection”, NFTS have grabbed eyeballs from collectors, curators and traders all around the globe. This fascination and enthusiasm transformed it into a 29.8 Billion Dollars industry (roughly, 260 times more than the estimates of 2020), in the year 2021. [17] The prospect of receiving humongous returns has clearly made NFTs an important investment avenue.
NFTs have also enabled artists to easily monetize their work by selling it as art or other items, and also earn royalties when a buyer of a digital copy resells it. This technology has garnered immense popularity among the ‘Gaming’ and the ‘Art’ industry, and now the Media Industry including music, fashion, animation industry, is almost rapidly embracing the new change. Bollywood artists and musicians, today, are also engaged in creating NFTs which are then auctioned off on digital platforms for their fans to purchase.
Among the first few to join the crypto trend, is the Indian Singer Sonu Nigam who has launched, what is being referred to as the musical industry’s “first-ever NFT- series” in collaboration with a digital entertainment and technology company – Jet Synthesys. [18] The economic potential of NFTs can well be assessed from the fact that a Tamil singer-composer Kaber Vasuki’s 2012 demo version of the song ‘Vasanam’ was sold as an NFT for 50 Ethereum, a cryptocurrency worth at around 1.5 crore at the time. Taking this trend a notch up - is the India-based media and consulting firm ‘One Mercuri’ that has formed a music and entertainment non-fungible token (NFT) marketplace called ‘WishWorld’. It is designed to give producers and artists a way to connect with their audience through experiences and interactions. [19] Not falling far behind, is the Bollywood industry, which has almost quickly joined in the revolution. Amitabh Bachchan became the first Bollywood star to auction off his NFT collectable series including his father’s famous poem ‘Madhushala’, autographed vintage posters of himself, along with his other works on a NFT platform -BeyondLife.club, for nearly 7 crores in November 2021. [20] Soon after, ‘BollyCoin’, a Bollywood based NFT platform launched its marketplace in December,2021 putting up Salman Khan’s NFTs for a bid. [21] Ranveer Singh starrer '83' movie, shook the NFT industry with its record sales estimated around 10 lakh that sold within an hour of launching the movie’s official NFTs in January,2022.
Even the Fashion industry is no less. Leading Indian designer Manish Malhotra auctioned off the sketches of a few iconic outfits that he designed as NFTs in collaboration with the Lakmé Fashion Week on the WazirX NFT platform. [22] Perceiving NFT as a favourable avenue for showcasing artistic talents, the Indian animation industry is taking the lead in making the most of the opportunity. Based on Chakra The Invincible, an Indian superhero comic, created by Stan Lee and Sharad Devarajan, the Chakraverse limited-edition NFT collection was launched in December 2021. [23]
Toonz Media Group, another Indian animation studio, has teamed up with digital R&D firm Guardianlink to build a non-fungible token design lab to generate digital assets for businesses and celebrities by converting some of ‘Toonz’ trademark characters and shows into NFTs. [24] Lately, the content rights to popular Indian comic series Amar Chitra Katha and Tinkle have just been bought by digital IP business Ikonz. and to the amazement of many, popular characters such as Shambu, Supandi, and a slew of others, including the Pandavas, will soon have digital avatars in Metaverse. [25]
Copyright Implications
There is no doubt that NFTs have changed the landscape for Artists –be it in the music industry, or the animation industry, or the acting industry. Despite having successfully built a prosperous business/investment and talent showcase platform, the NFT saga is not bereft of its inherent issues. Apart from the negative environmental implications that have brought this industry under the radar, there are pertinent Intellectual Property and Copyright issues that plague this industry as well.
The central role that Intellectual Property and Copyright Protection plays in an industry, majorly founded upon creative endeavors and innovative activities, cannot be denied. Since, the concept of NFTs is relatively new a number of ambiguities surround its intellectual property implication . Some the primary questions that constantly arise are –
a) Whether NFTs are covered within the purview of Copyright Laws i.e. can copyright be granted to a sui generis NFT creation?
b) What if someone creates and sells an NFT of a copyrighted work (say, a painting) that exists in the real world without the permission of the copyright owner? Can copyright infringement be claimed? [26]
c) Whether the rights available to Copyright owners under Section 14 of the Copyright Act (i.e. to do or authorize the doing of reproduction, communication, adaptation and translation of the work) include the right to create / mint an NFT?
d) Can artists them/itself make different NFTs of the same asset and sell it to other buyers at various points in time? [27] Given that each NFT is unique, what do the buyers actually get?
e) Most importantly what rights are conferred upon a buyer of NFT- Copyright Ownership over the underlying art, or merely ownership over the digital copy of the underlying art? [28]
These intriguing questions though may seem fundamental cannot be answered in a straight forward fashion. It begs an understanding of the authorship-ownership dichotomy. Firstly, Ownership can be described as having exclusive possession over an asset with the accompanying right to exclude others to participate in it. Copyright Ownership also has an almost similar connotation. They confer upon the copyright owners the exclusive right to reproduce, adapt, perform, display, translate and communicate their work, which is not otherwise available to others, except upon licensing or assignment. While an author is the creator a work, they may or may not have ownership over it. Say, Mr. A composes a song for a Music Label like T-series. While Mr. A will remain the author of the work, the copyright ownership and the bundle of rights granted under Section 14 of the Copyright Act, 1957 would ultimately vest in the Music Label. On the contrary, had Mr. A composed the song and independently released it for sale under his own name- both the authorship and ownership rights would have resided with him.
Sui generis NFT
Now, to answer the first question- Section 2(y) of the Copyright Act, recognizes only literary, dramatic, musical and art works for copyright protection. As is evident, the provision nowhere includes digitally created art within its purview thus closing doors for extending copyright protection to NFTs.
Moreover, NFTs are merely digital assets that represent proof of ownership over the token itself or the underlying art, or sometimes even the copyright of the work, or a combination of any of these. These aspects in themselves are not copyright-able unless a minimal amount of creativity is displayed along with originality, [29] which again is a difficult proof to render. Nonetheless, in the author’s opinion, if the essentials for obtaining a copyright are proven, one might as well claim it, given the fact that law creates no differentiation between a physical embodiment of art, or one requiring the aid of machine.
Recently, a Digital Millenia Copyright Act(DMCA) [30] takedown request was issued by Larva Lab’s created CryptoPunks, one of the earliest and most popular NFT community against an apparent copy-cat, CryptoPhunks who listed minimally altered version of CryptoPunk tokens for sale on the NFT marketplace. [31] According to the American Law, takedown requests can only be sent by either a copyright owner, or his agent. Since there exists ambiguity around the question-whether NFTs can be copyrighted, a decision in this matter would definitely help clear the fog to some extent. [32]
Does Copyright ownership confer the right to create an NFT?
As has already been stated above, copyright owners have certain statutory rights. Though logically, within the bundle of rights given to copyright owners, ‘the right to create NFTs’ should also be recognized however, such right has not yet been legislatively recognized or judicially ordered. And to claim a right, it must first be explicitly recognized by law which is not the case, here.
Creating NFT without the permission of the copyright owner of the underlying work
Since, from the above discussion, it is clear that copyright owners do not have the exclusive right to create an NFT, how can the someone then claim copyright infringement in case an NFT is created on a copyrighted work.
Quite clearly, Section 14 of the Copyright Act,1957, confers upon copyright owners exclusive rights to reproduce the work, create derivatives of the work, communicate/display the work to the public, and make adaptations or translations of the work. Uploading/Listing an NFT on a marketplace for sale can be regarded as the digital equivalent of displaying or communicating a work. Thus, a clear cut case of infringement can be made out, if someone creates and uploads an NFT based on a real life copyrighted article, in an NFT marketplace without the express authorization of its owner, who is in fact the only legit authority to display or communicate the work to the public, until ofcourse, the cessation of such rights or assignment thereby. [33] Also, an NFT creation is not very separate from the underlying art. They cannot even be considered a different expression of an idea. They are substantially “block-chain enabled proof of ownership”. [34] Thus, a claim of infringement should logically arise in the absence of authorization by the original copyright owners.
Can the Copyright Owners of an art mint multiple copies of the same work in different blockchain?
The simple answer is, yes. There is no technical limitation to that. However, it would certainly have implications on the price of the NFT given that their value is integrally attached to their characteristic of being unique and limited. How should the first buyer of an NFT react after multiple copies of the same asset are rolled out? Wouldn’t that be wrong upon such buyer to be first lured in to invest millions to buy a so called unique digital art only to find out later that there are multiple copies available to it.?
Unfortunately, this question does not find answers in the established Copyright laws. The only safeguard that the buyers have against such attempts are “smart contracts”. Buyers must be wary of the smart contract that is associated with their NFT. It must encompass such terms and conditions that either prohibit or clearly waiver the right to create multiple copies of the same asset, over different blockchain, by the copyright holder. [35]
So, what exactly does the buyer of an NFT get?
NFTs are not the underlying art/media itself. They are merely coded representations of a piece of art/media, registered on the blockchain, and containing a link to the original asset. This is because while creating an NFT, the actual art work is not stored on the block-chain (due to some technical limitations), instead it is the web address or mathematical compression of the work which is stored. In short, NFTs are truly just digital items designed to track the underlying assets by their “Token-ID” and attribute ownership to the current owner. [36] Therefore, as stated by Anil Dash, co-creator of NFTS, “when someone buys an NFT, they’re not buying the actual digital artwork; they’re buying a link to it.” [37] The buyers of NFTs merely possess a token which is a unique digital replica of the original asset. They do not, in any manner own the underlying work of art. Furthermore, the transfer of NFTs do not necessarily mean transfer of the rights associated with the underlying original work including the intellectual property right over it. [38]
Try drawing a real life analogy. Buying a famous painting at an auctioned does not vest copyright ownership with the buyer. What he has, is only the right to own and display the physical body of this piece of ‘art’ and not the right to reproduce the painting, create derivatives of the painting, or sell copies of the painting. The Copyright ownership stands transferred only when the original owner intends to do so through an express agreement.
Similarly, the buyer of an NFT does not acquire the copyright attached to the underlying work. They merely possess the right to display the NFT in their token wallet, use it for gaming (if the purpose of NFT, be so), and sell it to prospective buyers when needed. [39] The copyright can only be transferred if the smart contract governing the purchase explicitly mentions the transfer of economic rights of the digital asset. [40]
CONCLUSION
Clearly, there is immense ambiguity surrounding the intellectual property rights associated with NFTs. Since, there is neither a dedicated legislation, nor an assimilation of the related rights within the existing Copyright/ IPR Regime, applying the prevailing law becomes a tricky business. Much of the quandary is also attributable to the functioning of the NFTs which actually do not create new art but only a token of the art, with a unique code, that can be traced back to the original work, most of which is otherwise easily available in the public domain. Nevertheless, the risk of forgery and copyright infringement in the NFT world is as real as in the physical world. The only difference being that the law readily aids the case of a person suffering the brunt of copyright infringement in the real world. Thus, unless due notice is taken by the Legislative or some smarter ways to protect intellectual property rights are created at the technological end, this promising NFT industry would continue to be plagued by ambiguity forcing its untimely downfall.
(Assisted by legal intern at TBA Ms. Asmita Srivastava)
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