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NFT the new hype – what to watch out for from an intellectual property perspective

Summary

The abbreviation NFT stands for Non-Fungible Token. By definition, it is a type of certificate of authenticity for a digital work. The certificate of authenticity is stored decentrally on one or more blockchains. This certification ensures that the digital work, which can be reproduced at will, becomes an original that can be traded like classic works of art.

Thus, the NFT proves that the work is unique, authenticated and not counterfeited and can evidence legal ownership rights to the work. The certificate is unalterable and cannot be copied. This creates a tradable commodity that can also be used for speculation. However, the actual work can still be copied regardless of the NFT and is often freely available on the Internet. The difference between a private copy and the purchase of the NFT therefore lies primarily in the fact that the buyer is given safety that his copy is the authentic version.

From an intellectual property perspective:

Basically, if you sell the NFT to a photo, you remain the copyright owner and can, among other things, exercise your right to acknowledge authorship. The buyer of the NFT usually receives a right of use together with the certificate. Depending on what the parties involved have agreed, this can be either a simple or an exclusive license.

A simple license entitles the buyer to use the work in question. In principle, however, it is also possible for the author to continue to exploit his creation himself – for example, on social networks – or to grant corresponding rights to other persons.

If, on the other hand, the buyer receives the exclusive right of use, he is the only person allowed to distribute and reproduce the work. The powers here even go so far that not even the author may make use of his own creation. However, since many NFT artworks are already published on the Internet, exclusive licenses are rarely granted.

According to the German Copyright Act (UrhG), in principle only the author of a work is permitted to create an NFT for that work. This is because the upload to a corresponding trading platform that is necessary for this is to be assessed as a reproduction pursuant to Section 16 (1) UrhG. In addition, the platforms for the sale of NFTs show a preview of the respective work, which constitutes making it available to the public according to Section 19a UrhG.

The fact that not only copyright law but also trademark law plays an important role in NFTs became apparent at the beginning of February 2022 when Nike® filed a lawsuit for trademark infringement against the reseller StockX® for NFTs with Nike motifs (article in Handelsblatt of February 4, 2022 “Markenrecht: Nike verklagt Verkäufer von Sportschuh-NFTs“). A week earlier, French luxury brand Hermes® initiated legal proceedings against an NFT artist who had used its name and bags (“Hermès verklagt amerikanischen Künstler wegen NFTs, die von seinen Birkin-Taschen inspiriert sind” by George Albin on January 22, 2022).

One thing is getting clear: a legal assessment for NFTs is coming. That may be scary for the market, but it may be just what is needed for the market to go mainstream.

Conclusion

It’s not just the recent legal action that shows: There are still many unknowns in the NFT space. One of the unknowns is how copyright law will be applied to marketplaces such as OpenSea®. Will the Digital Millennium Copyright Act (DMCA) protect them, or are their activities out of bounds? What is clear is that the courts will rule on NFTs, and that affects a variety of areas including trademark law, copyright law, fraud, contract law, and other issues.

If you are working with or interested in NFTs, we recommend that you protect yourself from a legal perspective at an early stage so that you can fully exploit the potential of this promising technology. Our experts in this field will be happy to assist you.

Christian Kröner                  Dr. Klaus Scheib                 Clemens Bauer