The latest internet fad has digital images selling for millions of dollars. One piece—the Merge—recently sold for $91.8 million dollars as an NFT (non-fungible token).1 Anyone can create an NFT and attempt to sell the token to the highest bidder. However, there seems to be much public misunderstanding regarding what it actually means to own an NFT. Many mistake NFTs for a method for transferring copyright ownership, and purchase said digital media while believing this purchase gives them exclusive rights to the image. This is incorrect. Most NFTs are sold without copyright ownership attached; the buyer simply has the right to the copy, making most NFTs the equivalency of an expensive poster that you would hang up in your college dorm bedroom.2 The novelty and confusion over NFTs has started a new trend in IP (Intellectual Property) Law, where the courts are beginning to lay out new precedent to clarify the exact IP implications NFTs pose.
An NFT is unit of data that can be associated with a form of digital media, e.g., images, and a license to use the token for a limited use.3 This data is stored on a database network known as a Blockchain.4 Data stored in a blockchain is recorded in a manner where it cannot be edited, erased, or destroyed. Thus, the chronological recording of this immutable data creates a permanent history of transactions, making it a fantastic resource for banking and cryptocurrency. Outside of cryptocurrency, Blockchain data’s permanent record creates a digital receipt for purchases of digital media NFTs.
An NFT buyer now owns that unit of data, but the buyer doesn’t own the copyright to that image.5 A common misconception is NFTs function as a transfer of the ownership of the image or other media’s exclusive rights; however, an NFT buyer only owns that specific unit of data. This transaction is comparable to buying a CD, where the buyer has a right to listen to the CD’s contents, but the buyer does not have the right to make and sell copies of said CD. An NFT is similar in which the owner only has a limited license to display the image and sell the image once; they cannot sell multiple copies. This aspect of NFTs, coupled with the ease of creating an NFT, is causing interesting developments in copyright and trademark law.
In Spring 2021, the small firm Daystorm created an NFT of the late Jean-Michel Basquiat’s 1986 drawing, Free Comb with Pagoda.6 They offered to sell the NFT to the highest bidder, claiming said purchase came with the drawing’s exclusive IP rights with an option to destroy the original drawing. However, the Basquiat estate, which owns the drawing’s copyright, understandably took issue with this offer. It turns out simply creating an NFT of another’s copyrighted material does not grant IP rights to the original, nor its image. So of course, Daystorm was forced to withdraw their NFT from sale. Though this controversy never made it to the courts, it highlighted a common misconception about how NFT’s interact with IP Law: the existence of an NFT does not necessarily accompany ownership of the media it represents.
Not only does promising the IP rights to the media the NFT depicts create potential adverse ramifications for NFT sellers, creating and selling NFTs can expose the seller to possible liability for trademark and copyright infringement.7 Recently, Notorious B.I.G., LLC, has brought suit against numerous defendants, where one of whom sold NFTs containing Christopher Wallace’s (the Notorious B.I.G., himself) image.8 As owner of Biggie Small’s image and likeness, Notorious B.I.G., LLC is likely to receive damages for the Defendant’s unauthorized production and commodification of the corporation’s copyrighted material. Though the case is still in the midst of the litigation process, this case stands as some of the first legal precedent surrounding NFTs.
Most notably, the designer brand famous for the Birkin Bag, Hermés, has sued an NFT creator for his creation of the “MetaBirkin” NFT.9 In early 2021, Mason Rothschild created a series of NFTs featuring reimagined images of the iconic handbag.10 The “Baby Birkin” featured a gif of a human fetus gestating inside a transparent Birkin bag, and sold for $23,500. Total sales of the series have surpassed $450,000.11 Hermés brought suit against Rothschild for trademark infringement, trademark dilution, and cybersquatting.12 The claim is currently in the litigations process; however, most recently, New York Southern District Court denied Rothschild’s motion to dismiss under FRCP 12(b)(6).13 In denying the motion, the District Court established precedent that sets the standard for how NFTs are analyzed under a trademark infringement claim. The Court held the Rogers test applies when evaluating whether an NFT infringes on another’s trademark, where the use of the trademark in the NFT is actionable only if the use of the mark: (1) has no artistic relevance to the underlying work, or (2) explicitly misleads as to the source or content of the work.14 As the case develops, the Court will further clarify the legal murkiness around NFTs and provide some guidelines as to how NFTs and trademarks interact.
NFTs are likely a fleeting trend and the excitement and profitability generated will probably decline rapidly; however, this sensationalized development in digital media will create a lasting impact on IP Law for decades to come. The aforementioned lawsuits will establish the foundation for other forms of virtual creative expression as digital media continues to evolve. Understanding how IP Law interacts with these new forms of digital media is vital to successfully create, market, and profit from these technological trends. So, before creating and selling an NFT, double check that said image is not the intellectual property of someone else, as being the owner of the NFT does not automatically establish ownership of the intellectual property.
[1] Fang Block, PAK’s NFT Artwork ‘The Merge’ Sells for $91.8 Million, Penta (Dec. 7, 2021), https://www.barrons.com/articles/paks-nft-artwork-the-merge-sells-for-91-8-million-01638918205.
[2] Gary P. Kohn, NFTs and the Law, 44 L.A. Law. 18, 21 (2021).
[3] Id. at 18.
[4] Adam Hayes, What is a Blockchain?, Investopedia (June 24, 2022), https://www.investopedia.com/terms/b/blockchain.asp.
[5] Kohn, supra note 2, at 21.
[6] Nicholas O’Donnell, No, You Probably Can’t Sell You Basquiat as an NFT, Apollo (May 12, 2021), https://www.apollo-magazine.com/basquiat-nft-intellectual-property-copyright/.
[7] Kohn, supra note 2, at 21.
[8] Notorious B.I.G. LLC v. Yes. Snowboards, 2021 U.S. Dist. LEXIS 252735, at *9 (C.D. Cal., Dec. 22, 2021).
[9] Hermés Int’l v. Rothschild, 2022 U.S. Dist. LEXIS 89799 (S.D.N.Y.. May 18, 2022).
[10] Id. at *3–6.
[11] Id.; Alyssa Kelly, Mason Rothschild’s ‘MetaBirkin’ NFTs Sell for Record Prices, L’Officiel (Dec. 15, 2021), https://www.lofficielusa.com/fashion/hermes-metabirkins-nfts-collection.
[12] Hermés Int’l v. Rothschild, 2021 U.S. Dist. LEXIS, at *1.
[13] Id.
[14] Id. at 8.