Intellectual Property and NFT’s – The current and future potential
Lately NFTs are making a buzz all over social media and hitting the headlines. Everyone is talking about this new revolutionary concept that is apparently redirecting trends and redefining transactions.
So, the question arises what are NFTs and why are they trending? While India may have been a little late to join the NFTs bandwagon, of-late a platform called Bollycoin solely for trading in NFTs relating to Bollywood memorabilia has been turning heads with several celebrities endorsing it. It is only a matter of time before NFTs becoming just as popular if not more in India.
An NFT or a Non-Fungible Token is a unique token symbolizing the exclusivity and individuality of an item. A fungible item simply put is one which can be interchanged with another for instance when your phone breaks down and the phone company replaces it with an identical one that essentially means your phone is a fungible item. In today’s age of capitalism and mass production most of our belongings are fungible i.e. easily replaceable with an identical one but think of that one toy you possess the production of which stopped years ago or the one painting made by you years ago that has been preserved for ages, such one of a kind or unique item is what would be known as non-fungible and a NFT simply put is like a certificate testifying the uniqueness of such an item.
With all the technological advancements naturally, a physical certificate doesn’t cut it any more and besides how does one keep track of such certificates and genuinely know that such certificate isn’t itself replicated and that is exactly where the NFTs come in. Every NFT is stored in a digital blockchain ledger.
Minting, Sale and Purchase of NFTs
An NFT is essentially created by creation of a unique code on a block chain network, this code has a unique ID with additional fields for ownership details. A blockchain network can be any platform such as Ethereum or Bitcoin Cash. This means that anyone with access to one of these platforms has the capability to mint a new NFT and link it to any asset. Once minted an NFT can easily be traded on such platforms itself.
Valuation of NFTs and differentiation from cryptocurrencies
NFTs can be used for both physical as well as digital assets and permits valuation of digital assets such as memes gifs and jpegs. As every NFT has a different underlying asset, there is no fixed valuation of an NFT and the value of a unit of NFT depends solely on the underlying asset which is the primary feature that distinguishes it from cryptocurrencies such as bitcoin which are easily replaceable i.e. 2 units of bitcoins are completely interchangeable as well as divisible.
Intellectual Property and Exploitation of NFT’s
As an NFT is merely a token for an underlying unique asset the question arises as to whether the intellectual property of such asset linked to the NFT is also transferable with the NFT.
To analyze this question, we need to first and foremost understand how NFTs are created. An NFT is created or rather mined by the original creator of such asset who shall be known as the original owner. For the sake of clarity when we say asset, we refer to unique creations such as paintings or memes, each asset of this sort as a creator or subject matter for instance the Original owner of the ‘bad luck brain’ meme would be the person in the original photo however the Original owner of a painting would be the artist of such painting.
According to Section 17 of the Copyright Act, 1957, the author of a work shall be the first owner of the copyright. Accordingly, the Original owner of an NFT shall be the owner of the Copyright of the NFT as well as the underlying asset. Accordingly, the purchase of NFT is not equivalent to the purchase of the underlying asset unless there is a clear. The owner of the underlying IP rights may choose to grant a licence but impose other constraints on how the work in question can be used in the NFT. Thus, assignment and licensing issues are major concerns to be considered while dealing with NFT’s.
In order to transfer the copyright of the asset associated with the NFT, a separate assignment agreement would have to be executed between the parties, the same could be done by a smart contract in which the NFT could be embedded.
Potential For Misuse
An NFT is essentially created when the unique code on the blockchain is signed by the original owner, this process of signing is known as minting. The problem arises when people misrepresent their identity which is not uncommon on virtual platforms which implies that anyone may claim ownership of an asset and sign the NFT in their own name. Alternatively anyone can represent themselves to be the owner of an NFT as there is no legislation in place to govern the same thereby making NFTs especially vulnerable to online fraud and misuse.
Jurisdictional Challenges
Another challenge that would be faced in transfer of copyrights through NFTs is that as the NFTs are digitally stored they can be stored anywhere in the world and can be traded globally accordingly determining the jurisdiction under which such NFTs would fall even broadly which country would have jurisdiction would be virtually impossible to determine.
Future Of Copyright Of NFTs and amendment in Law
As per American copyright laws only the owner of the copyright of an asset is permitted to mint NFTs pertaining to that asset, however no such legislation exists in India and there would be a dire requirement for not only India but all countries to amend their respective copyright laws in order to make copyrights of assets transferable through NFTs.