NFT Intellectual Property: The Game is Afoot

Intellectual property rights can apply to any creation derived from the human intellect, including inventions, art, literature, names, and symbols. IP rights have become part of an intriguing conversation in the NFT space, in part because it's easy to get confused about what one actually owns after buying an NFT. In most cases, the NFT intellectual property rights belong to its creator. However, some projects, such as the Bored Ape Yacht Club, grant full intellectual property rights to the NFT's buyer.

In this article, we'll discuss intellectual property rights and how they apply to NFT ownership.

Legal issues surrounding NFT intellectual property

NFTs generally don't transfer the intellectual property rights of a given creation unless specifically noted in writing. This is no different from IP laws for physical artwork. Per the Minnesota Lawyers for the Arts, "When an artist creates a painting, the artist owns both the copyright in the artwork and the physical artwork … A sale of the physical artwork does not transfer the copyrights in the artwork." For this reason, it's important to read the NFT description and the project's website when buying an NFT.

In some cases, the project may give you limited usage rights for their IP. For example, the terms of use for a CryptoKitties NFT grants you "license to use, copy, and display the Art for your Purchased Kitty for the purpose of commercializing your own merchandise ... provided that such Commercial Use does not result in you earning more than One Hundred Thousand Dollars ($100,000) in gross revenue each year."

This means you can monetize the art featured in your CryptoKitty NFT as long as you don't make more than $100,000 annually with it. The terms of use go on to say that you can't modify the art or use it to market a third-party product or service, meaning you aren't the actual owner of the intellectual property.

Transferring or licensing copyrighted works doesn't prevent the creator from collecting royalties on secondary NFT sales. Still, in most cases, a project won't enforce royalties when you use artwork for commercial purposes. For example, per the Bored Ape Yacht Club terms and conditions, buyers get an "unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art." Yuga Labs, creator of Bored Ape and other NFT collections, still collects royalties for secondary sales of the NFTs and has made over $110 million doing so.

Tokenization can also be a novel way to protect IP rights. For instance, Nike's CryptoKicks patent allows it to fight counterfeiting with digital assets. By sending buyers an NFT when they purchase a pair of sneakers, Nike can confirm the authenticity of their trademark shoes. Still, this system has limitations, because the IP owner needs buyers to have a crypto wallet to receive the NFT.

Future of NFT intellectual property

NFTs have grown in popularity over the years but aren't yet common enough to be used as IP protection for major brands and companies. Custodial NFTs could be a feasible path forward for brands to use NFTs for copyright protection and other forms of intellectual property protection. These NFTs are held and managed by a third party, meaning the owner of the non-fungible token doesn't need to create a wallet or remember their passphrase. In many cases, people can sign up for a custodial NFT wallet with their name and email address without downloading software or browser plugins. Imagine you sign up for an account on Nike's website, and Nike simultaneously creates a custodial wallet that it attaches to your account. In this case, you could buy a pair of shoes from its website and receive the NFT without any extra steps.

NFTs and their associated IP rights have an uncertain future as well. Many NFT project creators use generative AI applications to create their work. According to United States laws, art can be copyrighted only if it is the product of human intellect and creativity. However, many creators produce assets for their project by hand and feed them to an AI that mixes them to create unique works. In these cases, it's possible that the work could still qualify for copyright protection.

Per the U.S. Copyright Office, "in the case of works containing AI-generated material, the Office will consider whether the AI contributions are the result of 'mechanical reproduction' or instead of an author's 'own original mental conception, to which [the author] gave visible form.' The answer will depend on the circumstances, particularly how the AI tool operates and how it was used to create the final work."

The growing use of AI has led to an increase in applications to register copyright protection for creative work. In the coming years, we'll better understand which AI tools leave enough room for human creativity for their outputs to be considered intellectual property.

Licensing rights granted by NFTs have many gray areas as well. For example, Seth Green planned to create a television show based on his Bored Ape NFT. However, when the NFT was stolen from his wallet, he was technically no longer its owner. This raised questions as to whether he would be able to move forward with his show. Luckily, the NFT was later returned. Still, this situation raises important questions about intellectual property rights tied to NFTs. For example, if you were to open a restaurant based on an NFT you bought that was later stolen or sold, would you have to alter the restaurant's theme?

Creating and managing NFTs

Now that you better understand how intellectual property rights tie into NFT ownership, you're ready to create or buy your own. Hedera offers tools that make it easy and affordable to create and trade non-fungible tokens. For example, DLA Piper built the TOKO platform, which reduces transaction and minting fees by over 98% on the Hedera network. Tools like this, along with the carbon-negative nature of Hedera's network, make it an attractive option for businesses and individuals interested in tokenization. Over 2 million NFTs have been minted on the Hedera network, and many more are still to come.