If you’ve had anything to do with digital art, digital assets, or both in recent months, it has been next to impossible to escape the barrage of news about how intangible tokens, or NFTs, are changing the game for creative industries. . From Kings of Leon dropping their new album as NFT to digital artist Beeple closing a Christie’s auction with a dazzling price tag for a piece of his work, the trend is unfolding at a dizzying pace.
Many believe that NFTs are not only a flashy new medium for artistic work, but also a vehicle that can generate new efficiencies and redefine the relationships between creators, their audiences and traditional executives and of the music and art industry.
Better management of intellectual property rights and streamlining the distribution of royalties are among the most common use cases. Established copyright management bodies, such as the Italian Society of Authors and Publishers, join the movement and move towards blockchain IP registries as musicians offer shares of their work for sale to investors to take advantage of the subsequent commercial of the plates. use. How feasible are these solutions, and what roadblocks can their champions run into?
The quest for authenticity
One of the main challenges faced by digital content creators is the ease with which a perfect digital copy of their creation can be produced almost free of charge. Since a digital image or soundtrack can be instantly copied and distributed an infinite number of times, it is a challenge for creators to keep track of how and by whom their work is being used and take advantage of this use accordingly.
NFT’s main value proposition is that by creating a unique, blockchain-backed record of each unit of creative work, they can not only encode the sense of authenticity and scarcity, but also enable artists to understand the rules surrounding the transfer of copyrights. to capture and maintain, use and generate revenue. GJ van Rooyen, co-founder of blockchain content protection company Custos Media Technologies, told Cointelegraph:
“First, NFTs enable us to securely track the transfer of rights, much like a Bitcoin payment securely tracks the transfer of money. Second, NFTs can support creators perpetually. For example, an NFT could specify that creators should be rewarded each time an item is resold at a higher value. “
A notable improvement over the traditional world of IP rights protection offered by NFTs, in particular, is automatic enforcement. Daniel Daboczy, CEO of technology company Technicorum Holdings, explained to Cointelegraph that by leveraging the smart contracts at the core, NFTs can enable artists to distribute royalties and protect intellectual property without legal action and enforcement.
In many cases, however, the relationship between smart contract-driven technology and existing legal frameworks cannot be straightforward.
What Do NFT Owners Really Have?
In most cases, ownership of an NFT does not entitle a person to ownership of the underlying work by default. Rather, it can be thought of as a digital certificate confirming that they own a unique, collectible version of it. Burr Eckstut, special advisor at law firm Covington & Burling LLP, further explained to Cointelegraph:
“NFTs differ from digital content in that there can only be one holder of a particular NFT at a time. However, NFTs generally do not contain the digital content and may not be linked to digital rights management technology that would prevent the copying of the digital content. The link between the NFT and content may even be conceptual, but it can still have value as long as the NFTs are scarce. ”
Gunther Sonnenfeld, CEO of digital property solutions provider RAIR Technologies, told Cointelegraph, “There really is no intellectual property protection without digital rights management.” On its own, an NFT is just a serial number, and an extra layer of functionality must be put in place to allow people to reshare the underlying asset while ensuring that both creator and dealer get their share.
There are several aspects of using the creative work that NFT’s smart contracts can be programmed to monitor. Perhaps the most rigorous option is the ability to access the encrypted content. William Honaker, IP and patent attorney at Dickinson Wright law firm, told Cointelegraph:
“If the NFT controls access, it will improve copyright protection. If the work is protected from copying and redistribution through the NFT and is accessed by, say, single-use code for viewing, then it is protected outside of copyright. “
NFTs can also be used as licenses, giving those who buy them the right to use the content for commercial or other purposes, but not getting the right of ownership.
Royalties and Fractional Ownership
In today’s creative industries, most of the value generated from digital art goes to intermediaries such as record labels and distribution platforms. Thanks to blockchain technology, the balance of economic power in this realm can quickly shift in a direction more favorable to creators.
Gaurang Torvekar, CEO and co-founder of blockchain-powered workflow platform Indorse, told Cointelegraph, “In addition to immutable evidence of ownership and origin of the assets, NFTs also allow buyers to partially own them.”
This mechanism provides unprecedented flexibility in the way in which copyrights are used. Edmund McCormack, founder and CEO of crypto-centric education platform Dchained, spoke to Cointelegraph on the matter:
“If a song is created by a group of artists and registered on the blockchain in the form of an NFT, each of them can claim a relevant portion of this token, be it 90% or 1%. To make a profit for their creation, they can also license them as NFTs and sell them to interested parties while remaining the owners of the piece. In addition, they can sell fractions of their rights to their followers and thus directly acquire investments. “
Sonnenfeld added that he expects that as the market ages, a variety of NFT-based monetization models will emerge beyond royalties. These can include licensing, preferred subscriptions and data redistribution through proper identity management.
Relationship with copyright
The legal side of many of the processes described above remains vague, as the introduction of NFT-based mechanisms for managing intellectual property rights must be reconciled with the protection and enforcement that exist under current copyright law.
According to Lokesh Rao, CEO of the NFT-based Protocol Trace Network, asset ownership recognition has yet to be agreed in court, and unless NFTs are recognized as equivalent to a paper or digital certificate, the scope of implementation of this concept will be are limited to goods that are digitally owned and consumed.
D’vorah Graeser, CEO of KISSPlatform, the CEO of AI patent search tool, told Cointelegraph: “The biggest bottleneck is that almost all IP rights are registered rights – meaning the rights holder has to register. at a government agency. This creates a public record in case of subsequent questions or a dispute. It would be difficult to create a comparable situation with NFTs where all parties – especially companies that have the rights and the judicial system – could agree. “
Graeser added that such a reconciliation is not impossible, and that ultimately a combination of NFTs, legal agreements and judicial enforcement would be very effective.
Covington & Burling’s Eckstut raised a handful of other potential legal issues that could arise regarding securing copyright interests through NFTs. One is related to the “first sale doctrine” that generally prevents copyright owners from restricting (and thus taking advantage of) further sales of physical copies of their works – something that NFTs can make possible for creators. Another concern is that under current law, copyright in the United States can only be transferred using a written instrument – a standard that is unlikely to be met with the transfer of a digital token.
In short, it is clear that the widespread inclusion of NFTs in the copyright protection industry requires several years of precedent from the court, as well as amendment of codes and statutes applicable to intellectual property law.
While technology solutions related to protecting IP rights have existed in the blockchain space for years, most commentators who spoke to Cointelegraph on the matter agree that the NFT industry is generally still in its early days. taking over the copyright department of the creator. economy.
W. Sean Ford, chief operating officer of blockchain platform Algorand, believed that the technology needed to power these assets and the economies being built around them should meet a very specific set of needs, calling them for Cointelegraph:
Simple tooling to create and launch NFTs, strong smart contracts to use NFTs for more complex applications, immunity to forking to ensure original creation cannot be replicated, low transaction costs for healthy participation, scalability to capture billions of creative assets support, and a low carbon footprint for the sustainability of the communities these assets serve. ”
Currently, a major problem is the fragmented landscape of NFT platforms designed to deliver royalty payments to artists. In many cases, according to McCormack, royalty payments only apply to purchases made on each individual platform. Still, he noted that protocols offering scalable solutions are already emerging: “EIP-2981 could allow content creators to include smart contracts that automate the royalty payment process directly into the NFT. As a result, artists could receive royalties regardless of where the customer buys the NFT. “
There is not much doubt that intangible tokens have the potential to ultimately turn the existing models of intellectual property rights management in creative industries upside down. Yet it is also true that the integration will be neither seamless nor instant, as there will be multiple tensions between the legacy systems and the NFTs that will need to be resolved.