What’s a Non-Fungible Token (NFT) and Why You Should Care

Posted By: Eric Ludwig
Date: June 2, 2021

You’ve undoubtedly been hearing or reading more and more about cryptocurrencies. They are digital forms of payment akin to tokens that you exchange physical currency to obtain. Once acquired, you can exchange the cryptocurrency online for specific goods and services from companies that accept such payments.

Crypto currency is popular. More than 6,700 companies have issued their own forms of cryptocurrency, with a total value of more than $2 trillion as of April 2021.

Like cryptocurrencies, Non-Fungible Tokens (NFTs) are a type of digital asset. Also, like cryptocurrencies, they rely on a blockchain ledger to verify authenticity. (Blockchains are a type of database that store information in groups or "blocks" forming an encrypted chain of information.)

Unlike cryptocurrencies, NFTs are non-fungible, meaning they are unique. Think of NFTs as you would a collectible or a one-of-a-kind item. An analog would be that old, autographed baseball card your grandfather passed down to you. NFTs are like that, except they’re digital—identified through a blockchain ledger using metadata that indicates what it is, its value, and who owns it.

NFTs are especially popular with memorabilia and collectibles companies, athletes, celebrities, musicians, artists, and publishers.

While NFTs are often digital works, unlike a .jpg of a digital piece of art that can be duplicated and sold numerous times to others, an NFT is a unique work. It is one of a kind, not a mass-produced piece of art. Others can only resell it if you, when selling the NFT to them, grant specific rights to do so. Thus, owners of a “piece” of NFT artwork are the owners of the only copy of that artwork in existence, and it’s all verifiable through blockchain. Like unique works of art and collectibles, the values of NFTs derive from how much others are willing to pay for it.

Real-World Examples of NFTs

In a recent article, The World of NFTs and Their Implications In Intellectual Property Law, the author gave examples of some of the more “traditional” NFTs (not that there’s anything really traditional about any NFTs) as well as some more “non-traditional” examples:

  • Twitter CEO Jack Dorsey’s initial tweet (“just setting up my twttr”), which sold for $2.9 million.
  • A one-minute video clip that shows LeBron James dunking a basketball, which sold for $200,000.
  • Tickets to concerts and other events.
  • Nike’s “CryptoKicks,” a patented approach to connect unique, digital tokens (NFTs) to pairs of physical sneakers to verify that those sneakers are, indeed, Nikes.

BitClout’s sale of NFTs that represent profiles of more 15,000 celebrity influencers (presumably, as the reputation of these individuals climbs, so does the value of the associated NFT).

How does the rise of NFTs impact intellectual property?

Clearly, one of the top benefits of NFTs is that by their nature, NFTs verify the authenticity of an item. Simply put, if it’s an NFT, it’s the real thing, per the blockchain data. That’s great for buyers of NFTs because they can rely on the genuineness of their purchases, plus curbing counterfeits benefits sellers because buyers won’t be so fearful of fakes, meaning sellers can reasonably ask for and get top prices.

However, owning an NFT doesn’t necessarily mean that you legally hold the intellectual property rights to a particular piece of work, especially if third parties are involved. The aforementioned article described an example of freelance artists from DC Comics who sold NFTs linked to certain DC comic characters. While the artwork was the work of the freelance artists, DC contended that the artists did not have the rights to sell the likenesses of DC’s intellectual property. The outcome of the case is still to be determined.

Similarly, if you purchased an NFT that’s a digital recording of a top artist—an .mp3 for example—can you now sell it in mass? Like many questions pertaining to copyright and IP, it depends. When you purchased the NFT recording, what rights did you buy? In purchasing, what rights (if any) did you convey to the artist who performed the number? What rights does his or her publishing company retain? What rights does the company or individual who made the recording retain?

As they say, both sellers and buyers will want “check the fine print in” any sales and licensing agreements.

  • IP owners will want to be explicit in whatever rights they are conveying when they sell an NFT so that buyers then can’t take advantage of vagaries in licensing language.
  • Buyers will want to understand exactly what they are buying beyond just the digital asset to include all of the rights they are acquiring (or not acquiring).

It’s critical that both buyers and sellers understand that, from a copyright standpoint, simply selling an NFT, absent the specific transfer of certain rights to the buyer, does not grant ownership of the underlying content or its associated IP rights to the buyer.

“Intellectual property law is complex enough when it’s something you can hold or touch and when there’s years of existing case law and precedent to cite,” explains Eric Ludwig, an IP and business litigation attorney and certified privacy professional. “Nowadays, when you begin to factor in cryptocurrencies and NFTs, you’re looking at entirely new layers of sophistication and nuance that, quite frankly, represent untrodden ground even for regulators.” What it all means is that if you’re buying or selling NFT-related intellectual property, you’ll want to protect your interests by retaining competent legal counsel who can commit to a process of due diligence and advise you on various legal issues around NFTs, IP laws and rights, copyrights, patents, and trademarks.

Protect Your Product. Your Business. Your Dreams.

Contact Eric Ludwig today for a one-hour consultation to discuss your unique copyright, patent, trademark, business litigation, privacy, or other intellectual property issues.
(619) 929-0873 | [email protected].


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