The City Law School’s Dr Enrico Bonadio and researcher Magali Contardi (University of Alicante and Sant'Anna School of Advanced Studies), respond to questions about NFTs and IP.
A non-fungible token (NFT) is a unique and non-interchangable unit of data which is permanently associated with a digital file such as a photograph, video file or an audio file.
An NFT differs from blockchain currencies such as Bitcoin, because each token has a distinct identity.
NFTs represent a rapidly developing distributed ledger technology – which encompasses infrastructure and protocols to permit simultaneous access, validation, and record updating in an immutable manner across a network spread over multiple entities or geographical locations.
The spectacular growth of NFTs, however, has meant that a relevant regulatory framework and legislation – including intellectual property (IP) law - needs to keep step (and frequently does not do so) with this burgeoning new technology.
Assisted by IP law researcher Magali Contardi (University of Alicante and Sant'Anna School of Advanced Studies), The City Law School’s Dr Enrico Bonadio responds to questions from City News about IP law and NFTs.
City News: Are NFT sellers and minters sufficiently aware of all of the issues regarding rights and permissions required for the files they are minting and selling?
Dr Enrico Bonadio: NFT sellers are not always aware of such issues. What they should do is to make the terms of a sale clear to avoid being exposed to misrepresentation or breach of contract claims by buyers. For example, because NFTs are meant to create “scarcity”, if additional copies of a work were sold by the seller, the buyer might sue such a seller for breach of contract, as it is likely that the price of the NFT will drop.
City News: Are most IP attorneys adequately informed about NFTs and the new digital economy to advise buyers, minters and sellers?
Dr Enrico Bonadio: Very few lawyers understand NFTs. Difficult legal issues often arise. In late 2021, film production company Miramax sued Quentin Tarantino in the US to prevent him from handing over pages of the screenplay that were never included in the final cut of the 1994 film 'Pulp Fiction' – now represented as NFTs. In an earlier dispute, a US judge prohibited Damon Dash, the co-founder of Roc-A-Fella records, from minting and selling Jay-Z’s Reasonable Doubt as a non-fungible token. As these examples illustrate, for minters buyers and sellers, due diligence is crucial. A proper understanding of the platforms’ terms and conditions, as well as a careful consideration of the clauses of the smart contract linked to NFTs, will ensure that duties and rights of all parties involved are clear. This will mitigate the risks of litigation.
City News: Do most governments around the world, including the UK government have robust enough regulatory environments to police the minting and selling of NFTs? Or are we in a 'wild west' scenario where unscrupulous actors are allowed to digitally roam about with impunity?
Dr Enrico Bonadio: While NFTs are available and traded globally, as marketing platforms they operate beyond borders and most jurisdictions lack legislation specifically applicable to them, with the exception of Liechtenstein. The EU’s draft Regulation on Markets in Cryptoassets, MiCA, for instance, specifically excludes NFTs from its scope. Yet, in some cases, existing regulations may apply to NFTs. For instance, depending on the characteristics of the token, the activities performed with regards to such a token may qualify as crypto assets and therefore as financial instruments or investment products subject to specific regulations (this is the case of UK, Germany and Italy). Anti-money laundering and bribery laws, and other rules (e.g. tax regulations), might also apply and should be carefully considered. Some specialized peer-to-peer (P2P) marketplaces such as New York City-based OpenSea, for example, have begun to emerge as instruments of self-regulation. OpenSea has introduced procedures to address potential complaints against copyright infringement. An example of this is when a work has been minted and offered for sale without the author’s permission.