NFTs, or non fungible tokens, are a way to prove ownership of a digital file that’s different from a copyright. They became a hot commodity for people deeply interested in digital art to buy, trade, and sell on online marketplaces, peaking in March of 2021. Many suggest thinking of NFTs almost like digital trading cards. Some have even sold for over $69 million dollars.
There is a lot of grey area around what can and can’t be sold as an NFT, as this is such a new field. What’s stopping someone from taking someone else’s art and minting it themselves? The legal complexities that surrounds the world of NFTs is something that the legal world is still catching up on. Anita K. Sharma, Esq., an entertainment attorney with 20 years of experience, with additional background as a filmmaker, answered 10 frequently asked questions about the legalities of minting and selling an NFT.
10 NFT Questions Answered By An Entertainment Lawyer
Jackson Weimer: What is your background, both as a lawyer and as an artist/creator?
Anita K. Sharma, Esq.: I’ve been practicing entertainment law for almost 20 years. I started out of law school practicing entertainment finance at a large NY law firm. When I became disillusioned with the big firm life, I left to start my own practice, mostly representing indie filmmakers. A few years into that I decided to go to film school to train as a producer (I wanted to do what my clients were doing!). It was an amazing experience being on the other side of the table, seeing and learning the creative side of the business instead of the legal. Ultimately, I realized my passion lay in representing talent and helping to bring their creative visions to life. I believe that my background as a filmmaker adds tremendous value for my clients, because I understand the creative process from their standpoint – I’ve literally been in their shoes creating content. I would still like to produce, but sadly don’t have the bandwidth to do so right now.
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Weimer: What is the court’s current definition of an NFT?
Sharma: I don’t think a court has defined what an NFT is, but the generally accepted definition in the industry is that an NFT is a digital certificate of ownership for any designated digital asset (think of it as similar to the title to a car). The ‘non-fungible’ part means it cannot be exchanged for something of equal value (unlike cash which is fungible, i.e. I can give you two $5 bills for one $10 bill). An NFT can be readily verified as authentic, and this is what makes an NFT a potentially desirable collectable asset: there is clear provenance and indisputable ownership.
Weimer: When someone buys an NFT, what are they legally buying/owning?
Sharma: Most NFT sales merely convey a license to use the digital copy of the creative work and the copyright holder retains their copyright ownership. This means that ownership of the virtual art piece is not guaranteed when one buys an NFT. The digital governing contract covering the sale of NFT’s must expressly provide for an assignment of copyright in a signed writing for the buyer to actually own the copyright in the art. The buyer definitely owns the tokens that are placed in their digital wallet when they buy the NFT but this does not automatically confer copyright ownership.
When buying an NFT, pay close attention to: (i) the selling platform’s material terms of NFTs; these vary from platform to platform and even NFT to NFT. For example, buying an NFT doesn’t automatically give you the right to reproduce it, resell it or use it for commercial purposes and/or (ii) the digital contract that governs the sale of the NFT in order to understand exactly what is being purchased at the close of an NFT sale, since the contract determines what rights a buyer has with respect to the digital copy of the creative work that they receive.
Weimer: When did you first have a client who wanted to discuss NFTs? What was learning about them like? What resources did you use to learn about NFTs?
Sharma: I started learning about NFTs before we had clients approach us. I knew that NFTs were gaining traction quickly, and we needed to be able to advise clients on it. Learning about NFTs and blockchain is fascinating and difficult – I don’t think the concept of blockchain is an easy one to understand and it takes time. I read a lot of reliable sources, and I also watched videos because I think visuals help a lot in understanding how NFTs work.
Weimer: What if I minted an NFT of someone else’s work and sold it? If this becomes a bigger issue, what laws are in place (or need to be) to ensure that proper attribution is given to the actual creator of an NFT?
Sharma: Without getting too deep into copyright law, the basics are that the holder of a copyright has the exclusive right to copy, distribute, modify, publicly perform and publicly display the work. The copyright holder also has moral rights that protect a creator’s right to attribution and integrity. One can’t necessarily just alter/destroy/edit/add to a piece of artwork without permission to do so from the original creator. Unless specifically granted to someone else, copyrights remain with the creator. Copyright law has been around for decades and they apply to NFTs. I think people think regular laws don’t apply to blockchain but they do. Just giving attribution to an actual owner of the underlying IP of an NFT doesn’t automatically give the creator of an NFT the right to use it.
Weimer: Is your general consensus that most lawyers in your field don’t really fully understand NFTs yet?
Sharma: I can’t speak to what lawyers in my field know or don’t know. I would just say that NFTs are emerging and evolving, and legal issues are in the process of being discovered and dealt with as they arise.
Weimer: How does parody law factor into NFTs?
Sharma: Parody falls under the well-established ‘fair use’ doctrine in copyright. Simply put, ‘fair use’ allows for the use of copyrighted material without the permission of the copyright owner for certain limited, ‘fair’ purposes. Generally speaking, this means you may be able to use a copyrighted work for the purposes of commentary, criticism, news reporting, teaching, research and/or parody without getting the owner’s permission. Any given parody type NFT could be considered a ‘fair use’, but it should be noted that courts determine whether a use is in fact a ‘fair use’ on a case by case basis, by looking at a number of different factors. Just because an NFT is a parody doesn’t automatically means it falls under ‘fair use’.
Weimer: Situation: I make some original digital art, but I used some copyrighted characters from a Nintendo video game in my art. I then go ahead and mint this as an NFT. Then, I sell it for a couple grand. What is the likelihood that a big corporation will find out I used their copyrighted art to make my own NFT? What are the legal ramifications of doing this, if they were to find out and be mad enough to sue me? Is it any different than selling art on the street using copyrighted characters?
Sharma: A company like Nintendo likely has people employed just to find its IP on the Internet. They also have programs in place that automatically scan and find IP infringements. Using IP without the owner’s permission is called IP infringement, and an NFT creator can be sued for that. Selling art using copyrighted characters is also an infringement unless you have the permission of the copyright owner. A good example is DC Comics, who recently sent a letter to all their creators (including freelance) warning that unlicensed use of NFTs is prohibited. This came after an artist made $1.85 million by selling NFTs, including characters he used to draw for DC Comics.
Weimer: Many suggest that NFTs have a terrible footprint on our environment, do you see this as a potential challenge for clients to stomach if they are interested in making their own NFT?
Sharma: Yes, I definitely see it as a challenge. Most of my clients are very cause oriented and eco-conscious so I think it they moved forward with NFTs, we would need to try to figure out ways to offset the carbon footprint.
Weimer: Twitter this week has concluded that NFTs are dead since the early hype has died down and the market has plunged. Do you see this similarly or do you think there is a longer future for NFTs that we might just not be ready for yet?
Sharma: I definitely think there’s a larger future once people better understand how they can create and sell digital art (whether via NFTs or some variation), and how to determine what the real value of that is.
This conversation has been edited and reduced for clarity,