‘NFTs’, or non-fungible tokens, are making the news on a regular basis at the moment, with some selling for eye-watering amounts at auction. A recent high-profile example is the release by Sir Tim Berners-Lee, the inventor of the world wide web, of a small number of NFTs containing some of the source code of his original internet invention, in the form of original time-stamped files along with an animated visualisation and a digital poster of the code.

NFTs often include representations of works of art or design, or other creations that were previously created and captured in a different form or medium. This can lead to difficulties around exploitation rights, where the owner of an NFT may not necessarily be the owner of the intellectual property rights to the underlying creation or may not even have a licence in relation to those underlying rights at all.

Technology and IP expert Jon Moorhouse takes a closer look at the legal issues surrounding NFTs and their intellectual property status.

What is an NFT?

Unlike fungible (that is, indistinguishable and interchangeable) digital assets such as bitcoin or other crypto currencies, non-fungible tokens are unique assets that cannot simply be swapped for an identical replacement. Their authenticity is certified via a ‘distributed ledger technology’ such as block chain. As unique digital assets, they can be very valuable and highly sought-after, potentially generating further payments to the original creator of the token each time the token is sold on, in addition to the initial purchase price.

Intellectual property rights and NFTs

Intellectual property rights protection in relation to NFTs is an interesting area. Just because an NFT is created representing an underlying work of art or other creation, it does not mean that the creator or any later owner of the NFT will own the underlying intellectual property rights, for example the copyright.

An NFT owner needs to be alert to the fact that they would need to expressly acquire an assignment or licence of the underlying rights from the creator or author of the original work or any subsequent owner of those rights, in order to be able to reproduce the underlying work itself. The owner of the underlying IP rights may choose to grant a licence but impose other constraints on how the work in question can be used in the NFT.

An example often used is that of the NFT for a video of a slam-dunk by the celebrity US basketball player LeBron James, released as part of a series of limited-edition digital collector’s cards of NBA highlight clips that can be bought and sold on the ‘Top Shot’ marketplace. The card depicting the dunk may sell for a large amount of money, but the NBA still owns copyright in the original video, and any reproduction of that video is still subject to licensing terms from the NBA.

If you are lucky and wealthy enough to acquire one of the rare NBA NFTs, you are still not permitted to change the video moment captured in your NFT, or sell any merchandise relating to your NFT, without the NBA’s prior consent. Furthermore, the licence terms require you not to place the ‘moment’ next to “images, videos, or other forms of media that depict hatred, intolerance, violence, cruelty, or anything else that could reasonably be found to constitute hate speech or otherwise infringe upon the rights of others.”

If you breach the licence terms, platforms like Top Shot marketplace may well reserve the right to suspend or delete your account, or in the case of Top Shot, to remove your NFT ‘moment’ from its app – at its own discretion and without giving you any notice.

The NFTs released by Sir Tim Berners-Lee caused considerable interest and was sold at an online auction for $5.4 million.

As owner of copyright in the original source code, Sir Tim has no licensing restrictions, and has the right to reproduce the code when creating the NFT.

The protection of software

Software itself can be protected in several ways. Protection can be sought via patents if the invention is captured as a technical system implemented using particular software, rather than the software itself. More often, software coding is protected by copyright in the exact expression of the coding in any medium, and perhaps also confidentiality – protecting value in the coding, or the algorithm(s) captured in the coding, by not sharing it with others.

In the case of the world wide web source code, Sir Tim famously took the decision to make his invention available to the public at the time, for the good of all: no concerns around confidentiality or others copying the source code.

However, if another software developer were tempted to reveal valuable source code in NFTs available to a few lucky buyers, they would need to think very carefully about how to manage this. It may not be possible to impose secrecy restrictions on the owner of the NFT, but they should certainly impose appropriate IP rights licence limitations, and ensure that any licence restrictions were passed on to any subsequent owner.

This may be a hypothetical situation, but it does bring into focus some of the challenges raised by NFTs from an IP perspective.

Should you have any questions or require any assistance in this area, Jon would be very happy to help.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.