This Article explores the question of what, if any, of the copyrights to tokenized works should be transferred or licensed to NFT purchasers, and clarifies issues of copyright transfer and licensing in the world of NFTs and blockchains.
Property as a concept in the law means the right to own and control something and to exclude others from using and controlling it. This concept often is expressed as the rights owner having a monopoly over the thing that is owned. When the term “intellectual” is added to the concept of property, it means that the thing protected is a non-tangible item devised, imagined, developed, or invented by a person or group, and that thing has value deserving of protection in the law. Copyright is one form of intellectual property (“IP”), the others being trademarks, patents, right of publicity, moral rights, economic rights, and trade secrets.
Copyright is the right to own and control the duplication and use of an original, creative work of expression.
Non-fungible tokens (“NFTs”) have introduced several wrinkles into the analysis of intellectual property rights in general and copyright law in particular. Artists and creatives who mint NFTs and collectors and investors who purchase and use them often have very different understandings and expectations when it comes to the copyrights associated with the content linked to an NFT. The default rule of copyright law is that the copyright to creative works does not transfer to the purchaser of the works, so that unless the NFT creator does something to actively transfer or license the rights to the purchaser, the NFT purchaser will have no copyright rights to the works linked to the NFT.
This Article seeks to educate NFT creators, purchasers, and the attorneys who counsel them regarding the question of what, if any, of the copyrights to the tokenized works should be transferred or licensed to NFT purchasers and bring clarification to the issues of copyright transfer and licensing in the world of NFTs and blockchains.1
Before discussing the transfer or licensing of copyright rights to NFT purchasers, it is necessary to understand what non-fungible tokens are and what they are not:
NFTs are not artworks.2 An NFT records the creation and ownership of an asset that could be an artwork.
NFTs are a cryptography tool defined and operated by a “smart contract.” A smart contract is a small bit of code that makes up a simple computer program that runs the operation of an NFT.3
Smart contracts use blockchain technology4 to verify and record the existence and ownership of digital assets and physical three-dimensional5 assets.6
An NFT purchaser purchases control over the smart contract that defines and operates the functions of the NFT. The smart contract creates a registry entry on the blockchain that is understood in the NFT industry and crypto community to represent proof of ownership of the asset linked to the NFT, whether that be an artwork, a piece of real estate, or other asset.7
An NFT does not automatically provide ownership or control of the copyright to the artwork linked to the NFT.8
A. What do you purchase when you purchase an NFT
When you buy the NFT for a tokenized digital or physical artwork you are not automatically obtaining sole possession of the artwork as if you walked into an NFT gallery, bought an NFT artwork, took it off the wall, and walked out with it. What you purchase with an NFT is sole access to and control of the smart contract of the NFT stored on the blockchain which has created a record that you are now the registered owner of the NFT and the artwork it is linked to.9 You receive a cryptographic access tool called a private key that allows you to control the smart contract; when you decide to sell the NFT, it is the private key that is transferred to the new purchaser.
Ownership of the underlying asset described as being offered for sale in the NFT listing often is a primary reason for purchasing an NFT. But the purchaser must be careful to read what exactly is being listed for sale. If a physical artwork is mentioned, be sure the wording of the listing for the NFT makes it clear that this physical work is part of the sale or is something else being sold such as support or patronage for cultural property.10
Famous masterpiece paintings by Indian artist Raja Ravi Varma are being offered for sale as NFTs on the Rtistiq NFT platform, but the listing makes it fairly clear that the actual masterpiece paintings are not being sold, only a digital photograph of the paintings.12
Look for instructions about whether and how the physical work will be claimed, and in the absence of a transfer of possession, look for the terms for storage, protection, and insurance for the physical asset. If it is a digital asset, look for a link to the storage location of the asset. The link may be in the script of the smart contract itself, so check the script with a blockchain explorer.13 In addition, as discussed in detail below, look for the listing of the asset to discuss and describe whether any part of the copyright to the underlying asset is being assigned or licensed to the purchaser, because in the absence of such assignment or licensing, no part of the copyright will transfer to the purchaser of the underlying asset.
B. Comparison: Purchase of Physical Artwork vs. Digital Artwork linked to an NFT
As noted in the prior paragraph, buying a physical artwork is fairly different from buying a tokenized digital artwork.
Exclusive Rights of Ownership
Rights not obtained
Purchase of Physical Artwork
Purchase of Tokenized Digital Artwork—i.e., purchase of a private cryptographic key to the smart contract of the NFT containing a link to the artwork stored elsewhere
Copyright protects “the Work” but the copyright is not the same thing as “the Work,” meaning the creation, the expression created by the Author. This may be the first “Ah ha!” concept that will help to clarify why NFTs do not automatically grant copyright:
The copyright is a completely separate property from the work itself.
The United States and, in general, the rest of the world, hold that in a property law sense, the copyright is a separate item of property from the object or file that embodies the work protected by the copyright.14 The law actually describes the copyright as a separate “bundle” of property rights different from the property right over the artistic creation itself—the painting, the digital art, the musical composition, the sculpture—because a copyright has several separate rights, each of which could be exercised separately or even licensed or sold separately. Further, and most importantly for this discussion, the object embodying the work can be sold separately from all of the copyright rights.
The object embodying the copyrighted work is called a “copy” of the work. The actual “work” is the “expression,” so it always is embodied and fixed in at least one copy. The law defines a “copy” that way—it is any example of an object, thing, or medium in which the expression of the work is fixed.15 The statutory language is:
“Copies” are material objects . . . in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term “copies” includes the material object . . . in which the work is first fixed.16
The second sentence of the above definition states that “copies” includes the first copy of the expression made, which typically is called the original work, but for copyright purposes it is just the first copy of the work. In the case of a painting or sculpture, it may be the only copy of the work made, but it still is defined in the law as a copy.
C. There is a presumption that the Copyright stays with the creator of the Work
In addition to the rule that the copy embodying the work can be sold or transferred separately from all of the copyright rights to the work, there is a presumption under current copyright law that the copyright does not transfer to the purchaser of a copy—whether it be a physical copy of the artwork, a digital copy, or the NFT of a tokenized physical or digital artwork—unless the copyright owner takes an affirmative step to transfer or license the copyright to the creator.17 Unless the copyright is separately transferred to the purchaser, the purchaser cannot make copies of the original work or create works derived from the content of the original work (derivative works). The purchaser also cannot stop others from making copies whether these are authorized by the owner of the copyright or unauthorized. Therefore, owning the NFT linked to a work of digital art does not preclude anyone from right-clicking on the digital image and making a copy of it. But if that happens, the copyist only has a copy, while the NFT owner is the registered owner of the designated original copy. This is similar to owning a physical painting or sculpture that is displayed in a public place—for example, you loaned it to a museum or consigned it at a gallery. If you do not own the copyright to the work, you cannot stop visitors to the museum or the gallery from taking a snap-shot of the work or taking a selfie in front of it—but all the viewers come away with is a copy of the original. However, you could have a say in trying to prevent this kind of copying of digital and physical art if you have obtained the copyright to the artwork.
Many artists very intentionally do not want to let go of the copyright to the artwork. As discussed in the next section, there are many valuable things you can do when you own the copyright to an artistic work, and most of them can be summed up in the concept of “control”—control over the artistic creation, which again is what owning property, intellectual or physical, is all about.
Several of the rights enjoyed by a copyright holder will be very attractive to NFT owners. The most desirable right most likely is the right to copy the work, and after that the right to further sell and distribute those copies. If the art linked to the NFT is to be used and exploited in further projects or activities, it most likely is going to be copied and those copies will need to be sent, attached, or uploaded to their new applications.
Following soon after is the derivative works right which gives the copyright owner (not the owner of the object embodying the work) the right to adapt the work into a new work.18 A derivative work is a very broad category in copyright law, encompassing any other work ‘‘based upon the copyrighted work,’’ and this second work could be ‘‘a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted.’’19 To constitute a violation of the right granted in 17 U.S.C. § 106(2), the infringing work only needs to incorporate “a portion” of the expression of the copyrighted work “in some form.”20
Purchasers of NFTs often will want to reuse and repurpose the artwork they acquired with the NFT. A very common adaption of an NFT artwork is to copy and crop the artwork and adapt it for use as the profile picture of the NFT owner on Twitter, Instagram, Facebook, or other social media applications. This again most likely constitutes a form of copying—either the digital file will be copied before cropping or the original or cropped version of the work will be uploaded in order to serve as a profile picture on a social media platform. Thus, technically, unless the NFT owner has separately purchased or been granted permission to exercise the section 106(2) derivative works right, making a profile picture out of your NFT artwork is a violation of the copyright over the artwork. We say “technically” because most copyright owners who have sold an NFT would love it if purchasers liked the art so much that the purchasers made it their “face” to show themselves to the world. But we are talking about legal rights here, not who is likely to get sued or get a cease and desist letter from the copyright owner.
I have been discussing what happens when an NFT owner does not purchase or receive any of the copyright rights to the image that is linked to the NFT. But the NFT creator may be very happy to transfer or license some or all of the copyrights to the purchaser of the NFT.
In general, a transfer of all of the copyright rights to the purchaser is called an assignment of the copyright, and an assignment must be performed in writing, not orally or by implication from conduct of the parties. Transfer of fewer than all of the copyright rights is typically called a license of the rights.
There are two main categories of license: exclusive and nonexclusive. An exclusive license of rights means that the licensee is going to be the only licensee to receive and use these rights; the copyright owner is not going to license the same rights to someone else. A license to transfer exclusive rights with some economic value21 must be in writing. A non-exclusive license means that the licensee can use the rights, but the copyright owner can license them to any number of other people. Transfer of nonexclusive rights by license does not require a writing, meaning it can be accomplished orally or by implication from the conduct of the parties.22
There are several means to communicate license terms presented here in order of their likely recognition as a valid legal license of part of the copyright intellectual property of the artwork:
Bargained for exchange between seller and purchaser before purchase
License terms coded into the smart contract of the NFT
Pop-up clickwrap license terms (“Click here to accept these terms . . .”) at the point of purchase
License terms provided in the listing and item description on the NFT sales platform
License terms provided on the website of the NFT creator
A. Bargained for exchange between seller and purchaser before purchase
The bargained for exchange option would be an ideal solution because the two parties, seller and buyer, would communicate with each other, have a meeting of minds, decide on what is being conveyed in the sale, and sign off on a writing (most likely electronically) explaining the rights conveyed. In other words, they form a contract that conveys the license or, if desired, the entire copyright to the artwork to the purchaser.
The problem with this option is that it might seem anathema to many crypto natives who want to remain totally pseudonymous, don’t want to converse directly with sellers or buyers (but are happy to tweet on Twitter or chat on Discord about anything on their minds at a moment’s notice), don’t want to put things in writing, and don’t want to involve themselves with legal solutions such as contracts. In the view of many crypto purists, NFT sales are intended to be paperless start to finish, run by the code of the platform, and they are supposed to be “trustless” in the peculiar use of that term in the blockchain and crypto community to mean “no trust needed; the code will take care of everything.”23 For that reason, for those who do not want to form a solid, legally impeccable contract, there are alternatives below.
B. Coding license terms into the smart contract of the NFT
Coding the terms of a license into the smart contract of the NFT that is being sold most likely would satisfy the legality requirements of the license because the terms will be in writing in the code and access to and control of the smart contract is the very thing that is being purchased when someone buys an NFT. But the practical effect of this option is that the terms should also be disclosed to the purchaser through one of the other means described here—pop-up clickwrap terms, terms in the listing, or terms on the website of the creator—in order to give actual notice of the terms to the purchaser. Perhaps the average purchaser of an NFT delves into the coding of the smart contract before purchasing it, but to be honest I think that is unlikely. In addition, it is probable that a fair number of creators of NFTs will not be comfortable programming the code of a smart contract, so many would have to rely on outside help, and that help may come from the NFT platform itself which could ask for the minter to input license terms that will then become part of the smart contract.
Smart contracts frequently convey license terms in their code, so this option is not proposing a radical new use of smart contracts. Smart contracts using Solidity generally convey an open source license to use the code of the contract24 referred to as the MIT license25 or one of its descendants, such as the Apache-2.0 license,26 right at the start of the coding of the NFT.
// SPDX-License-Identifier: MIT
One could insert the terms of a license into the code, paying attention to the overall concern of brevity: do not make the smart contract so large or long that it will cost a small fortune in gas fees to mint. Alternatively, you could code a link to an online-stored license document spelling out the terms. For example, if you stored a .PDF of your license terms (license_nft0123.pdf) at an address on the InterPlanetary File System (IPFS)27 and created a uniform resource locator (URL)28 for the file (ipfs://ttffnn2brnt2biwnt2luvupyt/license_nft0123.pdf), then a snippet of code to insert into the metadata of a smart contract using the ERC-721 standard on Ethereum might read:
"name": "License for NFT Owners",
"description": "Terms of the license granted by creator of NFT to owners of the NFT",
This method of coding the license terms or a link to the license terms into the metadata of the smart contract of the NFT itself is a very good solution because the smart contract is the very thing that will be transferred to each owner of the NFT, and thus each owner will have constructive notice of those terms. Actual notice can be added by one of the methods described below, and I recommend a belt-and-suspenders approach until the blockchain and NFT ecosystem becomes better understood and better regulated in the law.
C. Pop-up clickwrap license terms
The downside to both clickwrap and browsewrap licenses is that they are only guaranteed to be effective communicators to the initial purchaser of the NFT. A subsequent purchaser may obtain the NFT on a different sales platform that does not offer the pop-up and “click here” terms or receive the NFT in a wallet-to-wallet transfer which has no formal platform for terms. Yet, the creator of the NFT and copyright owner of the tokenized artwork most likely will want the terms to apply to each subsequent NFT owner. That can be achieved with the coding of the license terms or a link to the license terms in the metadata of the smart contract of the NFT (described in the preceding example), or by writing a term into the license that requires the current owner of the NFT to notify a subsequent purchaser of the NFT of the terms of the license. Whether or not the current owner actually complies with this requirement is not essential because the law will appreciate the gesture of putting it into the license as evidence that the subsequent owner should have or at least could have known of the license terms.
D. License terms provided in the listing and item description on the NFT sales platform
In general, a creator selling an NFT on a sales platform will have the opportunity to write the description of the NFT in the listing itself, and so can input the license terms or a link to the license right in the listing at the point of purchase. This is one more piece of evidence that the purchaser had the opportunity to read the terms before purchasing the NFT. It suffers from the same shortcoming as the clickwrap or browsewrap examples with regard to subsequent purchasers who may obtain the NFT on a different platform with a different listing description or through a wallet transfer with no listing at all. But in a belt-and-suspenders approach, you will hold up your license pants better with multiple disclosures of the license terms.
E. License terms provided on the website of the NFT creator
The last option, disclosure on the creator’s website, appears to be one of the most popular methods of disclosing license terms as seen in the popular Bored Ape Yacht Club31 and Vee Friends32 NFT projects. This is an easy, low-effort solution, and might be very attractive if the creator wants to be able to tinker with the license terms as the project develops. (You cannot tinker with the terms of a smart contract once it is encrypted into the blockchain; you can only replace the smart contract by minting a new NFT, and then try to swap out the new for the old NFT with the current owner). The downside is that there is no act of actual or implied assent to the terms by the purchaser of the NFT; posting on the web page is the ultimate take it or leave it option. If easy enforcement of the license terms is your goal, this is not the best option. But some disclosure of license terms is better than no disclosure or no terms at all.
The minter of an NFT who is the creator and owner of the copyright to the artwork linked to the NFT should carefully consider what rights might be transferred or shared with the purchaser of the NFT. If the artist routinely uses artworks in on-going commercial projects or plans to create derivative works or reproductions of existing works, then these rights should be protected and excluded from the purchaser and any other subsequent owners of the NFT. But if the minter and copyright owner is a follower of the open-source, cooperative, community-building philosophy that is surprisingly common in the crypto and metaverse world, then the creator may want to share, give away, or give up all of the rights to the artwork linked to the NFT. There are many options in between, but the drafter of a license should consider the following rights when designing the license terms:
Right to Display
Right to Copy for Specific Incidental Purposes
Right to Create Derivative Works
Right to Commercially Exploit the Artwork
Sharing Everything—Use of Creative Commons Licenses
Selling Everything—Assigning the Copyright to the Purchaser
Offering one right need not exclude any others, as any license could offer two or three or all of the possible uses. A bespoke license should be one that will satisfy a purchaser now but protect the creator’s rights on an ongoing basis into a distant future.
A. The Right to Display
Because of the difficulties presented by the digital nature of many tokenized artworks, one of the first rights to consider transferring to or sharing with a purchaser is the right to display the artwork. To be on the safe side, it would be prudent to spell out that this includes a license to obtain a copy of the artwork for the specific purpose of displaying the work on the internet or on social media or in the metaverse. Otherwise, the right to display a digital work is a hollow gift if the owner cannot carry it out without making an unauthorized copy of the digital file. Other incidental exercises of the right to copy are explained in the next option.
B. The Right to Copy for Specific Incidental Purposes
I have carefully labeled this right as “the right to copy for specific incidental purposes,” because it potentially is a greater giveaway than desired if not spelled out carefully in the license. Simply licensing the “right to copy” without more would be the functional equivalent of giving away the copyright itself. Instead, this option contemplates licensing a very small number of specific uses of the copyright: to create a profile picture; to list the work for resale; to move the NFT and its linked artwork to a new wallet; or to lend or loan the work to an online or metaverse gallery or museum. The grant of these limited rights should immediately be followed by a reminder that the grant of these specific rights does not imply that any other rights to copy are granted, and that the creator maintains the copyright over the artwork.
C. The Right to Create Derivative Works
As the options head into more collaborative or community-minded uses, the creator may want to share or transfer the right to create derivative works to the owner of the NFT. As noted earlier, the concept of derivative works in copyright is interpreted very broadly, so the creator will want to think through this option carefully and perhaps put some limits on the nature of derivative works that may be created. After all, the artwork is going to be traceable back to the artist because the pseudonym (wallet address) of the creator is recorded onto the blockchain with the NFT. In addition, many artists seek to create a distinctive, easily identifiable look and feel to their artworks. If the NFT owner makes a derivative work that drags the artwork through the mud figuratively or takes it in a shockingly new and undesirable direction, this could have a significant and lasting impact on the reputation and career of the artist. Thus, some NFT projects that allow for owners to create derivative works still will put limits on the right so that the work will not be used in connection with expression of hatred, discrimination, intolerance, violence, or cruelty; in connection to obscenity, pornography involving adults or children, or other uses that exploit or objectify persons’ bodies; or any use that infringes upon the rights of others, including uses that infringe on other persons’ copyright, trademark, right of publicity rights, patent rights, moral rights, or trade secret rights.
D. The Right to Commercially Exploit the Artwork
In theory, the prior category of the right to create derivative works would enable the owner of the tokenized artwork to create new works for new projects, and sell them off for monetary gain, unless the license itself expressly prohibited such activities. Here, the copyright owner would be expressly granting the right to compete with the copyright owner using the copyright owner’s artwork.
This may seem like a poor business decision, but several well-known NFT projects have gone this route. Yuga Labs, which created the Bored Ape Yacht Club (“BAYC”), grants the following rights to owners of its NFTs:
Commercial Use. Subject to your continued compliance with these Terms, Yuga Labs LLC grants you an unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art (“Commercial Use”). Examples of such Commercial Use would e.g. be the use of the Art to produce and sell merchandise products (T-Shirts etc.) displaying copies of the Art. For the sake of clarity, nothing in this Section will be deemed to restrict you from (i) owning or operating a marketplace that permits the use and sale of Bored Apes generally, . . . ; (ii) owning or operating a third party website or application that permits the inclusion, involvement, or participation of Bored Apes generally, . . . ; or (iii) earning revenue from any of the foregoing.33
CryptoKitties, another well-known NFT project created by Dapper Labs, also provides commercial rights in its license, but limits the right to earning $100,000 per year in gross revenue:
Commercial Use. Subject to your continued compliance with these Terms, Dapper grants you a limited, worldwide, non-exclusive, non-transferable license to use, copy, and display the Art for your Purchased Kitty for the purpose of commercializing your own merchandise that includes, contains, or consists of the Art for your Purchased Kitty (“Commercial Use”), provided that such Commercial Use does not result in you earning more than One Hundred Thousand Dollars ($100,000) in gross revenue each year.34
If you like the idea of a revenue cap, it is good idea to phrase it in terms of gross revenue rather than net revenue, because gross revenue is much easier to account for and will not invite squabbles about what costs or expenses are attributable to which sales.
E. Sharing Everything—Use of Creative Commons Licenses
Allowing an NFT owner to compete with you and your artwork one-on-one may be the limit of your tolerance for competition, but some copyright owners don’t care for the prospect of ever making another dime from their artwork (aside from the resale royalty, if that is available35), and in fact welcome others to profit off of their work deeply and widely. One path that will enable this giveaway of rights is the donation of all or part of the copyrights to the artwork to the public domain through the use of a Creative Commons license. As spelled out on the Creative Commons website— https://creativecommons.org/licenses—you can do any of the following with a Creative Commons license:
Donate the work to the public domain entirely seeking only attribution credit (the Attribution license), or
Donate the work under terms that everyone using the work must also offer their derivative works to the public domain under the same terms (the Attribution-ShareAlike license), or
Donate the work with the ability to use the work but not create and pass on derivative works to others (the Attribution-NoDerivs license), or
Donate the work for personal use but no commercial uses (the Attribution-NonCommercial license),
and so on with other combinations.
A reference to the issuance of a Creative Commons license can be made by use of any other means listed above, including coding into the smart contract of the NFT, putting it in a pop-up-click here place at the point of purchase, writing it into the description of the work in the sales platform listing, or communicating it on the creator’s website. A Creative Commons license is a public grant of rights—hence the term, donation to the public domain—so it grants rights to everyone, not just the purchaser of the NFT.
F. Selling Everything—Assigning the Copyright to the Purchaser
The final suggestion is just to sell the copyright to the purchaser of the NFT. This could be listed as a separate transaction for separate compensation. The assignment of rights itself must be communicated in writing, and it should be separate from the sale of the object (the NFT) itself, but this could be accomplished by electronic communication. If the copyright was registered with the Copyright Office of the Library of Congress, then the assignment (in writing) and the transfer in ownership it represents must be registered with the Library of Congress, too. After the assignment, the purchaser of the NFT is the new owner of the copyright of the artwork and can do what the purchaser wants to do with the work.
In copyright law, licensing most often is a serious business decision of the artist and creator of a work because we tend to assume that the works we are trying to protect deserve to be protected from copying and uncontrolled distribution or exploitation. With traditional fine arts in their physical forms, it usually mattered greatly to the artists whether someone could copy their works, beat them to the intended marketplace or into new markets, make derivative works from their works, and out hustle them in exploiting the works until there was no point in claiming the works or attempting to control them. With highly complicated and labor intensive ventures such as video game development, motion picture production, and building entire new worlds in the metaverse, it generally has been viewed as essential that the end product of years of work will not be duplicated and distributed freely with no compensation and control by those who expended the time, effort, and money to bring the work into existence. When it was more difficult to make a copy of the work in a painting or sculptural medium, there was a natural barrier that could slow down exploitation to a reasonable and policeable level. Digital artistic expression in the visual arts, film, and performing arts has changed the equation because it can be so easily duplicated and distributed with no perceivable loss in fidelity of content.
The developers of the metaverse currently contemplate using NFTs as a medium of exchange, a ticket to events, a calling card allowing entrance to gatherings, and, of course, as artist expression to literally and figuratively color in the alternative reality experience. Digital artistic expression will be ubiquitous in the metaverse, and one question to answer will be who will be able to exploit the value of these creations now and for the future. Copyright licenses are one answer to this question.