NFTs: beware of IP rights

Article 03 December 2021 Experience: Intellectual property

NFTs have been a growing trend in the last couple of years. From art to sports, from fashion to videogames, they are expanding from market to market, and the data on their use and prices suggests that they are likely to stay.

Even if they suffer from some minor technical restrictions, NFTs can be used in an array of ways, enriching buyers’ and users’ experiences while taking advantage of the momentum behind cryptocurrencies, the blockchain and the whole Web3 ecosystem.

NFTs have now been used by different actors, from companies to institutions, so that one may assume that they are well-tested and good-to-go. Nonetheless, they still move in an uncharted territory when it comes to intellectual property rights.

On the one hand, NFTs are minted so that they can connect to “objects” (digital or physical) which are mostly covered by IP rights, such as copyright or trademark; on the other hand, NFTs are not the good or the work itself but just a certificate of ownership of that same NFT.

Since NFTs do not normally vest their owners in the ownership of the good or work to which they refer, they do not also transfer intellectual property rights on the same. Therefore, the owner of the NFT is usually only allowed to sell the NFT to someone else, making another crypto-transaction. Nonetheless, NFTs can embed smart contracts providing for additional rights, such as to receive a royalty for each transfer or just providing a real-world experience to their lucky buyers.

Indeed, when entering into an agreement for the minting of NFTs, you should always check that relevant clauses have been included so that you can evaluate what the consequences are (and if these are bearable) in case these clauses are triggered: always keep an eye out not only on how IP assets are protected and on the scope of the license, but also how and in what currency the NFT can be paid and traded, what obligations and warranties the provider and its platform bring, what happens in case of termination of the agreement, and the applicable law and competent court.

NFTs offer a proof not only of the ownership of the NFT, but also of the chain of title, which might make it seem like everything is tidy and safe, but they do not guarantee that the entity which first minted the NFT had the rights on the good or on the work to create it.

Therefore, before minting or buying a new NFT, you should always make sure that you are not infringing any third-party rights and carry out proper due diligence on its provenance, so that you can make the most out of your crypto-investment and rest assured that it is safe.

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