NFT short for Non- Fungible Tokens is something that is unique and which cannot be replaced. For example, a bitcoin is fungible and when you trade it you get the exact same thing in return. However, NFT is non fungible. NFTs can be anything digital. It can be either a drawing, music etc. It is like a plane ticket each looking similar but the name, place and destination is different for each. It is generally used for collectibles of art or trading cards. It can also be used for digitizing our identities. It uses block chain and is used to certify the ownership or authenticity. There is a rise in its popularity across the globe and as of the first half of 2021, NFT sales hit 2.5 million dollars.1
So the artist has to first create an original music or video file and upload it in a crypto wallet. The money is trapped in a smart contract whereby the NFT gets transferred only when the money is received. For the payment only crypto currencies are accepted. And as far as the copyrights are concerned it depends on the artist whether to sell all the rights along with the NFT or only the right to private use.
In India, the popularity is just gaining. For regulations of crypto currency the government and RBI are in talks but for NFT there is no law or rules that guide it. Thereby the Contract Act applies and the general principles of sale/ purchase. Therefore in India the law relating to the legality of it is unclear. NFT is considered as derivatives and as per the Securities Regulation Act, trading can only be done of stocks or commodities.
However these NFTs can be easily copied thereby stirring controversies and questioning the originality of it. Interestingly there are no particular case laws or legislations to deal exclusively with NFT thereby the IP, commercial laws and IT Acts are used.
Dr Andres Guadamuz says that a NFT is nothing but purchasing or having an original version of something.2
Regarding copyright when something original is sold, it’s given only for private use unless the smart contract says otherwise. If it specifically mentions the transfer of copyright and other rights to the purchaser then copyright is also sold.
For instance, Mike Shinoda, the co-founder and lead vocalist of Linkin Park sells NFTs under the following “NFT Terms” which are located on his website as follows:-
“Only limited personal non-commercial use and resale rights in the NFT are granted and you have no right to license, commercially exploit, reproduce, distribute, prepare derivative works, publicly perform, or publicly display the NFT or the music or the artwork therein. All copyright and other rights are reserved and not granted.”
Apart from the transfer of copyright, there can be instances of copyfraud and copyright Infringement. Copyfraud occurs when someone mints the NFT of public domain work and falsely claims its ownership and it’s originality. Infringement happens when a person uses another person’s NFT and claims to be his own.
To sum up, NFTs possess huge potential but without a proper legislation in force the validity of it cannot be completely comprehended. Even if there is an infringement can the person avail any legal protection is also a question that arises. As the position in India is still not clear there is a long way ahead for Indians and NFTs. It would be interesting to see how the government welcomes such initiatives and regulate it in a manner which will not result in any exploitation.
- Louis Denicola, What to know about non-fungible tokens (NFTs) – unique digital assets built on blockchain technology, BUSINESS INSIDER INDIA, (Oct 19, 2021, 5: 08 pm), https://www.businessinsider.in/investment/news/what-to-know-about-non-fungible-tokens-nfts-unique-digital-assets-built-on-blockchain-technology/articleshow/85836012.cms.
- Lynne Lewis, Jane Owen, Hamish Fraser, Rohit Dighe, Non-fungible tokens (NFTs) and copyright law, BIRD AND BIRD, (Oct 19, 2021, 5: 29 pm), https://www.twobirds.com/en/news/articles/2021/australia/non-fungible-tokens-nfts-and-copyright-law.