Upon reading the title of this blog the first question that likely crosses your mind is, ‘What is an NFT?’.
An NFT is a non-fungible token- something which cannot be replaced. An example of a non-fungible asset would be the original copy of a priceless painting as it is unique and the only one in the world. Similarly, NFTs also include digital assets which take the form of things like art, videos, and gifs. NFTs have an increasingly common presence in our everyday lives that we often do not notice – our favourite memes on Instagram, for example, or our Pinterest background.
In the UK, according to recent statistics by ‘Finder’- a independent comparison platform and information service consumer website – in 2022 819,400 people in the UK own NFTs - 2% of the population, lower than the 3% global average. However, the immense market growth of NFTs means that the creation of a regulatory body recognised under UK law will soon become essential. In particular, in this blog we will focus on the issue of intellectual property infringement in the art industry.
Under current UK laws, NFTs are recognised as crypto assets which in turn, depending on their characteristics, are classed into different categories – either they are security tokens, e-money tokens, or unregulated tokens. The law applying to each of these tokens differs so that the law which is applied to a specific NFT differs depending on the unique features of the particular NFT. Currently there is no wider crypto-asset legislation, meaning that such law that does exist in this area, mostly occurs where there are overlaps with established regulated financial activities. Unfortunately, in the majority of cases, the lack of definite categorisation means that NFTs are predominantly classified as unregulated tokens and hence are likely to be unprotected.
As a result of being unprotected, they have limited copyright protection; NFTs can be easily duplicated and can be spread through the internet without the original owner’s consent, undermining their uniqueness and profitability. Despite their rising popularity, 80% of people living in the UK claim they are unaware of what an NFT is. Furthermore, the lack of information available to the public makes it harder to become informed and thus harder for artists to protect their work. The absence of comprehensive financial regulations that would protect both owners and sellers of NFTs creates a difficult situation whereby it becomes increasingly hard to enforce protection of violated rights in court.
Today artists around the world are voicing their concerns regarding intellectual property rights’ violations through the duplication and selling of NFTs without the consent or even knowledge of the original author or artist. There have been many instances where smaller and thus less protected artists find their NFT works being screenshot and re-sold on different platforms. Moreover, there have been instances where artists accidentally find their artwork is being commercially traded without their consent. Indeed, because of the ambiguous legal framework in the majority of cases, artists whose rights are violated face losing their ownership rights and subsequently any claims to possible revenue.
An equally important concern arises in relation to the positioning of NFTs within intellectual property law. Even copying the artwork of other artists as part of the marketing of NFTs can itself be considered a copyright infringement.
To help investigate the current weakness of the legal framework surrounding NFTs, in July 2022 HM Government asked the Law Commission to review the law on digital assets, to ensure the protection of IP rights as NFTs continue to evolve. The Law Commission released a consultation paper in July 2022. The paper primarily centres on the clarification of ownership rights. The Law Commission focused on explicitly recognising a distinct category of personal property within crypto assets, as well as clarifying the law around ownership and transfer of the control of digital assets.
To conclude, the recent rise in the popularity of NFTs coupled with the fact that they create a new way of generating income and trading digital artwork, have brought concerns around the legal status of NFTs, their ownership and how to regulate their use and distribution. Legal institutions have not yet been able to catch up with the speed of the development of NFTs. It is our hope that the work of the Law Commission will not be in vain and that soon artists whose intellectual property rights have been violated will be able to bring forward claims that actively protect their artwork.
Tatiana Sevyan, LLB Student and Charlotte Rosie Cleland, Global Development student at Queen Mary University of London