A non-fungible token (NFT) is a unique and non-exchangeable unit of data that is permanently associated with a digital file such as a photo, video file, or audio file. An NFT differs from blockchain currencies like Bitcoin because each token has a unique identity.
NFTs represent a rapidly evolving distributed ledger technology (DLT) that includes infrastructure and protocols to enable concurrent access, validation, and immutable updating of records over a network that is distributed across multiple entities or geographic locations .
However, the spectacular growth of NFTs has meant that any relevant regulatory framework and laws – including intellectual property (IP) law – have to (and often don’t) keep up with this burgeoning new technology.
dr Enrico Bonadio from City Law School, along with Magali Contardi (University of Alicante and Sant’Anna School of Advanced Studies), will answer City News’ questions on intellectual property law and NFTs.
City News: Are the NFT vendors and minters adequately informed of all issues related to the rights and permissions that apply to the files they mint and sell?
dr Enrico Bonadio: NFT sellers are not always aware of these issues. You should state the terms of sale clearly and concisely to avoid being sued by buyers for misrepresentation or breach of contract. For example, since NFTs are intended to create “scarcity,” if the seller sells additional copies of a work, the buyer could sue such a seller for breach of contract, and the price of the NFT is likely to fall.
City News: Are most IP attorneys sufficiently knowledgeable about NFTs and the new digital economy to advise buyers, minters and sellers?
dr Enrico Bonadio: Few lawyers understand NFTs. This often raises difficult legal questions. In late 2021, the film production company Miramax sued Quentin Tarantino in the US to prevent him from releasing pages of the script that were never included in the final version of the 1994 film “Pulp Fiction” – now represented as NFTs. In a previous dispute, a US judge barred Roc-A-Fella Records co-founder Damon Dash from minting and selling Jay-Z’s Reasonable Doubt as a non-fungible token. As these examples illustrate, due diligence is crucial for Minter, buyers and sellers. A proper understanding of the platforms’ terms and conditions, as well as a careful review of the smart contract clauses associated with NFTs, will ensure that the obligations and rights of all parties involved are clear. This reduces the risks of litigation.
City News: Do most governments around the world, including the UK government, have a sufficiently stable regulatory environment to oversee the minting and sale of NFTs? Or are we in a “wild west” scenario where unscrupulous actors are allowed to roam digitally with impunity?
dr Enrico Bonadio: Because NFTs are available and traded globally, they can be used on marketing platforms across borders and most jurisdictions except Liechtenstein lack specific applicable laws. For example, the draft EU regulation on markets in cryptoassets, MiCA, explicitly excludes NFTs from its scope. However, in some cases existing regulations for NFTs may be applicable.
For example, depending on the characteristics of the token, the activities carried out in relation to such a token may be considered crypto assets and therefore financial instruments or investment products subject to specific regulations (this is the case in UK, Germany and Italy). Anti-money laundering and anti-bribery laws and other regulations (e.g. tax regulations) may also apply and should be carefully considered. Some specialized peer-to-peer (P2P) marketplaces, such as New York City-based OpenSea, have begun to establish themselves as self-regulatory tools. OpenSea has put in place procedures to handle potential complaints of copyright infringement. This is the case, for example, when a work is minted and offered for sale without the permission of the author.