This article on ‘NFTs legality as per IPR: All You Need to Know’ was written by Madiha Khan, an intern at Legal Upanishad.
Introduction
NFTs, or non-fungible tokens, are a type of cryptocurrency token that comprises a variety of physical and virtual properties. It includes images, gifs, drawings, movies, multimedia recordings, and other media. Each NFT is distinct and regarded as a rarity. A blockchain digital journal is used to document NFTs in a way that confirms their originality and legitimacy. Blockchain technologies are digital blocks that keep track of all the transactions involving the virtual digital asset, also known as VDA, where the data and title of NFTs holders are kept. The Intellectual property laws apply to royalty-free licenses on how their CryptoPunks may be used in derivative works belonging to NFT holders.
NFTs procedure
After establishing an NFT, the “smart contracts” replace the current system for the storing and exchanging of digital assets. A smart contract can be thought of as software programs connected to the NFT that includes information, guidelines, and rights relating to the primary asset joined to the NFT, like royalties from music, bonds, invoices, and so on. Thus, the “Tokenization” mechanism enables the original token creator to profit financially from future NFT buyers, which is made possible by the token’s uniqueness. Authors can receive royalties on successive future sales of the original work within an NFT on popular NFT platforms like NiftyGateway, Rarible, OpenSea, etc
Intellectual Property Protection
NFTs might be covered by intellectual property rights such as copyrights, design, and trademark protections. As a result, buyers of NFTs should be aware of any associated intellectual property rights. Although design patents may be able to protect some NFT-protected assets, those NFTs would still be restricted by the same legal restrictions as conventional products and services. However, some NFTs may be subject to trademark and copyright protection. Plausibly, NFTs could be tied to a legal right. The right to own one copy of the creative work (in the same way as one may own any goods or asset) and the freedom to make replicas and produce variants, however, are two distinct rights.
Copyrights protection
Even though NFTs are a pretty modern and somewhat unusual sort of art, copyright law will perceive them in the same manner as any other conventional works of art. They instantaneously become the owner of that work. Selling the printed copy or tangibly printed NFTs is not allowed, however, printing a non-fungible token is much simpler. Certain NFTs violate copyright laws by employing works of art that have been stolen from creators or well-known pieces that the NFT developers are not affiliated with and do not have permission to use.
Copyright infringement can also occur even when these works are copied for NFT marketing purposes. An NFT can be screenshotted only for private use and infringement can occur if you resell it, claim ownership of it, share it online or elsewhere, or create a copy of the work for commercial purposes. If such actions are done, the NFT’s proprietor may file a lawsuit against the infringer for copyright infringement, or be charged with additional crimes.
Where copyright is concerned the title of the core rights can only be transferred to the NFT holder if the original work’s author expressly approves doing so. Based on the terms of the transaction, an NFT owner may not be permitted to recreate, advertise copies, display the work publicly, showcase, or make backup copies of the original property only when copyright is transferred via licensing. Under Section 14 of the Indian Copyright Act of 1957, the copyright owner is granted several privileges, including the ability to make copies and alterations.
When a customer purchases an NFT that correlates to artistic activity, they also receive a copy of the underlying work (in some digital format, such as.jpeg,.pdf, or.mp4) in addition to the NFT itself, or tokens. Any unauthorized use of an NFT and sending it to a client could be construed as copyright infringement. This goes for any unlawful distribution, copying, or adaptation of an NFT.
Imposing IP rights against a buyer after an NFT sale can be difficult because NFT ownership is decentralized and blockchain transactions are immutable. Similar to a bank account, an NFT is typically associated with a mobile wallet address, but without strong digital evidence, identifying the wallet owner could be challenging. Thus, utilizing legally powerful takedown notices might stop the NFT from ever being sold.
The legality of NFTs
If NFTs were classified as derivatives, dealing in them would be prohibited in India since, in accordance with Section 18a of the SCRA (securities contract regulation act), such activity is not permitted on the internet. They are regarded as valid only when derivative transactions are traded on a lawful stock exchange. Commercial transactions known as derivatives generate their value from an underlying asset. These could include interest rates, indexes, commodities, currencies, exchange rates, and equities. By wagering on the appreciation of the underlying asset, these investment products assist in generating income.
The person who mints/makes the NFT is the rightful owner of it. Therefore, in reality, the NFT’s owner is not always the author/creator. Nonetheless, minting an NFT of work for that another party owns the rights will effectively be regarded as the work’s theft and a copyright violation. In 2018, the Reserve Bank of India (RBI) tried to outlaw the usage of bitcoin or cryptocurrencies. In reaction to the aforementioned order, a few businesses that run online crypto trading platforms and other groups filed appeals.
Suggestion
Misuse of an NFT or other IP connected to an NFT, you run a legal risk and can potentially be sued. Always beware that the work is not copyrighted content of another if you are an NFT author. Similarly, if you are an NFT holder, follow the rules that are there for your NFT to avoid infringement.
Always be alert and avoid clicking on dubious sites as it could be malicious and harm or hack your device by disclosing your password, or through user error, your NFT could be taken. Technically, a hacker would need access to your wallet in order to steal your NFT; otherwise, they would just be pulled out of thin air. With the advancement in technology, NFT can be stolen in several ways.
Conclusion
Therefore, it is crucial to make a distinction between both the sovereignty of the NFT and the IP that supports it when looking at the property rights implications of NFTs. The powers given through a license or assignment can differ from one NFT to the next, determining the rights provided by an NFT seller. India ought to take inspiration from nations with well-balanced legal and regulatory systems to reduce loopholes and avoid infringement of the rights of the author. NFTs do have advantages and disadvantages. The disadvantage is that there is no stability, and the public is concerned that the NFTs are blatantly overstated as well as the possibility that the NFT market might collapse.
Reference
- [1] Bipul Kumar, 6th June, 2022, at:- https://www.khuranaandkhurana.com/2022/06/06/nfts-and-indian-law/
- [2] ,September 5, 2022 https://blog.ipleaders.in/is-nft-legal-in-india/#:~:text=Trading%20in%20NFTs%20would%20be,on%20a%20recognised%20stock%20exchange.
- [3]Pravertna Sulakshya, Khurana and Khurana, 17 November 2021, at: https://www.mondaq.com/india/fin-tech/1132188/nft-and-its-relationship-with-ipr