For centuries, in the art world supply, demand and consumer impression have dictated the value of a work of art. The scarcity of a highly demanded work is often one of the key components in determining the price. However, in a digital world the price is deflated by uncontrolled and uncontrollable reproduction of the image. Anyone with a computer can copy a digital image and then reproduce it using only a few keystrokes. Unlike non-digital images, infringing copies of digital images are nearly identical to the original. In many cases, the infringing copies are good enough. However, recently, artists and celebrities have begun using NFTs to increase the sales price of their digital works. It has had a huge impact.
Selling Digital Works with NFTs
Artists have started using NFTs to sell digital works like tweets, music, videos and photos for a lot of money. For example, the founder of twitter, Jack Dorsey sold a tweet for $3M. William Shatner, of Star Trek fame, sold 125,000 digital images to fans worldwide. Some of these digital images included photographs and dental x-rays which were associated with an NFT. Logan Paul, an internet celebrity, sold a clip from one of his YouTube videos and a digital Logan Paul Pokemon card using NFTs. Some fashion brands are also considering selling NFT digital avatars for games.
So far the biggest sell was Beeple’s digital artwork titled EVERYDAYS: THE FIRST 5000 DAYS for $69.3M. Mike Winkelmann a graphic designer from Charleston SC is known professionally as Beeple. He recently dominated the news for selling his digital videos and photographs with NFTs. For example, he recently sold this video for $6.6 M and this digital image for nearly $70 million dollars. These are digital files, not physical objects which can be possessed and physically owned. Digital works like tweets, videos and photographs can be freely viewed on the internet. For example, Jack Dorsey’s tweet has been available for free to anyone with a computer and a twitter account. The fact that they are being sold for so much is amazing.
Traditionally, digital works have lower value because they can be easily copied and distributed around the internet. However, the NFT allows the owner of the digital work to be authenticated and verified. The NFT allows you to buy and sell ownership of the digital work by selling the NFT associated with that ownership.
NFTs are part of the Etherium Blockchain but they are unique. Blockchains are a record of information type of decentralized token which is tracked around the internet. The blockchain While the Etherium cryptocurrency, like other bitcoins, is fungible, i.e. one has the same value as another. NFTs are nonfungible tokens stored on the blockchain but they are different from the bitcoins. They are unique, each one is different from another. NFTs are stored within a blockchain and they work as a digital certificate. Nonfungible simply means that each NFT token is unique. The NFTs can be associated with anything digital. The NFTs are processed like Blockchains and stored in a decentralized computer environment and are recorded and stored electronically. The NFT’s are transmitted with the digital image.
- Ownership can be authenticated. Ownership is different from possession. Several people can view the digital image, only one person owns it. As the artwork is sold the ownership records are updated with each new owner and a time-stamp reflecting the transfer of ownership in embedded within the NFT token.
- Originality can be authenticated. Because the NFT token is unique it can be used to certify that the digital work with the unique NFT token is the authentic digital image.
- Artist can receive a percentage of the sale price every time a digital work changes hands. If a work become more popular and more valuable, the artist can receive some of the benefit.
- Artists can limit use of the underlying digital work.
- Purchasers can receive basic usage rights, like posting an image online or using it in a tweet or as a profile picture.
- Ownership can be tracked using the Etherium Blockchain.
Ownership of an NFT is different from ownership of the copyright. When someone purchases an NFT tied to a digital work they do not purchase the underlying intellectual property rights in such digital work. Under US Copyright Law, the copyright owner has the exclusive rights to reproduce, preform, display, distribute and prepare derivative works of the digital work. Copyright initially vests in the artist. As a general rule, the artists does not transfer all of their copyrights to a buyer. Typically, they only receive the physically possession of the work. No the copyrights. For example, when an artist sells a painting for hanging at their home, they acquire the right to possess the work and to view the work in their private home. They do not purchase the underlying copyrights. The purchaser does not have the right to reproduce, make derivative works of, or distribute copies of the painting. Similarly, the NFT purchaser does not obtain the copyrights to the digital work.
The NFT purchaser receives the right to own the digital work and to display the work in their token wallet. They might have the ability to create an avatar of the image but they don’t have the right to reproduce, distribute or publicly perform the work. The NFT purchaser doesn’t obtain the right to create t-shirts, websites, calendars or postcards from the digital work. Absent written agreement or documentation, the purchaser of an NFT acquires only an implied non-exclusive license to display the digital work for personal purposes.
NFT License Agreements
To address some of the confusion and add some clarity to the intellectual property concerns for NFT digital works, some parties use a license agreements. These NFT license agreements attempt to standardized what rights are acquired with the sale of an NFT digitized work. NFT license (v1.0) was created back in 2018. NFT License Agreement 1.0 is a user agreement which allows for personal, non-commercial use of the digital work. NFT License Agreement 1.0 includes a provision which allows you to commercialize your own merchandise, under $100,000 per year. The NFT license is usually determined by the selling platform but a digital artist may be able to customize the terms of a sale. The use of an NFT License helps avoid any confusion about what can or can not be done with the digital work in advance of the sale and may provide for enhanced rights which may be greater than those provided by Copyright Law.
NFT License Agreement 2.0
A new version of the NFT license agreement (v2.0) has been proposed by the creators of version 1.0. The revised NFT license agreement apparently allows for even greater digital portability. It gives NFT owners the rights to commercialize the art for their digital works. Under the terms of the NFT License v2.0, you can:
- Allow purchasers to commercialize the digital work for up to USD $100,000.
- Allow purchasers to cryptographically verify their ownership by taking their NFT to any wallet, game, ecosystem, or marketplace.
- Limit the owner’s ability to modify the digital work.
- Limit the use of the digital work. For example, you can prevent use of the digital work to be used in connection with images of hatred, violence, or other inappropriate behavior.
If you are an artist who works with digital works and are considering using NFT tokens, contact one of our attorneys to discuss what and how we can help.