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NFTs and intellectual property law

Non-fungible tokens (NFTs) are on the rise, with sales of them hitting record-breaking numbers. So what are they and why are they so valuable?

Once created, NFTs are permanently associated with a digital file.  NFTs operate as a certificate of ownership for virtual assets and may be considered as collectible.  Using blockchain technology the ownership of the asset is authenticated and cannot be deleted or counterfeited.

There may be online copies of a digital file but there will only be one NFT.  If you own the NFT, you will own the original digital file.

NFTs can be photo files, audio files, video files, or even tweets.

An NFT relating to a piece of digital art created by Pak called “The Merge” has been sold to a collective group for $91.8m.  Headlines were made in March 2021 when an NFT of Twitter boss Jack Dorsey’s first tweet sold for $2.9m.

Copyright is a major concern for anyone who invests in NFTs.  Copyright ownership does not automatically transfer with the sale, as the NFT represents the underlying work and not the work itself. This means that the owner of the NFT may not be able to prevent the creator producing more copies. Some specialised peer-to-peer marketplaces such as OpenSea have implemented self-regulation measures.

Data protection and Privacy is another issue associated with NFTs.  The technology used to allow the data on the blockchain to be immutable could breach data protection laws. The rights under some data protection laws to erase data may not be functionally possible when it comes to NFTs.

Money laundering regulations could be circumvented when trading in NFTs as the market for selling NFTs is not regulated.  The trading of NFTs is global and the market platforms operate beyond borders and most jurisdictions lack legislation specifically applicable to them.

In conclusion, the trading of NFTs is rapidly rising, with many complex legal issues being brought to the fore front of these sales. The law has not fully caught up with NFTs and the market is continuing to grow.

It is worth noting that if trading in NFTs are of interest, then it is recommended that a full and in-depth due diligence is conducted and all potential risks are considered.

We work with a brand protection third party who have development procedures and relationships with the platforms being used as a marketplace for NFTs, to become alert to any threats and remove infringing NFTs quickly.

If you would like to discuss any of the issues raised in this article, Stacey Gillard, Paralegal and Rebecca Anforth, Legal Director, would be delighted to hear from you. You can reach Stacey & Rebecca on 01872 226990 or you can email them on stacey.gillard@murrellassociates.co.uk or rebecca.anforth@murrellassociates.co.uk.

The information provided in this article is a summary for general information purposes only and does not constitute legal or other professional advice and cannot be relied on as such. Any law quoted in this article is correct as at the above date. Appropriate legal and financial advice should be sought for specific circumstances before any action is taken.