Report highlights IP risk posed by NFTs in art, sport, and advertising

It comes after the Digital, Culture, Media and Sport (DCMS) Committee released a report (30 pages / 427KB PDF) outlining the risks to sport and culture posed by cryptoassets like NFTs. The report, which addresses concerns in the realms of art and culture, professional sport and advertising, highlights the emergence of NFTs in the art world and expresses concern over the potential for widespread copyright infringement.

The committee emphasised that emerging technologies, specifically NFTs, pose a “profound” risk to IP and copyright protections for individual artists and the UK’s creative industries as a whole. It recommended that ministers should engage with NFT marketplaces to tackle the scale of infringement and empower copyright holders to enforce their rights. Additionally, the committee suggested addressing the impact of safe-harbour provisions for online marketplaces, including NFT platforms, by introducing a new code of conduct.

George Campbell, intellectual property expert at Pinsent Masons, said: “The committee’s report touches on a number of interesting areas – including the opportunity that NFTs and the blockchain afford to assist new artists and create new revenue streams in sport. However, the dominant theme of the report is the risk that NFTs and the blockchain present to consumers.”

“After an initial boom in NFTs there have been some severe financial losses. The report makes clear that, often, consumers do not understand what they are buying. Inevitably, this leads to consideration of regulation in this area and in particular the extent to which these activities and products should be regulated as gambling or financial products,” Campbell said.

The report underlined the potential financial risks to supporters and reputational damage to clubs arising from the promotion of cryptoassets in professional sports. The committee recommended excluding the use of fan tokens in any measurement of fan engagement in sport entirely.

The committee acknowledged the government’s intention to introduce statutory regulation for online advertising but warned ministers to respond to mounting evidence of misleading and fraudulent advertising for NFTs, and to ensure that any regulatory regime compels the entire advertising supply chain to mitigate risks and protect consumers.

Campbell said: “The Treasury Committee has already recommended that retail trading and investment activity in unbacked crypto assets be regulated as gambling rather than a financial service. Advertising regulation is also important in light of the risks to consumers. The UK Advertising Standards Authority (ASA) has already shown a willingness to take a hard line in this area.”

“NFTs will continue to be of interest to sports organisations: new revenue streams and monetising fans in far flung regions who can’t come to games is hard to resist. However, the selection of trusted partners is key as well as an approach to contracting and deal structuring which gives flexibility in light of a regulatory environment that is likely to continue to develop,” Campbell added.