Out-Law Analysis 3 min. read

NFTs could play a role in authenticating digital works

Binary Code digital markets

Blockchain-based non-fungible tokens (NFTs) could change the way we interact in the digital world. Such tokens help to distinguish between original and counterfeit, between genuine and fake. However, they also bear potential for disputes, as in the recent 'MetaBirkins' case.

NFTs are currently causing quite a stir in the online world. Notably, when it comes down to digital artwork, sports collectables and crypto-marking of authenticity NFTs are the topic of the hour.

However, NFTs also raise copyright and brand protection concerns. The most recent example of this is a dispute between the digital artist Mason Rothschild and the luxury label Hermès. Rothschild created an NFT-based artwork collection involving the label's world-famous Birkin bags. He gave his work the name 'MetaBirkins'. The collection consists of around 100 unique NFTs created with faux fur in a range of contemporary colour and graphic designs. The pieces were sold in an online auction.

According to press reports, Hermès accuses Rothschild of ripping off its designs and said he had infringed the company’s trademark and goodwill. At the same time, other digital artists apparently copied Rothschild's idea: According to a Financial Times article, Rothschild estimated that "scammers" have made up to $35,000 by selling 'fake versions' of his MetaBirkins. But is it even possible to fake a non-fungible token?

NFTs as crypto-marking for authenticity

The core aspect of NFTs is that they are unique. Unlike 'fungible' tokens, such as bitcoin and other cryptocurrencies, they cannot be replaced or exchanged for another identical token of the same value. NFTs are governed by smart contracts and verified and powered using blockchain, technology in which a network of computers records transactions and gives buyers proof of ownership and authenticity.

Another use case of NFTs are collectables such as digital cards featuring football players or basketball players. For instance, the NBA is operating its NBA Top Shots programme on the basis of NFTs. Again, the value of each digital card comes from the fact that it is unique.

NFTs can also be used by rightsholders to digitally 'stamp' copies of their online works or authorised copies. Such "seal of authenticity" could be attached to a music file, a movie or other types of copyright-protected content. Illegal copies could be separated from those legally obtained. In such case, the NFT itself would be a vehicle rather than the subject of the IP right. However, this might indeed be the true use case for NFTs.


Potential for intellectual property disputes

NFTs may also be created from already existing works. If no authorisation is obtained from the rightsholder of the underlying work, the NFT itself as the so-called derivative work might very well infringe third-party rights.

In the MetaBirkins case, the core question is whether creating a derivative digital artwork using an already existing physical work – or a 2D image of such work – can be legitimate without the first creator’s explicit consent. Usually, the transformation, modification or adaptation of the work must be sufficiently substantial and bear its author's personality to be deemed copyrightable on its own merits.

The NFT itself is not genuinely protected by copyright. It is merely a piece of code, a defined part of the blockchain. It is not even a computer programme or database. The NTF does not necessarily provide its creator with an IP right. This is only the case if a work is uploaded into the token. This hardly ever happens because of the size of data such upload involves. To save size, and money, the NFT holds a mere link to the server where the content is hosted. Thus, the NFT can be seen as a unique key to the content saved elsewhere. This key can be sold.

Given that there is no copyright and taking into account that mere ideas cannot be protected by copyright anyway, the creator of a specific NFT cannot prevent other internet users from picking up the idea of, for example, a MetaBirkin NFT. Only if more or less the same derivative work is produced, and only if the first NFT was created without infringing the Hermès’ rights as genuine author of the Birkin bag, the creator of the first MetaBirkins might have a chance to successfully bring action against people who picked up on his idea by also selling MetaBirkins.

Bottom line is that in respect to digital artwork NFTs, the rightsholder of a copyright-protected work can successfully challenge someone having created a derivative work which is a copy, rather than an adaptation expressing a new act of creativity and originality. Hermès must therefore consider and assess whether it is worth challenging Mason Rothschild or not.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.