Non-Fungible Tokens have emerged as a significant innovation, transforming the system of ownership and value exchange within the realm of digital assets. Non-Fungible Token is the tokenization of assets (including physical assets) that can be digitized. Essentially, anything that can be digitized can be turned into a Non-Fungible Token. In principle, Non-Fungible Tokens have very little to do with copyright. However, the prominence of Non-Fungible Tokens from a copyright perspective has grown because most of the assets that have been tokenized are works of art that are protected under the copyright laws. For example, the veteran actor Amitabh Bachchan has garnered attention towards artwork-based Non-Fungible Tokens by auctioning a Non-Fungible Token collectible series curated by him that includes his father’s poem titled “Madhushala,” autographed vintage posters of himself, along with his other artistic works. The collection was sold for an enormous price of $756,000.
The reputed actor’s successful auction serves as a poignant illustration of the confluence between Non-Fungible Tokens and artistic works. This confluence, being at its nascent stage, requires a rudimentary analysis of the applicability of the Copyright Act, 1957, on Non-Fungible Tokens, which forms the purpose of the current article.
*We do not claim any copyright in the above image. The same has been reproduced for academic and representational purposes only.
Meaning of Non-Fungible Tokens
Non-Fungible Tokens, in a broad sense, are tokens that represent any work or physical goods. There are different types of tokens, such as fungible tokens, non-fungible tokens, etc. Non-Fungible Token, as the name suggests, is a token that cannot be exchanged with other fungible tokens. These works or physical goods, by virtue of having the ability to be digitized, can be turned into Non-Fungible Tokens. For example, a photo can be a Non-Fungible Token as it can be digitized. Furthermore, there are various types of Non-Fungible Tokens, but the most common ones are those wherein the work or physical goods are digitally encoded into a token that is stored in a metadata file on the blockchain, which is the instance with artwork-based Non-Fungible Tokens.
Core Elements of Non-Fungible Tokens
- Token ID: The first element of a Non-Fungible Token is a number known as Token ID that is generated upon the creation of the token.
- Contact Address: The contact address is a blockchain address that can be viewed publicly using a blockchain scanner. The combination of Token ID and contact address forms the token that is unique in nature as this combination of numbers and address is never repeated.
- Link: Most art-based Non-Fungible Tokens also provide a link to the artwork, as the Non-Fungible Token does not within itself comprise the original artwork.
Non-Fungible Tokens Under the Lens of the Copyright Act, 1957
As mentioned before, the confluence of Non-Fungible Tokens and copyright law exists because most works or physical goods that are being traded under Non-Fungible Tokens are works of art. Unlike fungible cryptocurrencies like Bitcoin, which is generally used for financial transactions, Non-Fungible Tokens are mostly connected with the exchange of digital art, collectibles, and other creative assets. This unique feature of Non-Fungible Tokens for exchanging works of art emphasizes the fundamental link between Non-Fungible Token transactions and copyright law.
Although the Copyright Act, 1957, does not expressly provide laws for Non-Fungible Tokens, this innovative digital asset can be viewed from the basic provisions enumerated under the Copyright Act, 1957, mainly:
- It provides for the protection of expression as opposed to ideas (as provided under Section 14 of the Copyright Act, 1957); and
- It provides that the creator of the copyright is the first owner of the copyright (as per Section 17 of the Copyright Act, 1957).
While dealing with Non-Fungible Tokens under the provisions of the Copyright Act, 1957, it can be firstly observed that Non-Fungible Tokens are not solely used for artwork; thus, they cannot be considered to be statutorily governed under the Copyright Act, 1957, alone. They can be used to invest in expressions under the copyright law or on physical assets in the real world. For example, CarForCoin.com allows users to buy Non-Fungible Tokens while associating every token with a real-world car, bringing the domain of such a transaction under the Indian Contract Act, 1872. Thus, a comprehensive contribution of various statutes is needed to protect digital assets that comprise the convergence of multiple physical goods and artworks.
Secondly, a common misconception surrounding Non-Fungible Token owners is that the purchase of every token automatically grants them copyright protection upon the underlying artwork. However, Non-Fungible Token purchasers remain to be owners solely of the token and do not own copyrights on the underlying artwork. This is because the artists mint their artwork into the Non-Fungible Token while retaining their right as the first owner of the copyright. Thus, a Non-Fungible Token owner holds separate independent rights from the owner of the artwork.
Lastly, another aspect that needs consideration is that a copy of an artwork made available for free on digital platforms does not nullify the copyright of the first owner. However, the situation with Non-Fungible Tokens is complicated; it cannot be similarly held for a Non-Fungible Token. The utility and monetary value of a Non-Fungible Token based on an underlying artwork are mined by the owner of the artwork. A situation where a non-copyright owner asserts his impugned rights over a Non-Fungible Token is when a fake Non-Fungible Token is generated. An example is that of “Evolved Apes as fake Non-Fungible Tokens.” Evolved is a one-on-one online fighting game wherein the prize for winning this game is the probability to earn ethers (another type of digital currency linked to blockchain). The principle was to pay to gain Non-Fungible Token-based monkeys with a unique appearance and equipment. The developer behind this game, who put the Non-Fungible Token-based monkeys for sale, after collecting 798 ethers for the sale of 40,000 Non-Fungible Tokens, vanished after earning profits out of fake Non-Fungible Tokens.
*We do not claim any copyright in the above image. The same has been reproduced for academic and representational purposes only*
Another trademark-based counterfeit Non-Fungible Token illustration is that of a Birkin Bag. A Birkin Bag is a limited line of the luxury brand Hermès, created in 1984, which is sold for high prices of over $300,000. This bag was offered for sale on one of the Non-Fungible Token platforms under the name “Metabirkins” by Mason Rothschild. He did so under the bogus garb of paying homage to one of the most famous handbags of the Hermès brand.
Rights of an Artwork-Based Non-Fungible Token Buyer
The Copyright Act, 1957, provides multiple rights to the owner of a creative work, such as reproduction rights, broadcasting rights, derivative rights, performance rights, adaptation rights, etc. However, when it comes to the rights of a buyer of a Non-Fungible Token with respect to creative work, the buyer, as a part of his/her token, receives the artwork in a digital form. The rights in respect of the digital form of artwork are typically stipulated under a non-exclusive and non-commercial contract. These contracts do not permit the Non-Fungible Token buyer any rights to modify the literary, artistic, dramatic, or any type of creative work. This is because the reason behind adducing artwork to Non-Fungible Tokens is mainly to create a new mode of investment while keeping the underlying artwork intact and buttressing its popularity.
Thus, the emergence of Non-Fungible Tokens presents both opportunities and challenges within the realm of copyright protection. As explored in this article, while Non-Fungible Tokens offer a novel way to authenticate and monetize digital art and other creative works, it becomes imperative to strike a balance between promoting innovation and safeguarding the interests of creators by at least providing statutory guidelines to avoid counterfeiting of Non-Fungible Tokens.