NFTs and legal rights

The following interview with Clément Fontaine, a PhD student in law at the Aix-Marseille University and the creator of TokenArt, explains how crucial proper registration of Intellectual Property Rights for NFTs is and what NFT issuers can do to make sure that the NFT is registered in a legally correct way.

By Jonas Kasper Jensen

Jonas Kasper Jensen (JKJ): To begin with, I would like to hear what TokenArt is and what you can do with the different tools from TokenArt?

Clément Fontaine (CF): TokenArt has two different focus areas. First, you can see if the NFT creators did or did not associate legal rights to their NFT collection. If no licenses are associated, the site will state that the NFT holders have no right because there are no licenses. If the NFT creator made a license, then all the rights that the NFT creator gives to the NFT holder will be stated.

For instance, when you search for the Board Ape Yacht Club NFT collection, you will find that this collection gives the NFT holders commercial and exploitation rights. That is why NFT holders of Board Ape Yacht Club can create a restaurant with Board Ape images advertising their burgers. The restaurant can do this because the rights allow him to exploit the pictures commercially. It is written in the license that the NFT holders can use the NFT and the images associated with the NFT, just provided that they’ve verified the cryptographic ownership.

For example, you can use your NFT on an NFT marketplace with cryptographic ownership. You can even rent out your NFT on a renting platform as long as the platform can verify the cryptographic ownership.

This is the first use case for TokenArt. A second use case is a tool that helps anyone create an NFT collection. To do this, we have a simple form that needs to be completed. Then we create a license, associate it with an existing NFT collection, or create an NFT collection for the issuer.

JKJ: Why is it essential for NFT creators to make licenses for the NFTs? 

CF: A sale can be legally cancelled if you don’t create a license. For the NFT holder, the license is important because he knows that the NFT creator will never sue him for utilising the rights associated with the NFT. For instance, if you want to sell your NFT on a marketplace or rent it out. If there is no license, you can’t do these things. The smart contract allows you to do it, but you’re not legally allowed to do it.

JKJ: How do the creator and the collector know that a license is correct, and who will enforce the rights if the license is beached?

CF: The licenses we use at TokenArt can all be enforced by law. So if someone breached your rights, you can go in front of a judge and ask for full justice.

JKJ: Do universally recognised laws exist that enable creators to make these licenses, or can artists and creators just develop new ways to write rules into the NFT contracts?

CF: The licenses we use at TokenArt work the same way as the Creative Commons and open source licenses. They’re already recognised and can be identified in any judge’s court. More precisely, the Bern Convention for the IP of content (Intellectual property). I think it’s 179 countries who signed that convention, and all the countries recognise that the IP can be transferred through a license.

JKJ: Can artists sell their IP rights?

CF: Artists and other creatives can sell IP rights, or they can license them. This is precisely the object of the license. The object of this license is to transfer the IP. So if there is no license, all the IP is still owned by the creator. But if there is a license, the creator can say, you have the right to do this but not that.

For instance, if the artist only transfers you the right to buy and sell on an NFT platform, then it doesn’t mean you have the right to exploit the artwork commercially. Each right has to be transferred separately, and the transfer must be written inside a license. 

JKJ: Can you summarise the options just to give examples of how licenses for NFTs can look?

CF: The first license is rather basic. It allows NFT holders to exploit the artwork only for personal purposes and to use the NFT artwork on an NFT platform, provided that the platform verifies the cryptographic ownership. CryptoKitties already made this contract. Holders can sell NFTs on NFT platforms. They can also rent out their NFT. Again, if the artwork creator does not allow it, the owner doesn’t have the right to do it. So the purpose of our first license is that NFT holders can do what smart contracts enable them to do. 

The second license allows NFT holders to commercially exploit the NFT, for example, if the owner wants to sell hats with the motive of the NFT.

Another licence allows an NFT holder to exploit the NFT commercially and adapt the artwork. This means that the holder will be able to take, for example, a Board Ape Yacht Club NFT and adapt the design of the Board Ape and, for instance, create a new NFT collection with references to the Board Ape NFT or create their own Board Ape game e.c.t.

JKJ:  Can one also apply these rights to NFTs representing physical objects, and how should this be done?

CF: With physical assets, we have to distinguish between real estate and objects that can be moved around, like a painting or a chair. It is only national states that can provide ownership titles for real estate. So an NFT can’t represent the ownership of real estate.

But ownership rights of objects like chairs and paintings can be represented by NFTs, which work in precisely the same way as a “bill of lading”, which is to say that the NFT represents the ownership right of the merchandise.

The bill of lading describes the physical object, which is the merchandise, and then it states that this bill represents the ownership of this merchandise and who owns the bill owns the merchandise. NFTs can carry precisely this information. The one who owns the NFT owns the physical object described inside the NFT.

JKJ: What would happen if I could access your wallet and steal the NFT but not the physical work.

CF: This means that you stole the ownership of the physical artwork because you have digital proof of the ownership. You can then claim the right to the physical painting because I can’t prove that I own it. But then there is justice, and I could sue you in court and try to verify that the NFT was stolen.

JKJ: The blockchain handles the transactions of the NFT, and the physical artwork is out in the world, changing hands. But who will prove that these two things are connected as stated in the NFT? The artwork could be lost or given to a person that does not own the NFT.

CF: To answer your question, I can give an example from TokenArt. We create the NFT license, generate the title in the NFT, and link the ownership of the physical object with the NFT. In another instance from the traditional world of law, we create all the same rights on paper, so there is only one different thing: the NFT is represented on the blockchain.

Blockchain support becomes more and more serious in front of justice. For example, in Europe, we have regulations with elaborate principles that demand that we are not supposed to discriminate between the two proofs of ownership. If a judge has physical paper and digital documentation on blockchain in front of him, he would not be allowed to favour one over the other.

JKJ: Over time, this might imply that blockchain solutions will be used more because it’s more secure. What can happen if an NFT issuer doesn’t know about this?  

CF: An artist who creates an NFT collection can get all the sales cancelled. This means buyers can ask him to send back the money. This is why it’s so essential to create the licenses. And secondly, if the artist did not state any license for the collector, the collector can not do anything with the NFT. Many NFT creators don’t create rights because they are not informed about the law. 

JKJ: One of the assumptions of the NFT community is that the law is kind of broken because there are new technologies that the law is not suited to handle. And still, the community needs the legacy system to enforce the rights they want to apply to their activities, right? 

CF: What has been done on the blockchain and with NFTs is just the beginning. There are many new developments concerning law and NFTs. This process will probably change the way we handle intellectual property. This process will highlight what value is and alter how we treat rights. To avoid the plaintiff and avoid going in front of a court of justice, we try to make NFT rights compliant with IP rights. Then in time, we can alter the rights as a response to how the technology is developed and the new needs that emerge from this development.

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