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October 27, 2021

Next Picasso, Ponzi Scheme, or IP Boom?

NFTs in the Eyes of the Beholder

NFTs have arrived and are rocking the art world.

NFTs have arrived and are rocking the art world.

NFTs have arrived and are rocking the art world. Earlier this year, an NFT artwork by Beeple, Everydays: The First 5000 Days, sold for a record sum of $69 million at auction. It was the highest recorded sale amount for a non-fungible token (NFT) to date.

Some other notable NFT sales:

  • Twitter CEO Jack Dorsey’s first-ever tweet earned him $2.9 million as an NFT.
  • An NFT video clip of LeBron James dunking sold for more than $200,000 on the NBA Top Shot website.
  • NFT artwork by Paris Hilton of her cat brought her the equivalent of $17,000 in cryptocurrency.

NFTs generally comprise two parts.  First, some artwork or an audio-visual media. Second, a key component is a unique, digital “serial number” created through blockchain technology.  One legal observer likens it to the unique automobile VIN number.  The digital serial number information provides the asset’s uniqueness and hence its “non-fungibility.”

A lesser-known feature of many NFTs is the artist’s right to future resale royalties. An artist’s resale royalty right (ARR) is not recognized by federal copyright law. In contrast, more than 70 nations recognize this ARR concept.  The addition of this feature to the U.S. Copyright Act through federal legislation has been the subject of debate for many years.  NFTs are merely the latest innovation in a long series of technologies to transform art and media. It may empower authors and artists, who will have greater means and tools to monetize their work, through negotiated agreements and even digital smart contracts.

The late U.S. Supreme Court Justice Ruth Bader Ginsburg explained in Eldred v. Ashcroft, 537 U.S. 186, 212 n.18 (2003):

Rewarding authors for their creative labor and “promot[ing] . . . Progress” are thus complementary; as James Madison observed, in copyright “[t]he public good fully coincides . . . with the claims of individuals.”.

The enduring strength of the U.S. copyright system is how it can evolve to adopt new forms of technologies and media, e.g., piano rolls, VCRs, online file-sharing, holograms, and digital avatars. In an op-ed this year, Mikel Jollett, lead singer of Airborne Toxic Event, argued how NFTs could finally empower artists and be the technology creating true change for the industry.  The awesome, democratizing potential of NFTs may be the technology that can leverage the power of the Internet, and other networks, to allow artists and creators to realize a greater and more equitable share of the value of their work, rather than the way that the media business distributes profits today.

NFTs raise many novel copyright and trademark questions, particularly around the concepts of ownership, ARR, and fair use. Even after NFTs leave the front-page news, they will continue to pose challenges and opportunities across the entire legal, business, and creative spectrum in the years to come.  And some of us will love beholding it all.

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