NFT Pirates and Copyright Law

Rebecca creates a piece of art. David mints a non-fungible token (NFT) that links to Rebecca’s work. Does David’s action infringe on Rebecca’s copyright? Is the unauthorised minting of an NFT that links to a copyrighted work considered copyright infringement? Despite the immense growth of the NFT market and the prevalence of unauthorised minting, the answer to this question has remained unclear under extant copyright laws around the world. Yet as a basis for policymaking in this arena, one needs to engage with a preliminary question first: should copyright law forbid unauthorized minting? Does the artist lose anything if their work is tokenized by others and sold on a blockchain? And is this the adequate criteria to decide on the matter?

In a forthcoming paper, we maintain that questions concerning the scope of copyright protection in new markets, such as the NFT market, must be decided according to the theories and policy considerations that underlie copyright law. Following an analysis of the NFT market from this perspective, we conclude that the right to mint an NFT should be granted to the author of the work that underlies the NFT. This conclusion stems from the theories that justify copyright protection in the first place. Under the dominant utilitarian framework, copyright law is designed to incentivize creativity for the benefit of society. It does so by generating artificial scarcity through a set of exclusive rights that forbid the copying and sharing of creative works.  But this strategy has become futile in the digital world. The Internet has enabled mass duplication and dissemination of digital works without permission or consideration, on a scale never before imaginable. Notably, digital copies are identical, perfect copies of the original, to the bit level. It is not only impossible to distinguish between copies and the original work, but there is in fact no distinction between the two, besides the location of the files. Copyright law stood weaponless against the digital revolution. While the legal rules remained in place, and even expanded, they were unable to effectuate scarcity anymore.

NFTs could possibly bring back scarcity to artworks on the Internet. The NFT is an object separate from the work, and due to the characteristics of blockchain, it is scarce: NFTs cannot be duplicated and only one person can own them. Unlike the internet’s modus operandi, the NFT must leave the seller’s wallet in order to move into the buyer’s. In essence, owning an NFT is as scarce as owning a physical asset. The NFT injects scarcity back into the market of artworks by becoming itself an object for the transaction, regardless of how many copies of the associated work exist out there. This way, NFTs provide a way for authors to monetize their works in the digital environment and boost their incentives to create.

Another concept that has become almost irrelevant on the internet is authenticity. Authenticity is a key feature in traditional markets for creative works, particularly for visual art. Both collectors and investors care very much whether artworks are original or reproductions and are willing to pay much higher prices for the former. Art markets have developed various means to verify authenticity, including expert analyses, provenance research, and scientific testing. Yet the power of the internet to create perfectly identical files meant that authenticity has become a meaningless concept online. If all files are precisely the same—what does it even mean that one file is ‘original’ or ‘authentic’? Once again, NFTs may serve as a vehicle to reinstate authenticity online, by enabling the author to designate one file—the one that they point to—as original, even while copies of the file continue to be copied with no limit as original.

Yet the potential of NFTs to revive scarcity and authenticity in the markets for digital art can only be realized if authors hold exclusive rights to mint their works. The newly emerging authenticity concept enabled by NFTs relies on authors to designate a copy of their works as original among infinite identical copies. And scarcity would also lose its grip if third parties were free to mint NFTs alongside the author. Ultimately, unauthorised minting could deprive artists of this new opportunity to profit from their work and discourage further creativity. 

 An exclusive minting right regime can also be justified from the perspectives of other theories that are often used in support of copyright law. Under the Lockean labour theory, the author of an artwork, being the one who has put the labour into create it, is the only one who deserves to enjoy the fruits of such labour. Such fruits should presumably include the ones ‘hanging’ in NFT markets, considering the difficulty of monetizing digital art in other means. Exclusive minting rights to authors also prevents free riders from unjustly enriching at their expense.

Support for exclusive minting rights for authors can also stem from Hegel’s personality theory, which holds that property rights are necessary as a vehicle to enable individuals to develop their personality. Commercializing creative works, including via tokenizing it and offering the NFT for sale, may contribute to the development of an artist’s personality. By doing so, the artist reveals herself to others (if only by a pseudonym), and may acquire recognition, respect, and appreciation by others. Further, as the artist is the one whose skills, aesthetic choices and other aspects of personality are embedded in the work, they should have the right to determine how these personal expressions of theirs are shared and distributed. This may be particularly important in this context, considering that the NFTs sphere is new and evolving, and various choices are involved in the process: whether to tokenize the work at all, what smart contract to include in it, what platform to use, and many others. Relatedly, some authors may wish to resist tokenization altogether. Among other things, the environmental effect of blockchain and the idea that everything and anything can be tokenized, monetized and sold are two propositions that can create aversion for authors. Forcing them to participate in this market by minting NFTs of their works, whether they agree or not, violates their very personality. For all these reasons, the personality theory clearly supports the arguments in favour of granting exclusivity to the artist over tokenization of their works.

Two additional policy considerations justify exclusive minting rights for authors: distributive justice and cultural diversity. Indeed, a robust market for NFTs with exclusive minting rights to authors could reduce access barriers to art markets and alleviate the dependency on intermediaries who act as gatekeepers. Ultimately, then, preserving the NFTs market as a significant avenue for authors to monetize their works could result in increased diversity of authors in the market and a greater variety of works of authorship.

The long-term value of NFTs for creative works is uncertain and subject to speculation. Some of the factors that influence the development of this market probably concern the legal rules that would be put in place. We hope that our analysis can serve as a basis for policymakers that seek to regulate this fundamental aspect of the NFT space.

This contribution is part of a symposium on ‘Smart Compliance Systems in the AI Era: Combining Criminal and Administrative Measures’ co-organized by  Bar-Ilan Lab for Law, Data-Science and Digital Ethics and Ono Academic College in December 2022.  

Ofer Tur-Sinari is Senior Lecturer in Law at Ono Academic College, Israel.

Lital Helman is Senior Lecturer in Law at Ono Academic College, Israel.