Are NFTs artificially scarce?

By Chyung Eun-ju and Joel Cho

Chyung Eun-ju

Joel Cho

Although non-fungible tokens (NFTs) have become increasingly popular, the question of intellectual property has yet to be fully addressed and answered. NFTs gained their value due to their scarcity (a result of ownership through a certificate of authenticity attesting that the buyer is the owner of the original digital work), but because digital files can be easily duplicated an infinite number of times, NFTs also involve making one creative work digitally abundant.

"Someone could mint hundreds or thousands of unique NFTs linked to the same creative work, kind of like printing many copies of a book," said Frank Gerratana, an intellectual-property expert at Mintz in Boston. In other words, in the blockchain, each NFT has its own unique identifier, though it also represents one singular work.

For instance, NFTs may act as a certificate of authenticity for the digital representation of an expensive painting, even though the image of this painting could be copied or stolen. The certificate of authenticity serves as a form to trace back the owner of the original work in order to prove its origin.

The main issue when dealing with NFTs through the lens of intellectual property protection arises from the fact that the internet provides space for anyone to make a digital copy of a work that is currently available online and mint it to generate an NFT. In this sense, people can essentially list NFTs without any copyright or intellectual property ownership, since there are no mechanisms in place to control or account for such ownership.

James Rathmell, a general counsel at Haun Ventures clarified, "Ultimately, what intellectual property is, is society recognizing that this thing is real, and this is not real."

There seems to be no clarity on IP rights and people also don't have the same definition of what an NFT is exactly. For example, is an NFT a product or a receipt?

Mason Rothchild sold MetaBirkin NFTs of Birkin handbags, which confused consumers about whether the digital asset was produced by Hermes, the actual holder of the rights over the original handbags, leading to a lawsuit by the company on February 2022. The designer argued that the images depicting Birkin handbags had no tie to the physical bag and were just an artistic expression. He also argued that he did not violate the trademark, since NFTs are intangible.

Miramax LLC also sued Quentin Tarantino for copyright infringement for his plan to sell NFTs based on the screenplay for his 1994 movie, "Pulp Fiction," on November 2021.

The director planned to present exclusive scenes from "Pulp Fiction" through an auction of seven uncut scenes as "secret NFTs" (only viewable by the owner). But because Tarantino had granted his rights to Miramax in 1993, lawyers of Miramax sent a cease and desist letter to halt the sale of the NFTs planned for December.

The company expressed their concern that consumers would be confused into thinking that Miramax was associated with Tarantino's sale of the NFTs, resulting in a disturbance to the company's own plan to sell NFTs related to the movie. Since NFTs did not exist then, the owner of the rights to these NFTs is still in question.

This unregulated minting of NFTs does not only affect big corporations, it also has damaging impacts on small independent artists, as these artists have their work stolen and minted as NFTs by third parties. When a small independent artist or company has their work stolen, it can be quite costly to have their rights claimed, since lawsuits require considerable investments. Furthermore, it can become quite a burden for any person continuously to monitor the NFT market for any unauthorized use of their work.

This matter becomes even more complicated as most countries do not currently possess legislation specifically regulating cryptographic digital work. Therefore, although the unauthorized use of a work protected by copyright may possess clear legal grounds for a lawsuit, the issue lies in the fact that the process of obtaining an NFT ― minting ― is still not expressly contemplated in most territories.

Considering the legal basis of intellectual property that we have today, an individual would have to obtain a license or assignment of the rights over a specific work they wish to mint from the work's respective creator or owner. But the NFT market is still uncharted territory for the world, as the market is still adapting to its exponential growth in the last few years.

Just like any new form of technology that brings societal change, countries will have to adapt their legislation, studying and observing the unique issues introduced by this unconventional asset.

We have yet to see how courts around the world will tackle this matter in order to have a clearer idea of how the law will define the scope of legal protection of NFTs and all the subjects involved in their development.

Chyung Eun-ju (ejchyung@snu.ac.kr) is studying for a master's degree in marketing at Seoul National University. Her research focuses on digital assets and the metaverse. Joel Cho (joelywcho@gmail.com) is a practicing lawyer specializing in IP and digital law.