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The growing popularity of non-fungible tokens (“NFT“) has raised a number of interesting questions from an intellectual property law perspective, both for companies that operate NFT resale platforms and for those that sell NFTs via these platforms. We have described, as example, some of the questions we have recently advised in this article.

Directive 2019/790 – Liability of intermediaries for content infringing copyright

The controversial Article 17 of Directive (EU) 2019/790 on copyright and related rights in the digital single market, implemented in Ireland by SI 567/2021 (together the “DSM regulations“), has been a source of concern for “providers of online content sharing services” (“OCSSP“), as defined in the DSM Regulation. These entities are subject to new obligations to ensure that copyright-infringing content is not uploaded to their platforms, which include, for example, an obligation affirmative to seek permission from the rights holder for any downloads. Failure to comply with these obligations may result in the provider being held liable for copyright infringement.

The application of the DSM Regulation to NFT reselling platforms raises an immediate question, as the definition of an OCSSP expressly excludes “online marketplaces”. The DSM regulation, unfortunately, does not contain a definition of “online marketplace” and it is not clear whether this definition would extend to a platform dedicated to the minting and selling of virtual assets such than NFTs. We may well see this matter brought before the Court of Justice of the European Union in the years to come as parties test the meaning of the directive in court.

Failure to fall under the OCSSP definition can have significant consequences for platforms, particularly if they are unable to avail themselves of an appropriate “safe harbour” provision if proves that they have (inadvertently) hosted and facilitated the sale of pirated content posted by users.

Copyright ownership and sale of NFT

A problem that arises for companies selling NFTs via resale platforms is the question of what rights, exactly, are transferred to the buyer of the NFT. An NFT (in its common form) is a digital representation of an asset – it is not the actual asset. Any copyright arising from the good (such as, for example, a work of art) would therefore only be transferred to the buyer if the contract which governs the NFT (i) expressly provides for it, and (ii) complies with the requirements transfer of copyright under applicable law. When the only express contractual terms involved in the sale are the purely functional terms of the smart contract that powers the NFT, a favorable outcome is by no means guaranteed. To learn more about smart contracts, please see the latest article on smart contracts.

Similar to any potentially valuable (especially brand-related) intellectual property license, it is also important for NFT sellers to avoid any unwanted use of the NFT, for example by displaying it next to offensive pictures. In addition to carefully defining the rights that are conveyed with the sale of the asset, sellers should insert appropriate limitations into the legal agreement governing the NFT, as well as technical safeguards into the smart contract itself.

The issue of ownership of intellectual property rights also raises potential issues under consumer protection law. It is unlikely that the seller intends to fully transfer the copyright in the image in the NFT to the buyer, but the buyer may not understand that this is the case. Indeed, we have already seen litigation in other jurisdictions on this specific issue. This, depending on the circumstances, could constitute false advertising.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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