NFT’s and Copyright

I have considered NFT’s pretty dumb – still do. But then I considered that creation of NFT’s might be an alternative, or adjunct to copyright, so I decided to give it more study. Indeed, many NFT’s are designed to transfer copyrights, but it turns out it is not so simple. Here’s why.

There is a big difference between on-chain and off-chain blockchain assets. Bitcoin and contract tokens are on-chain assets because they exist entirely on the blockchain. If you have the token or coin, you own the asset. Off-chain assets are tokens that represent something that exists somewhere else. The standard example is the NFT that represents the 15” cube of tungsten weighing 2000 pounds (located at Midwest Tungsten Service of Willowbrook, Illinois). The NFT for the cube recently sold for $250,000. The buyers own the NFT, but the cube is still in the warehouse in Illinois. The two are connected but are not the same. The assumption is that whoever owns the NFT of a physical asset controls the asset. This is not exactly true. Midwest Tungsten Service still controls the cube, and only allows the owner of the NFT to “visit” it once a year!

There is another case of the folks that bought a copy of the highly detailed and lavishly illustrated pitch book that director Alejandro Jodorowsky made for a proposed but never-filmed version of Dune. Their plan was to buy the pitch book NFT and bring Jodorowsky’s vision to the screen. But even though they owned the pitch book, the Dune copyright legally remained with the Frank Herbert estate, and the film rights remained with Legendary Entertainment, thus without owning the pitch book the estate and studio retained control of everything in the book. Somebody paid a lot of money for a worthless NFT asset.

So you can see, when you consider non-physical assets like artwork or music, it gets complicated. Historically, copyrights give the creator a set of exclusive rights, which they can license freely in whole or in part. By contract sale, the creator can transfer ownership of the work in its entirety. 1

Books work similarly – The author licenses a publisher to print the book under specific terms and conditions. The publisher owns the printed books, but the author owns the words. The author can then license another publisher to create an audiobook. And (if he is lucky) he can license another company to make a movie or TV series. He never lost ownership of the words and control of how they can be used. 2

Because of the explosion of digital assets, traditional copyright law, which has always focused on physical things, has yet to fully understand what counts as a copy. For example, I believe I am licensed to listen to the audiobook version of Dune I downloaded from my library’s Overdrive to my MP3 player, but I am really not sure of the terms of that “license.”

So without careful research of what your NFT is, as well as a thorough legal review by someone who understands both blockchain and copyright, you cannot rely on an NFT to protect any non-physical work you consider truly valuable.

Notes
  1. Consider all the musicians in the 60’s and 70’s who transferred all their rights to unscrupulous producers and receive no compensation for their former intellectual property.[]
  2. However, often movie option contracts are so aggressive that the author no longer has control and the movie looks nothing like the book.[]
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