Guest post: NFT implications for IP: A case study on 'Morons'

This guest post is brought to you by Sandra Torrillas Rodríguez. Sandra is an IP lawyer and PhD student at University Carlos III Madrid under the supervision of Sara Martín Salamanca, and visiting PhD student at Brunel University London, under the supervision of this Kat. Sandra's main areas of research include the audio-visual market, the new ways of exploiting works in the digital sphere and the study of the making available right and the distribution right. 

Introducing NFTs

Readers have probably heard of a new concept in the blockchain technology environment: the non-fungible token or, by its acronym, NFT. One of the greatest virtues of blockchain technology lies in its versatility and, therefore, in its current and future applications in both the public and private sectors. This technology has achieved great notoriety thanks to cryptocurrencies (a type within the general category of so-called cryptoassets), among which the BitCoin is undoubtedly one of the most important. However, it soon became clear that blockchain offered endless possibilities for business and exchanges of all kinds, especially through the transmission of information and data.

One of the new applications offered by blockchain technology, and which we have heard a lot about in recent weeks in relation to intellectual property, are NFTs, cryptoassets that are available on the 'Ethereum' blockchain platform, since they need a third-party platform to operate. Thus, it is an intangible and unique digital asset, based on blockchain technology (they operate on the Ethereum platform); non-fungible (the main characteristic that differentiates it from cryptocurrencies); indivisible (it is not possible to acquire a fraction of an NFT); indestructible (the data associated with an NFT is stored on the blockchain platform so it is not possible to destroy, delete or replicate it); verifiable (the history of your cryptoassets is stored on the blockchain platform); non-interoperable with respect to other digital assets or goods (NFTs only interact with each other); and capable of being owned (it is possible to acquire ownership of a specially identified NFT associated with a specific digital file). 

Given the characteristics of these cryptoassets, the relationship between NFTs and works in digital format constitutes a perfect symbiosis that unfolds its effects in the digital market, allowing, as main applications, the indubitable identification and the transfer of ownership of this type of works. Regarding the latter, the transmissions that take place are more similar than ever to the analogue environment for several reasons. Firstly, because it is possible to verify that the specific digital work is an original creation of the author; secondly, because - thanks to smart contracts - it is possible to manage the transmissions of the work in a comprehensive and secure manner; and thirdly, because these transmissions are traceable, i.e., it is possible to record and verify the different exchanges produced through the blockchain platform.

There have been several recent news items that have brought to the fore the existence, functioning and characteristics of this digital asset, especially associated with works in digital format, such as the auction of the digital native work entitled ‘Everydays: The First 5000 Days’ by the artist known as Beeple, the auction of the famous photographic work (the subject of endless memes) called ‘Disaster Girl’, and, in recent weeks, the controversy arising from the acquisition, digitisation and subsequent destruction of the analogue work ‘Morons’ by Bansky. 

Regarding the Bansky, Injective Protocol, a blockchain technology company, acquired it for $95,000. The work was on analogue media and was the 325th of the 500 copies on the market. Once acquired, the owner digitised it and assigned an NFT to it, so that it is now indisputably identified with this NFT, making it unique in the market. 

The motive for this digitalisation and subsequent association with an NFT was revealed in the most brutal way: the owner destroyed the newly acquired analogue work by burning it, streaming this act on various platforms and social networks, in a savage indictment of the trust in blockchain platforms and, especially, in NFTs as a way to acquire, collect, enjoy and resell works in digital format.

@BurntBanksy

The implications for IP: A Case Study on Morons…

The events and acts described above have a great impact on several aspects related to intellectual property, which will be analysed below according to a chronological criterion rather than relevance. 

Copyright Reproduction & Adaptation

Firstly, there was the reproduction of the work through its digitalisation, which we understand was done without consent. There is unanimity regarding its consideration as an act that can be framed within the sphere of the economic right of reproduction granted to the authors. The Agreed Interpretation of Article 1(4) WIPO Copyright Treaty and Article 9(1) and (3) of the Berne Convention have been interpreted in this sense. Therefore, if the author has not authorised its digitalisation, we consider that there has been an infringement of the reproduction right. 

YOU DID WHAT?! 
Image: Sparkle Motion

Secondly, the acts described above have an impact on the author's right of adaptation. The acts of digitalisation and subsequent destruction of the original fall within the factual situation of the adaptation right, where the original work is modified in such a way that the resulting work has very different characteristics from the original work. Likewise, and in relation to the acts of digitalisation of a work and the award of a NFT, given the characteristics of the latter and the possibilities they offer in the context of the transmission of works, we can consider that digital works associated with an NFT can be considered derivative works of the original analogue work.

Moral Rights

Thirdly, the destruction of the work could have infringed the moral right of the author to the integrity of his creation, under Article 6 bis.1 of the Berne Convention. However, paradoxically, this provision does not mention total destruction as an attack on the integrity of the work, so there is a great division among the doctrine regarding its inclusion, which, in general, advocates paying attention to the legislation and jurisprudence of each specific legal system.  However, an interpretation in line with the principle of granting a high level of protection to the author (present in Recitals nº4 and nº9 of Directive 2001/29/EC) would include destruction as the greatest infringement of the moral right of integrity of the author over his work, since there is no greater attack on it than its total destruction.

Resale right

Fourthly, given the characteristics of NFTs and the development of new digital markets, the relationship that they have with works could go further. Reflecting on the future of works in the digital sphere, we believe it is necessary to analyse the opportunity to recognise the droit de suite, or resale right, for authors of unique digital works associated with an NFT. This is because, we believe, the factual assumption of the rule is fulfilled so that it can be understood as applicable to the new scenario. Thus, the taxable person for this duty is the seller, applied to the resale of original works of art and to copies considered to be original works of art, due to the need to compensate the author for the loss of control over his work by granting him remuneration for each successive sale.

In fact, the protagonist of the photographic work ‘Disaster Girl’, mentioned above, has reserved the right to receive 10% of the successive sales of this work. The execution of this right is perfectly possible from a technological point of view, as the transactions take place on a blockchain platform and through a smart contract, it is therefore possible to introduce this requirement during its configuration, as well as to ensure its fulfilment.

As such, it is argued that we should grant authors the right to obtain financial compensation for each resale of their work of art in digital format considered unique, associated with an NFT that identifies it as a unique, indestructible, verifiable digital good and to which the right of ownership is held, and that this should not be left to the arbitrary choice of the parties.