Non- fungible tokens (NFTs) have gathered noteworthy attention from spheres of art within the past few years. NFTs are types of unique and indivisible blockchain system-based tokens and are often used for identifying something or someone in a unique way. However, the recent issue of NFT publication of artworks by Lee Jung-Seop, Kim Hwan-Ki, and Park Soo-Geun have shown that there are some copyright issues surrounding NFTs that should be addressed. This paper deals with the basic idea of what NFTs are, and how they are operated in the art industry. Based on the understanding of the concept of NFTs, it investigates various copyright issues associated with NFT transactions, and finally proposes legal and social solutions.
Last May, an event that shook up the Korean art market has occurred. A marketing company, Wannabe International has announced that it would hold an online auction of NFT-based artworks by Korean art masters–Lee Jung-Seop, Kim Hwan-Ki, and Park Soo-Geun. However, the families and foundations raised copyright issues, insisting that they own the original works and had never given them the rights to mint those works as nonfungible token artworks. Wannabe International eventually canceled the auction and apologized to the families.
As public awareness of NFTs has risen dramatically, concerns over copyright and how today’s art industry can embrace the new blockchain-based digital art market have come to the fore. This paper aims to deal with those issues by first clarifying the concept of NFTs and examining various copyright issues that could occur during the NFT transactions.
II. The Concept of NFTs
Before embarking on the discussion of copyright matters of NFTs, it is necessary to understand what exactly NFTs are and how they are utilized in the art industry.
- Definition and Characteristics of NFTs
As stated in their name, non-fungible tokens, or NFTs are units of digital information stored on a digital ledger known as blockchain, which are unique and cannot be replaced with anything else. Unlike fungible objects that can be traded or exchanged, non-fungible objects are made up of indivisible tokens. Thus, one NFT cannot be substituted with another one. For example, one Bitcoin—a typical example of fungible assets—is always equal in value to another Bitcoin. Therefore, it plays an important role as a secure medium of transactions in the digital economy. In contrast, NFTs consist of tokens which are unique and irreplaceable; hence, it is impossible for one non-fungible token to be equal to another. As such, instead of being utilized as a means of transaction, they often act as digital certificates of physical assets like real estate and artwork. To be specific, by using NFTs, one can verify the existence and ownership of the digital assets such as videos, images, arts, and so on. Also, NFTs are employed to attest the authenticity of digitized works; eventually, it would increase the scarcity and thereby encourage the consumers to purchase and collect them.
- Operation of NFTs in the Art Industry
Currently, one of the most commonly used standard of NFTs is ERC-721 (Ethereum Request for Comments 721), which describes how to create NFTs on the Ethereum blockchain. Pieces of art works can be converted to NFTs through the process called ‘minting’—the process of tokenizing an asset and incorporating into the blockchain. When converting the work to NFTs, one can add detailed settings and record the work information such as its name, descriptions, an image link to the original work, or the percentage of royalties that can be received each time the work is sold. Once an artwork is minted, it can be uploaded on the online marketplaces, so that customers can purchase NFTs by participating in an auction.
III. Intellectual Property Right Issues in NFT Transactions
The NFT file on the blockchain does not contain the actual digital piece of art, music, video clip, and so on. Rather, it is similar to a contract which stipulates that ‘Mr A owes Mrs B a digital file of X’. Thus, transaction of NFTs itself does not violate any copyright laws. However, when NFTs undergo the process of digitizing and minting, they become linked to real assets; hence, examining whether NFTs violate copyright laws becomes necessary.
- Unauthorized Minting of NFT
Since ownership of the copyright differs from one another, obtaining the consent only from the owner is not enough to prevent copyright infringement. In general, ‘ownership’ is a right to use and derive income from goods, while ‘copyright’ is a right to control the use of authoritative works. In other words, meaning copyright owners can publish, copy, and distribute the work of authorship. For example, if one purchases 1 painting at a gallery or 1 book at a bookstore, he or she acquires the complete ownership of the picture or the book. Although it is possible for the owner to resell the painting, it is prohibited to copy and post the painting on a personal website without any reference. This is because such an act corresponds to an act of using the work, which is subject to copyright. Likewise, if one wants to mint a copyrighted work to NFTs, he or she needs to gain the consent of the copyright holder besides that of the owner. The recent issue of NFT publication of works by Lee Jung-Seop, Kim Hwan-Ki, and Park Soo-Geun is a typical example of copyright infringement caused by unauthorized minting. To be specific, if people who do not hold copyright digitalize artworks and upload them on online marketplaces, it can invade one’s right of reproduction and transmission.
Furthermore, minting may invade one’s right to integrity as it could change the form of the work. According to the Copyright Act Article 13 (1) which regulates the right to integrity, copyright holder has the right to limit his or her work to be used in its original form. In other words, the author has the right to maintain the identity of the content, form, and title of his or her work. Hence, changes or deletions of the work must be made by the author himself or with the author’s permission; recklessly changing the original work would infringe the right to integrity of the original author. Under the current law, however, there are no special restrictions in the process of minting, enabling anyone to freely mint the work of others. This has led NFTs to be easily exposed to the risk of copyright infringements.
In addition, if one claims exclusive rights by minting a work referred to public domain, whose copyright has expired, it would cause a serious problem. Although it may not constitute copyright infringement, its social and ethical adequacy can be controversial. For instance, in March of this year, an organization called the Global Art Museum in Singapore attempted to sell NFTs of masterpieces owned by some of the world’s leading museums – works by famous artists such as Gustav Klimt, Vincent van Gogh, Edgar Degas, and Paul Cézanne. However, such an attempt was stopped due to intense ire raised by the public. There have been mixed opinions: some say its NFT creation is somewhat of an innovation, but the others say that it is merely a heist.
- Lack of Interconnection Between NFT and Copyrighted Works
Lack of interconnection between the original works and NFT transactions is another serious problem. As previously mentioned, NFTs store only metadata; hence, when NFTs transactions are made, the real works are not transmitted directly. Instead, original works are only accessible through the link listed in the NFT metadata. This fact that NFT itself does not contain any copyrighted works makes it difficult to embrace NFTs within the legal framework.
Regarding the legal feature of NFTs, the Korean Supreme Court has stated Bitcoin as “intangible assets that enable electronic transfer, storage and transaction of economic value by digitally representing it.” Act on Reporting and Using Specific Financial Transaction Information, which came into effect on March 25, 2021, has stipulated virtual assets as “an electronic certificate that can be traded or transferred electronically as having economic value” in Article 2 (3). Despite the holding and the provision of law, it is still not clear what kind of property the NFTs exactly are. Although legal feature of NFTs may be unclear, it is proper to regard NFT transactions as valid. This is because virtual assets transactions are widely being conducted in reality; and some Acts—including Inheritance Tax Act and the Gift Tax Act—indirectly approve such transactions of virtual assets.
Even when NFT transactions are valid, it cannot be regarded equally as the transaction of copyrighted works. Since NFT transactions are only provided with metadata, it is uncertain whether they can be seen as valid transfer of author’s property rights or license agreements. In addition, a type in which a link is provided without a physical transfer of the work involves too much instability because links are non-permanent.
- The Artist’s Resale Rights
NFTs pay the original seller a certain amount of royalties for each resale, and this right is similar to ‘Droit de Suite’ or ‘The Artist’s Resale Right’ (ARR)—which entitles creators or authors of original works of art to a royalty each time one of their works is resold through an auction house or art market professional. Hence, if trading of NFTs is activated, it would be like ARR introduced in practice.
The problem is that Korea has not yet adopted the law of ARR so far. Thus, implementing a system that is not in the law would bring about significant confusion to the market. The discussion on the ARR issue was first raised in Korea through FTA with EU in 2007. At that time, although EU strongly demanded the introduction of the ARR, Korea postponed a decision because ARR was unfamiliar system back then; it seemed reckless to accept it without knowing its impact. And until today, no progress has been made. However, in recent years, as the voices demanding ARR are growing and many experts are gathering opinions that ARR legislation is necessary for the protection of the artists’ rights and promotion of art industry, Ministry of Culture, Sports, and Tourism is examining plans to legislate the ARR.
As the hype surrounding NFTs escalates, efforts to step back from it to answer the legal questions about copyright issues are necessary. because there is no definite legal definition of NFT, it should be clarified so that it could be regulated under related laws. Informing related rights to public and helping them understand NFTs are important as well. Furthermore, current law does not put limitations on minting process, letting anyone to publish NFTs at will. Thus, related systems such system confirming the extent of the copyright should be prepared.
NFT has created a new market and a new business field that has never existed before. In the future, the ways to protect and manage NFT copyrights will be an important point in revitalizing the art market.
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