Lately, we have been witnessing substantial growth in the popularity of nonfungible tokens, also known as NFTs. Actress/Artist Heart Evangelista reportedly sold her artworks in the form of NFTs for a hefty amount. Actress/Singer Nadine Lustre also reportedly earned a considerable sum by releasing her records as audio NFTs. Even noncelebrities have joined in. The asset’s peak popularity came two years ago when many Filipinos indulged in play-to-earn games to earn NFTs during the pandemic.
What are NFTs? An NFT is a unique digital identifier that is stored on a blockchain—a type of database that allows users to share information and record transactions. From the name itself, one can derive that NFTs are nonfungible in character. This means that they cannot be replaced. It is this uniqueness, that gives NFTs much value. To illustrate, NFTs have been compared to trading cards whose value depend largely on how rare they are.
Many people treat NFTs as investments. They purchase or earn tokens in hopes that these would appreciate over time. Some, like artists, utilize NFTs to gain a larger market for their works. They create digital artworks, mint them (minting is the process of storing the digital assets into blockchain), and sell them to collectors. Expectedly, the high rewards associated with NFTs come with risks. Common concerns involve NFTs’ volatility and their susceptibility to hacking. However, there is another issue that is as important but often overlooked—the violation of intellectual property (IP) rights—the set of rights granted for creations of the mind.
IP issues. It is important to note that when one buys an NFT, one does not obtain ownership over a digital asset. Instead, what is obtained is a mere record of ownership over a token. To illustrate, when Person A purchases an NFT that is connected to a digital artwork featuring the beloved character, Harry Potter, he does not obtain ownership over the image of Harry Potter. Neither does he gain ownership over the digital Harry Potter artwork. These works are protected by copyright that belong to their creators. Instead, what Person A gets is just proof of ownership over the token, which he can later invoke should he wish to sell his NFT. Going beyond this and using the digital asset commercially, could lead to a case of copyright infringement.
There have also been reports of artworks being converted into digital assets, minted, and sold without the artists’ consent. Tristan Yuvienco, an up-and-coming Filipino character artist, cites this as one of the reasons why he has not entered the NFT space. He said that although he recognizes the benefits of NFTs, especially for artists who want to gain an international market, he also believes that NFTs can unfortunately be used as a tool to steal others’ artworks. Notably, there have been cases of famous logos and characters that have been allegedly converted and sold as NFTs without the owners’ consent. For instance, production company Miramax once sued Director Quentin Tarantino after the latter supposedly sold an unauthorized NFT collection based on the movie, “Pulp Fiction.” The brand Hermès also filed a case of trademark infringement against a digital artist who purportedly sold unlicensed NFT Birkin bags.
With the emergence of NFTs, creators could be forced to implement measures to protect their works. For instance, in entering into licensing agreements with other parties, creators may find it helpful to reserve to themselves the right to create NFTs for their works. It would also help to apply for copyright and trademark registrations for their creations. Despite doomsday predictions from skeptics, NFTs appear determined to stay. As such, creators may be left with no choice but to take extra precautions to safeguard their works.
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Mario C. Cerilles Jr. is cofounder of Cerilles and Fernan Intellectual Property Law. He also teaches intellectual property law at the University of the Philippines College of Law. Email: mccerilles@gmail.com