Copyright and non-fungible tokens (NFTs) – the basic principles remain

What principles apply when dealing with intellectual property rights in the Metaverse specifically regarding NFTs?

In the United States, major brands such as Nike, Hermes and Burkin Bags have instituted proceedings against a number of people for allegedly infringing their intellectual property rights in the Metaverse and reproducing and selling NFTs. The grounds of infringement were based on the relevant trade mark and copyright laws in the US. In order to understand how this would work in a South African context, specifically from a copyright perspective, we will revisit the basic principles of our copyright law.

In terms of South African copyright law, copyright can only subsist in original works which fall within the definition of a work in terms of Section 2 of the Copyright Act. When it comes to NFTs, copyright would subsist in the underlying asset of the NFT, provided that the underlying work falls within the ambit of the definition of a work. NFTs would generally fall within the definitions of artistic works (e.g. your favorite animated GIF) or literary works (e.g., the scanned images of Quinten Tarantino’s handwritten early drafts of the Pulp Fiction script or more recently, tweets).

In addition, copyright in artistic or literary works grants the owner the exclusive right to do or authorise the doing of various acts in relation to the work, including: reproducing the work in any manner or form, publishing the work or making an adaptation of the work. It follows that copyright will be infringed by any person, not being the owner of the copyright, who, without the authorisation of the copyright holder, does or causes any person to do, any of the restricted acts mentioned above.

With this in mind, it is imperative that parties to an NFT transaction understand exactly what is being purchased and the nature of the rights attached to the NFT. Firstly, it is important to understand that the purchase of an NFT asset is not the purchase of the original asset itself and does not result in the transfer of copyright subsisting in the original underlying asset, unless stated otherwise in the terms of sale or smart contract agreement. Andres Guadamuz, in his article in the World Intellectual Property Organisation’s (WIPO) Magazine of December 2021 stated: “Most NFTs also commonly include a link to where the original work can be found, this is because the non-fungible token is not the work itself, rather a unique digital signature that is linked in some way to an original work” and “Some buyers think they acquire the underlying work of art, and all its accompanying rights. However, in reality, they are simply buying the metadata associated with the work; not the work itself.”

By way of practical example, in its Frequently Asked Questions section, the company that sold Twitter CEO’s first ever Tweet as an NFT, Valuables by Cent, answers the question: “After I buy an NFT on Valuables can I use the content of the tweet to print on t-shirts or other merchandise to sell?” by saying “No. You own the autographed certificate of the tweet, establishing a unique, direct relationship between you and the tweet author. You do not own the copyright”.

Until the ownership and transfer of an NFT is properly tested in South African courts through litigation, we cannot yet predict how our current Copyright Act will be applied, or whether the Act may require amendment to cater specifically for NFTs. It seems, however, that the basic principles of Copyright Law provide a solid foundation from which one can begin to understand the implications of copyright law in this seemingly tricky world of NFTs.