All of a sudden, it seems like everywhere you look, someone is announcing the sale of an NFT, perhaps especially in the art and entertainment world (and local pizza shops). It’s easy to see how the ability to command huge sums for a digital file containing art, music, or video sounds extremely appealing after decades of revenue loss to piracy and streaming, followed by a year without income from touring and live performance.
But not everyone is equally eager to jump on the bandwagon. Nathan Apodaca, otherwise known as juice-drinking, Fleetwood Mac-jamming, skateboarder 420Doggface208 on Tiktok, recently hoped to monetize his signature video clip with an NFT release–but Stevie Nicks, writer of the song Apodaca is so iconically vibing to while skating, supposedly nixed the notion. TMZ reports that Apodaca’s team reached out to Nicks for permission, even offering a share of the ultimate sale price, but she declined.
Her decision to opt out made us wonder exactly how NFT creation and copyright intersect, and what musicians and other creators need to know. We reached out to attorney and NFT law expert Moish E. Peltz of Falcon Rappaport & Berkman to answer a few questions.
Can you maybe start by giving us a very basic overview of what an NFT is and, in the case of a video or piece of art, how questions regarding copyright of the underlying works might emerge?
NFTs, or “Non-Fungible Tokens” are digital files with a unique identity that is verified on a blockchain. Unlike the Bitcoin currency, NFTs are not interchangeable. The cryptocurrency Bitcoin can be thought of “fungible” because it is entirely interchangeable, so that it can be useful for payments. For example, if you owe me five dollars, I wouldn’t care if you gave me five $1 bills or a $5 bill (even if they each have a unique serial number), so long as you pay me the money you owe me. Same with Bitcoin.
On the other hand, NFTs are each unique and therefore “non-fungible.” NFTs can represent a one-of-one “original,” such as a unique work of art. NFTs can also represent one of a fixed number of copies in a limited series. In theory, NFTs can represent almost any real or intangible property, including artwork, music, videos, collectibles, trading cards, video game virtual items, or even real estate. In sum, an NFT is the digital version of a certificate of authenticity, embodied in the blockchain.
Is there a legal obligation to get a license or permission from a rights holder to use copyrighted work in an NFT, as there might be for a sample on a record or similar?
In general, yes. Someone who creates an NFT using someone else’s work should ensure they have permission from copyright owner. Copyright law provides a “bundle of rights” which are exclusive to the owner of the copyright in a work. These rights include the right to reproduce, prepare derivatives, distribute copies, publicly perform, and publicly display.
For the same reason that a musician would need permission to sample or remix someone else’s music and start selling it as their own, the creator of an NFT would need permission from the copyright owner of the work which they are embedding in an NFT and offering for sale. A violation of these exclusive rights would be copyright infringement, absent a defense like fair use.
Does it surprise you that an artist might not sign off on their music appearing in an NFT?
It is not surprising that there is hesitancy for a record label or established artist to license music for use in an NFT. NFTs are new and unknown. Further, the record label or artist may not be sure whether they have the right to create an NFT. An attorney might have to look back at a record contract to figure out who has what rights, and the answer might not be clear. This reminds me of when ringtones became popular in the early 2000s, and record labels had to go back into their vaults to determine whether they had the right to make use of legacy recordings in a new context.
If I’m a musician or artist are there any special NFT law questions I should be asking my attorney or record label?
If you are a creator that is thinking about selling an NFT you should generally make sure that you have the legal right to sell whatever it is that you’re planning to upload into an NFT. For example, if you are a musician with an exclusive record contract, does your record contract contain language that would limit your ability to sell an NFT without the consent of your record label? If your music uses a sample that you’ve already cleared, do you have the right to now turn around and upload music containing that sample into an NFT? These are questions that may not have clear answers and will depend on the specific contractual language that you are subject to. You should absolutely be questioning whether you have the right to use of your creations in this new context, and any uncertainties should be reviewed by your attorney before you decide to mint an NFT.
If I’m someone thinking about investing in the NFT craze, are there any specific legal issues I should be keeping in mind?
Anyone thinking of buying an NFT should keep in mind that this is a new and speculative market with many unknown risks–including the risk of a 100 percent loss. NFTs have no inherent value and are only worth what someone else would pay for it.
In terms of legal issues buyers should consider, first and foremost, what are you buying? A marketplace like NBA Top Shot has very specific terms and conditions, including prohibitions of commercial use of an NFT that you purchase on their platform. Other platforms like Mintable purportedly allow you to purchase the underlying copyright when you purchase the NFT. These are wildly different circumstances. As each NFT is unique, ideally, anyone who is buying an NFT should consider the legal rights and implications of each NFT platform and each specific NFT before purchasing.
This is not to mention there could be additional governmental scrutiny of NFT marketplaces and transactions which could hamper the market, similar to when the SEC began examining ICOs (or initial coin offerings).
Want to know more about NFTs, cryptocurrency, and the law? Peltz is cohosting an online conversation on the topic along with crypto-law expert Max Dilendorf, on March 24. Details and registration information available here.