NFT – legal nuances in simple language

The rights of the buyer and the author of the token

A person who purchased a picture, video, or animation on the site usually receives a minimal amount of rights and can only reproduce the work for personal purposes. The new owner will have a unique copy of the work, but will not be able to reproduce the image on the product or allow or prohibit the use of the work. These rights remain with the author. Moreover, the author of the NFT has the right to create a derivative composition that will be similar or to make goods with the image of the NFT – and the token holder will not be able to force the author to abandon these actions. A similar situation when buying a book. The owner of a copy of the work is not the owner of the work, he is prohibited from copying, distributing the work or making changes to it without the prior consent of the author.

Smart contracts

One of the options for fixing conditions is smart contracts. Buying NFTs is always accompanied by the automatic execution of these contracts. They are configured to facilitate the fulfillment of the user’s offer and the confirmation of the purchase. Standard forms are used on marketplaces, but you can choose the smart contract that was created by another user and which specifies the transfer of a larger amount of rights. For example, granting a license to use the work for commercial purposes, permission to modify the object, or, conversely, with the condition of transferring an even smaller amount of rights to the object than is provided for by the platform. Buyers and sellers tend not to pay attention to such details because smart contracts are hosted on the blockchain and displayed in alphanumeric form. By default, users use smart contracts without special conditions, which often leads to copyright infringement when another party, considering itself the full owner, starts using a picture or animation in its economic activity.

Written agreement on the purchase of a token

Creating smart contracts is a rather complex process and is carried out by users with programming skills.

According to the rules of the Rarrible platform, if a smart contract is deployed in the Ethereum system, it cannot be changed. Therefore, an alternative to such a contract can be a written contract, where the parties will agree on all the conditions necessary for them before the purchase of a digital object.

In a written contract, it is possible to specify a condition for the owner to use the object in any way, including marking it on the product, and reproducing it for profit. In this case, the smart contract will be an auxiliary mandatory element that will only record the process of object transfer in the digital environment. The terms of the platforms, if there is a written agreement, will not apply.

Payment of royalties for the use of NFTs

NFT royalties are automatic payments to the original token holder made for the resale of the work. The terms of the platform may stipulate royalties in the range of 5-10% for each secondary resale. When listing an item, the author determines the royalty rate manually. In the case of resale, royalty payments are made automatically. As the popularity of the object and its price increase, the amount of payments also increases. The author can track royalties on the blockchain. The benefit of NFT rewards is that artists, game developers, and other content creators have an opportunity to earn revenue from secondary sales that have never been available to them before.

Copyright infringement on the marketplace

NFT does not provide protection of the author’s rights, because there are common cases of sales of other people’s works on marketplaces by third parties who register under the author’s name. Anyone can take a picture on the Internet, assign an NFT token to it and sell it. The Yellow Heart and Rarrible marketplaces allow copyright owners to submit takedown notices and counter-notices to restore access to content under the Digital Millennium Copyright Act. If such rules are not provided by the platform conditions, you should contact the administration. Records in the blockchain about objects, their owners, and the list of transactions will remain forever, and the picture or video can be deleted.

NFT Challenges

The main problem for NFT buyers is to purchase objects at their own risk because the platforms do not guarantee the uniqueness, originality, or quality of any collectible objects. No one can be absolutely sure that the object is the original work of the seller, and it is possible that access to the purchased music file or video may be terminated at any time. Buying an NFT does not prevent others from downloading and using the object to which the token is attached. Users are encouraged to post only their own works on the Platforms. This will enable you to protect your rights in the event of an improper complaint. Buyers should pay attention to proven sellers. Such are those who have been using the platform for a long time, well-known artists, and artists, whose works are distinguished by their originality. However, this cannot be a 100% guarantee that the exhibited objects are not stolen, because it is very difficult to establish the identity of the site user. In addition, the platforms warn users that blockchain and NFT technologies are experimental, speculative, and risky and do not guarantee their excellent functioning

Conclusion

NFT technology has been around for six years and is only now becoming popular. A legally irreplaceable token is only a fixation of the work in a digital format, if a written contract, for example, on the alienation of copyright, is not concluded during the purchase of the object. After all, a smart contract is not considered a contract and does not provide for essential legal conditions. There are many risks for both the NFT seller and the buyer. The buyer only gets the right to reproduce the object for personal purposes, the author is not protected from the illegal use of the work by the buyer. On the other hand, no one guarantees that an object tokenized and put up for sale on the platform is an original work. Currently, NFT is not regulated by law and it is impossible to protect copyright in court due to the lack of centralized control in this field. Before selling a work in digital format, it is important to agree in writing with the buyer on the method of use of the work, the territory to which the use extends, and clearly indicate the object. The author is recommended to register the copyright for the work, this will make it easier to prove the rights to the work in court.