With the rapid development of technology, it has become essential for the legal framework to be continuously updated. Unfortunately, legislative developments have never been sufficiently fast or effective to keep pace with technological advancements, thereby leaving regulatory gaps that may be exploited by various actors. Such a situation is also evident in the relationship between Non-Fungible Tokens (NFTs) and copyright law.
NFTs have already become one of the most prominent topics in the world of digital trading. An NFT (Non-Fungible Token)[1] is a unique, non-interchangeable digital asset that may be represented by an image, illustration, painting, or video. When someone creates and registers an NFT on a designated platform, they create a unique digital version of that work (image, illustration, painting, or video). The corresponding record on the blockchain cannot ordinarily be altered or deleted and will continue to exist as such.
NFTs can be traded and are easily traceable, making it possible to identify the owner of an NFT and review its entire transaction history.
An NFT is a digital asset that may represent a real-world object, such as an image, illustration, painting, or video. However, this does not mean that NFTs and works of art are equivalent. An NFT represents a digital asset associated with a certificate of ownership (indicating who owns that particular digital asset) and a certificate of authenticity (confirming the uniqueness and authenticity of the token associated with the digital work).
Nevertheless, it is important to emphasise that ownership of an NFT does not necessarily imply ownership of the underlying physical artwork or the copyright associated with it. Particular attention should be paid to this distinction, as significant legal disputes may arise when these fundamental principles are misunderstood.
According to publicly available information on the internet, in January 2022 alone, the global NFT market was valued at USD 16.94 billion, while by 17 April 2022, it had reached USD 54.58 billion, representing an increase of 222.2% in just four months.
Undoubtedly, such rapid growth also brings to light various legal challenges. Considering the aforementioned characteristics of NFTs and the lack of comprehensive legal regulation in this field, cases have already begun appearing before courts in different countries concerning copyright infringement through NFTs, trademark infringement involving NFTs, NFT taxation, NFT theft, and other related matters.
In this article, we will examine the copyright aspects of NFTs, including an analysis of the first court decision issued in China concerning NFTs.
The case arose from a copyright infringement lawsuit filed by Shenzhen Qice Diechu Cultural Creativity Co., Ltd., as the plaintiff, against Hangzhou Yuanyuzhou Technology Co., Ltd., as the defendant.
The plaintiff owned a series of illustrations known as “Fat Tiger”, while the defendant operated an NFT marketplace called “Bigverse”.
After discovering that a digital artwork identical to the copyrighted work owned by the plaintiff had been listed and sold as an NFT on the Bigverse platform operated by the defendant, the plaintiff initiated legal proceedings for copyright infringement.
The Court examined the issue of liability of a digital marketplace such as Bigverse and its obligations concerning digital artworks, particularly NFTs, made available through its platform.
The plaintiff argued that Bigverse, as a specialised NFT marketplace, had specific obligations regarding the activities conducted on its platform. In particular, it was required to protect intellectual property rights by conducting preliminary investigations or verification procedures concerning the ownership of the artworks listed on its marketplace.
The plaintiff further alleged that the defendant had not only failed to conduct preliminary checks or verify the artwork listed on its platform but had also financially benefited from commissions generated by the transactions.
Consequently, the plaintiff requested that the defendant cease the infringement of its rights and pay approximately USD 15,100 in damages.
In April 2022, the Hangzhou Internet Court in China ruled in favour of the plaintiff, finding that the defendant had contributed to the infringement of the plaintiff’s copyright.
In its decision, the Court clarified that transactions involving digital artworks represented as NFTs remain subject to copyright protection.
Accordingly, the Court ordered the defendant to destroy the infringing digital NFT artwork and compensate the plaintiff approximately USD 600 for economic losses and reasonable expenses.
In practice, the destruction of such digital assets is generally carried out by transferring them to inaccessible blockchain addresses.
The Court held that an NFT marketplace such as Bigverse must establish and implement a mechanism for conducting preliminary verification of ownership rights over digital artworks before they are listed on its platform, even in the absence of a notification from the copyright holders regarding an infringement of their rights.
Where a digital NFT artwork infringes copyright and the platform fails to take appropriate measures, the platform on which the work is listed may also be held liable for copyright infringement.
The decision of the Hangzhou Internet Court has provided important insight into how copyright laws may be applied to NFTs and digital marketplaces.
It remains particularly interesting to observe how judicial practice concerning NFTs will develop in other jurisdictions around the world.
All participants in NFT marketplaces should be aware of their potential liability for copyright infringement, as courts in other countries may adopt similar approaches to that taken by the Chinese Court.
Likewise, artists whose works may be represented or traded as NFTs should familiarise themselves with their legal rights in this evolving technological environment and take appropriate measures to protect their intellectual property.
Reference
[1] Mulliqi, Lirak; Qerimi, Vlera; and Jaha, Drilon, “Çka dreqin janë NFT?” (“What the Hell Are NFTs?”), trampolitanet.com.
