1. Introduction: NFTs and the Concept of Ownership
Non-Fungible Tokens (NFTs) are unique digital assets that represent ownership or proof of authenticity of a digital item—such as art, music, video, or virtual real estate—stored on a blockchain. While NFTs may symbolize ownership of digital content, that ownership is not necessarily equivalent to intellectual property (IP) rights.
This distinction between owning an NFT and owning the underlying intellectual property is central to understanding the legal landscape around NFTs.
2. What Is Intellectual Property (IP)?
Intellectual Property refers to creations of the mind, such as:
- Copyrights (original works like art, music, writing)
- Trademarks (brand names, logos)
- Patents (inventions)
- Trade secrets (confidential business information)
These rights give creators control over how their work is used, distributed, and monetized.
3. What Happens When You Buy an NFT?
When someone purchases an NFT, they acquire the token—a unique entry on the blockchain pointing to a digital file (such as an image or video). However, buying an NFT does not automatically grant:
- The copyright to the image or video
- The right to reproduce or commercially exploit the work
- Legal ownership of the file hosted elsewhere (often stored on IPFS or centralized servers)
You’re essentially purchasing a digital certificate of ownership, not the intellectual property unless explicitly stated.
4. Licensing and Usage Rights in NFTs
Some NFT projects provide specific usage rights via licenses or terms of service. These licenses may vary:
a. Personal Use License
- Allows the owner to display or share the NFT non-commercially (e.g., profile pictures or digital galleries).
b. Commercial License
- Allows the NFT owner to monetize the art, such as using it on merchandise, music videos, or branding.
- Example: Bored Ape Yacht Club (BAYC) grants owners full commercial rights to use their NFTs.
c. No License Specified
- If no license is specified, the default position is that the creator retains all rights.
- The buyer may have minimal usage rights under fair use, but not ownership of IP.
5. Smart Contracts and Licensing
Smart contracts govern the transfer of NFTs on the blockchain, but they do not automatically embed legal IP rights. A smart contract may:
- Enforce royalties to the creator
- Limit resale or access
- Reference a license URL
However, a smart contract alone isn’t a legal document. To transfer IP rights legally, a written, signed agreement is often necessary.
6. The Role of Creative Commons and Open Licenses
Some NFT creators use Creative Commons (CC) licenses to explicitly state how the NFT artwork can be used. For instance:
- CC0 (No Rights Reserved): Artwork can be used, remixed, or sold by anyone.
- CC BY (Attribution): Use allowed, but credit must be given.
- CC BY-NC (Non-Commercial): Use allowed for non-commercial purposes only.
These open licenses promote decentralization and remix culture, but they must be clearly attached to the NFT or project.
7. Copyright Infringement in NFTs
The NFT space has seen numerous cases of copyright infringement, where:
- Someone mints an NFT of someone else’s artwork or brand
- Celebrities’ names or images are used without consent
- Music is tokenized without rights clearance
Just because something is minted on the blockchain doesn’t make it legally valid. Original creators can file DMCA takedown notices or pursue legal action.
8. Trademark Issues and Brand Misuse
NFT creators must also be wary of using:
- Company names
- Logos
- Slogans
- Iconic characters or assets
Unauthorized use can result in trademark infringement claims. Major brands like Nike, Hermès, and Gucci have already taken legal action against NFT projects for using their marks without permission.
9. Legal Precedents and Cases
Some important legal developments:
- Hermès vs. MetaBirkins (2023): Hermès won a lawsuit against an NFT artist for using the brand’s “Birkin” trademark in NFTs.
- Nike vs. StockX: Nike sued the resale platform for unauthorized use of its trademarks in NFT-linked products.
These cases show that courts are treating NFTs not as a legal gray area, but as a legitimate domain where traditional IP laws still apply.
10. NFTs and Royalty Enforcement
NFT smart contracts can automatically send a percentage of resale proceeds back to the creator—known as royalties. However:
- These royalties are not legally enforceable outside the blockchain
- Some marketplaces are bypassing royalty payments altogether
- IP contracts may help reinforce these rights
Thus, NFT creators should consider combining smart contract royalties with legal licensing agreements.
11. Metadata and IP Information
Most NFTs store metadata (information about the NFT) on-chain or off-chain. Metadata should ideally include:
- Creator’s name
- License type
- URL to full IP rights or terms
- File hash to verify authenticity
However, many projects omit this, leaving users unclear on their rights.
12. Recommendations for Buyers and Creators
For Buyers:
- Check if the NFT comes with an explicit license
- Avoid assuming commercial rights unless stated
- Use reputable marketplaces with clear terms
For Creators:
- Decide what rights to retain or give away
- Clearly state IP terms in the smart contract and metadata
- Consider legal counsel to draft licensing agreements
13. Future of NFTs and Intellectual Property
The NFT space is still evolving. In the future, we can expect:
- Standardized licensing frameworks for NFTs (e.g., NFT License 2.0)
- More hybrid contracts combining smart contracts and legal agreements
- Better marketplace enforcement of IP rights
- Integration with digital rights management (DRM) technologies
As NFTs expand into gaming, music, publishing, and fashion, the need for clear IP structures will become more urgent.