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MILLION-DOLLAR ARTWORKS and the copyright issues involved

Author: Gaurav Shanker, Managing Partner, Yamini Mishra, Associate and Harshul Garg, Trainee Associate |

Article by Business Law Chamber

Non-fungible tokens (NFTs) are digital assets that have, more or less, changed/expanded the definition of the term ‘art’. Art is no more limited to paintings, sculptures, photography or performances, instead it is beyond that. NFTs are an example of evolution of the art in the digital world and a modern approach to invest in art.

An NFT is a digital asset, created by using blockchain, which can’t be interchanged or substituted with any other digital asset. These are unique digital assets which hold real world value. The blockchain which is used for creating NFTs consists of smart contracts having certain terms which include predetermined conditions between the participants (i.e., seller and buyer) of an NFT. These terms are written into code on a blockchain, the actions in the contract are executed when the predetermined conditions have been met and verified, which shall include conditions such as releasing funds to the concerned party, royalty on each re-sale, sending notifications, etc. Once the transaction is complete, the blockchain is then updated.

Currently, there are no specific laws, rules or regulations governing digital assets, however, since, NFTs are artworks, we may say that the provisions of copyright law will cover the restrictions and protection with respect to such artworks for the time being. In this article, we analyse certain key provisions of the Indian Copyright Act 1957 (Act) which are applicable on NFTs and the issues involved thereto.

Primarily, the Act will only apply to the citizens of India. According to the provisions of the Act, only the owner of the copyright shall have the rights to reproduce or distribute the artwork, therefore, where a person is creating an NFT of an existing artwork, such person shall be required to seek prior permission from the owner of such artwork.

The owner of an NFT owns the original digital copy of the NFT and the rights thereto. The original owner has certain rights over every copy or version of such NFT, unless he/she explicitly transfers such rights to the NFT buyer through a contractual agreement. Therefore, in case of NFTs, a buyer may buy the NFT and will have the right to sell it further, use the NFT on their social media or as their profile picture, but the certain rights such as, getting royalty in every resale of NFT (if provided for in the smart contract), shall remain with the original owner of such NFT. Further, the NFT buyer cannot reproduce additional copies of such NFT, any rights to make modifications or derivative works or distribute and earn royalties from such NFT. Therefore, as per the Act, the copyright in an NFT will always remain with the creator of such NFT and only the possession of the NFT will be transferred to the NFT buyer.

Under the Act, a copyright may be assigned to any person either through assignment or through licensing. In case of assignment of copyright, the NFT buyer will be considered as the owner of the copyright post assignment of the NFT by the original owner of such NFT. As per the Act, the assignment of copyright should be in writing and should include specific contractual terms between the parties, i.e., the original owner and the NFT buyer. In case of licensing, the NFT buyer will not get the ownership of copyright and will have a mere license to use the artwork. The parties may have a license agreement governing the rights and obligations of both parties vis-à-vis such NFT.

Having said the above, there are questions that remain answered, such as, will all types of NFTs qualify as a work that can be copyrighted in India? Would creating an NFT of a destroyed artwork constitute infringement? Would producing duplicate copies as NFTs constitute infringement? Presently, the Act cannot answer the above questions. Hence, if NFTs are here to stay, then the Indian legal system will have to either introduce a specific law concerning digital assets like NFTs, metaverse, etc. or expand the scope of works under the Act to cover NFTs and other intellectual property laws.