Key IP aspects around NFT creation and ownership

Transcript

i just wanted to thank the conference organizers for inviting me here and giving me the opportunity to speak here to all of you guys today it's my first time in paris it's a beautiful city and i hope to be back more so let me introduce myself uh my name is yitzi hammer my partner samuel and i who you'll have the opportunity to hear from tomorrow have a web 3 legal practice based out of israel we provide full stack legal and regulatory coverage to companies and investors in the web 3 space my background is in ip and commercial law and today i'm going to talk a little bit about nfts and intellectual property so what is an nft um i feel like the

slide may be a little inappropriate for this audience but for the sake of the presentation flow i'll just say that at its core an lft or a non-fungible token is a blockchain-based unit of value with a unique id linked to an underlying asset they're non-fundable in the sense that each token is unique are they artworks no but the unique id can link to an artwork or to another asset type okay so if i own an nft what does that mean with respect to the underlying asset do i own that as well well classic lawyer answer it depends some rights are inherent

others need to be expressly assigned to the holder via licensing agreement or some other variation of a legal contract between two parties let's just take a quick poll how many people in the audience own an nft okay how many of you took the effort to look for the licensing terms before you bought your nft even less how many of you looked for the licensing terms and couldn't find them even less again unsurprising unfortunately the nft space is heavily fraught with bad actors and lacking on the side of transparency and accountability but it's not always the case of bad intentions many creators are just

uninformed which is unsurprising for an industry where the average creator age is guys in their early 20s one client asked me to join him for a zoom call with an nft marketing expert um it was a 10 year old kid i you not um but that's the industry that we're in for better or for worse so let's get back to rights there are generally two approaches that nft creators take with respect to the communication or even the establishment of uh of rights with respect to their works so the first one is to be vague and fall back on default ip laws um in most cases they're not falling back on anything

they just you know don't take the effort to draft terms or even think about it but in that case they would be falling back on default ip laws and in what we've proven before is the lower spectrum some projects take the time to be transparent and draft clear licensing terms like i said it's not always a case of bad intentions many creators are just uninformed but it's incredibly important for projects to take the time and effort to give thought to these issues and to draft clear licensing terms for their collections it's equally important for people like you the collectors to seek out these terms before minting or buying and to inquire in a project's discord in addition to drafting terms and

conditions other measures can be taken to ensure transparency for example this is one project rebel rabbits where they put together this um graphic that was distributed on their site which said very clearly what rights you have in your nft when you buy it actually bought one of their nfts not because they thought it was going to go anywhere but just because i liked the graphic and i was really i was really proud of what they were doing and while these graphics are nice more often than not projects like we said don't have terms at all and assuming there are no licensing terms we talked before about falling back on default ip writes so what are those what what what what are the default ip rights that i can

fall back on as a holder well we're about to learn that it's unfortunately not that easy in other words default ip writes might not be enough when it comes to nfts even if there are express licensing terms granting copyright so i know we're in france right now but you'll likely agree with me that when it comes to legal and regulatory compliance a good practice is generally to look to the u.s and see what they're doing so let's take a moment to see how the u.s copyright office views the copyright of computer related works so according to the compendium of u.s copyright office practices the u.s copyright office will register an original work of authorship

provided that the work was created by a human being what does that even mean well this position of the us copyright office is based on an 1879 landmark trademark trademark case of the us supreme court and it begs the following question um so if we're looking at nfts and saying that they're copyrightable only if they're created by a human being and often oftentimes especially with respect to nfts the computer takes a substantial role in the generation

of the collection how influential is a computer's role when creating a generative artwork in other words is a computer an assisting instrument in the process of making a generative artwork or is the majority of the work performed by a computer so dave steiner is an artist and a lawyer who specializes in ip law and he believes very strongly that generative art nfts are not protected by copyright for the following reasons number one nfts in general and generative collections in particular lack a minimum amount of creative authorship to qualify for copyright protection okay let's just think about that for a second typically

the way that generative art collections are created is you have um some main artworks like if we're talking about a character so it's the main character and then um the same artist or multiple other artists will will draw all different kind of items and elements and then they'll throw them all together and using ai and a smart contract they'll mesh them up and they'll um mint them as a collection of varying combinations of backgrounds and the main character with different items so um what what uh steiner is saying first of all is that these collections the way they're composed and the output lacks there aren't enough compositions

that each one would be unique enough to be able to be protected from a copyright perspective his second point is that it wasn't created by a human author but rather assembled by code which we touched on earlier and his third point which is actually the one that i want to focus on is he says with respect to generative art collections there are too few ways to express the same idea in a work so this this connects a little bit with the first point um but in other words what he's saying is that the second original work that comes out would almost definitely have been created based on the earlier work and we'll see what i'm what he means in one second okay so i'm sure most of you are familiar with the board eight yacht club collection uh of ugly labs and these are

two actual apes the first one uh board apes 6578 and the second 7065 um are each their own apes and are owned by different people and supposedly according to the terms each of those holders has um expressed commercial rights and other copyright with respect to those with respect to their nft according to steiner 6578 which came out first would be the only one that would be protected from copyright perspective the second one 7065 which is basically the same thing without the earring would be infringing on the first okay so not only is it possible that these works may not be copyrightable one

of them may even be infringing on the other now these are real issues which haven't been addressed in the courts or in the legislature and they may significantly impact the rights we think we have to certain nfts in our collection if not all them some projects like crypto skulls are getting creative and are trying to circumvent this little loophole so these are crypto skulls terms and you'll note in the third paragraph if you could read it if you can't i'll just quickly uh read it for you recognizing this issue they say it is our opinion that blockchain transaction satisfies the legal requirement for

copyright transfers so copyright ownership of each individual image is adjudicated by the ethereum or polygon address for which the nft of that image is assigned blah blah blah okay so they're basically saying we recognize that there's an issue here and we want to expressly assign to you the copyright in these nfts but just doing that may not be enough if what steiner who we mentioned before is alleging is correct the creators who are supposedly or trying creators like crypto skulls who are trying to assign these rights in their in their terms and conditions may not even have these rights to begin with to be able to give them to the nft holders and that's precisely why this is a major issue so

we talked about steiner and then there's another legal academic in the field who's very vocal on this issue and i want to just focus on uh on his perspective for just one moment even though it goes goes very closely with what steiner is saying he's [Music] takes a slightly different approach his name is professor philip fry and rather than focusing on the generative element of the artwork like steiner fry takes a deeper look at the nft's genetic coding in other words its code according to fry the copyright ability of nfts is questionable given that nfts in their purest sense are not art they're just a tiny bit of encrypted data written onto a blockchain how could you infringe that and the uniform resource identifier the uri for

each project is completely different and therefore stored on a different string of code which should be able to stand as its own unique piece of work so according to fry and steiner so long as the uri is not the same the artwork is not infringing or rather it's not protectable by copyright and not infringing you can't copy an nft so weighing heavily on these two scholars but on steiner in particular ryder rips who you may have heard his name on twitter or in the news enters the scene so who's writer rips rips is a contemporary artist who launched the campaign to re-mint board apes redistributing them under the collection

name rr bake he made a lot of noise on social media loudly proclaiming that you can't copy an nft and there's zero chance that hugo labs the creators of the board at club collection will ever sue him literally he tweeted there is zero chance that hugo labs will ever sue me but they did but more on that in a moment um so what are rip's viewpoint on the ability to copyright nfts right like i said he's very vocal and he has several projects but one particularly focused at the board api club collection where he outright um remints the exact same nft so like i said he weighs heavily on both steiner and frye ultimately echoing them and stating that he is not infringing

because he's in a pending and this is these are his words appending a different non-fungible blockchain signature to his project and that his work is actually a new expression that would subject it to the fair use doctrine which is one of the exceptions from copyright protection on the u.s law secondly he says with respect to the images themselves he could use them for several reasons the chief one among them being that he's using a completely different uri like we like we explained before in any event after much prodding by rips on social media and otherwise hugo labs eventually filed suit a few weeks ago but the interesting thing here is that in the suit filed against rips there's

no mention of copyright infringement at all so we've been talking about this big issue of the fact that nfts are not copyrightable and how rips is making his main argument on the fact that you can't copy an nft and then finally hugo labs comes and they and they sue him but there's no mention of copyright infringement so what's the deal there so there are several reasons why hugo labs made not have mentioned copyright in their camp in their complaint their complaint is folk focused solely on um trademark infringement they say that he uh infringed the trademarks or pending trademarks for uh the word ape the term bayc bake other other

other various trademarks and there's no mention of copyright at all so i'm not a representative of yugolabs but i would argue that there are probably two reasons why they may not have mentioned copyright the first being that in their in their terms and conditions and this is kind of one of the things that made the board apes big to begin with is they got really creative with ip writes and they took it a step further and they said we're going to assign um commercial use rights to our and our nfts to our holders um and and their terms and conditions clearly state when you purchase an nft you own the underlying board ape and the art

completely so perhaps having assigned all of these rights which they may or may not have had to begin with based on steiner and um and fry's approach they actually gave the rights to sue for the infringement to the holders of those nfts so if you had one of the nfts that were reinvented by by rider rips maybe you as the holder potentially had the rights to go and sue the person who was allegedly infringing but yugo labs didn't that's one argument the other one um and this is what i feel very strongly is probably the reason why they didn't uh mention this in their suit is that nobody knows whether or not nfts are copyrighted copyrightable or not and they didn't want this to be something that's brought up in court ryder rips certainly did this is why i

think he was pushing them to sue him so hardly because he wants us this uh to be settled um but um in any event they didn't mention it and it's uh sort of this huge big bubble and big question mark over the nft community at large in the various nft communities of like what if you're a collector what rights do i actually have well i don't know you don't know the creators don't know the collectors don't know the courts and the legislative legislature need to address these issues [Music] our practice is a practice that's focused on the regulatory and legal side of the web three space and one of the things that we advocate strongly for is regulation people want

to operate within uh clear confines clear guidelines they don't want to be in a vacuum all the time not knowing can i do this can i not do this and it's the same really with anything you invest heavily in something you buy or sell it and you think you have something well do you or do you not so um we live in a world where we need people to tell us what to do so i beg the courts and governments to make laws and make court cases and give us a little bit more clarity on where these kind of things are going so thank you very much for your time um it was a pleasure being here and i think we have like three minutes for questions if anybody has any um

no no time okay one question all right thank you very much [Applause]