Galaxy Report On NFT Rights; What About Web3 to Web2 User Generated Content

For some reason, many people still believe that buying an NFT gives them ownership over intellectual property in original works. The Galaxy Report may have found the culprit of this widespread misconception: intentional misrepresentation. As if you didn\’t know that buying an mp3 doesn\’t give you IP rights to the song encoded in it. You know it full well, because when you post the song on Twitch, someone will come and take it down, even though you bought the game that included the song. Right! Why would an NFT be any different? Because it is more expensive? Since when buying an expensive painting gives you the right to reproduce that painting? The canvas carries zero rights in the painting.

Minting an NFT of someone\’s original work doesn\’t make you a creator of the original work

An NFT is nothing but a new format or \”material form\” in Canadian copyright lingo, or \”tangible medium\” in US law. Paper is a material form, it doesn\’t carry copyright in the book printed on it, a .jpg is a material form and carries zero rights in whatever image is encoded in it, same applies to a PDF file, or mp4 or .mov files that carry audiovisual works, these are but material forms on which IP may be found, just like a master recording carries zero rights in unauthorized vocals contained in it.

Buying an NFT won\’t turn you into a creator of the work it contains; The point of an NFT is to trace everything you do with it

Unlike JPEGs or MP3s, NFTs are meant to give total control to creators over their original works, in that all transactions are fully traceable, all buyers can be easily identified through their wallets, and are potentially on the hook for copyright infringement if they illegally copy the works contained in the NFTs. The Ethereum ledger has a log of all these transactions between users. NFTs are the future of IP enforcement. There is literally no place you will be able to hide if you behave like you own the slightest right in an NFT you bought.

In other words, to cite the Galaxy Report:

What you buy when you purchase an NFT[1] is actually a composite of two distinct things:

a digital token, usually governed under Ethereum’s ERC-721 standard, that bears a unique cryptographic address and contains certain metadata stored on a blockchain. That metadata is not the image, however; it is data that describes (or “points to”) the location of the image—a location that is typically off-chain, stored in places like Amazon Web Services or within The Interplanetary File System (IPFS).

a license—issued to the owner of the NFT by the NFT Project that created the image—that grants the owner the right to display (or, in some cases, commercialize) the image to which the NFT points.

The report explains in great detail the technical features of non-fungible tokens and the apparent ambiguity of the \”rarity\” situation, but again please! The point of the \”uniqueness\” or \”rarity\” of an NFT is precisely that there is absolutely nothing you are allowed to do with it short of a license allowing you to do otherwise, than buy it and contemplate it. Like a rare physical coin or a rare stamp, you can put in a safe or an album in your basement and let it gather some dust. Of course you can resell it as a collection item, but you can\’t copy the art contained in it to make more of it for profit or transform the artwork without permission to make derivative works for profit.

The Galaxy Report notes that the problem lays with the issuers and their marketing campaigns intentionally spreading pseudo-legal concepts to mislead users into thinking they own the art. Given that the report states that NFTs representing artwork has seen the most adoption, with more than $118bn in value traded over a trailing 365-day period on Ethereum alone, the focus here is profit being made through copyright infringement, facilitated by widespread misconceptions intentionally publicised as such. Therefore, it may be necessary to reform IP legislation to include some kind of deterrent mechanisms against such practices inducing copyright infringement through misleading representations under the form of vague legal disclosures.

All that being said, are you really never allowed to make copies of an underlying art work in an NFT without a license?

Of course, in any copyright legislation, there are private use and fair use exceptions and concerning user generated content, news reporting, parody, research, education, and others. These exceptions need to be tailored for web3 with added new exceptions in the matter of transferring copyrighted material from one material form to another, in this case from web3 into web2, such as a 2d screenshot of an NFT displayed on your phone, that is shared on web2 social media as a jpg or png.. The law should clarify that so long as screenshots are used for non commercial purposes, this is a safe harbor. Sharing a jpg of an nft on web2 can raise the value of the nft itself and be traded at a higher price. So everyone benefits.

Given that these situations arise on a daily basis, defining the scope of user generated content is essential because current misconceptions of \”owning the art\” are not false per se when regarded from the lens of fair use exceptions and private use.