Articles

15.08.2023

Commercialization of NFT: Copyrights?

The commercialization of non-fungible token (“NFT”) is made through a smart contract which prevents making indiscriminate use of the token. The contract establishes all the terms regarding the use of the NFT by the purchaser. Many equate this exclusive form of ownership (of NFT) with ownership of the intellectual and artistic work (“work”) itself, but the distinction must be emphasized.  Does the purchaser (or the minter) of an NFT own the intellectual property rights to the work associated with an NFT? The misconception goes further in case the work represented in the token has already been protected by intellectual property (IP), such as copyright.

The NFT minter or purchaser owns nothing more than a transactional record and a cryptographic hyperlink to the file, which guarentees authenticity to buyers of intellectual and artistic work through its lack of fungibility unlike other cryptographic assets such as Bitcoin, whose ownership is tracked through the blockchain technology. However, the ownership of an NFT does not entitle the owner to the ownership of the work associated with the token. Even if the regulation of NFTs is not yet a reality;

1.     Pursuant to Article 52 of the Law No.5846 on Intellectual and Artistic Works (“FSEK”), transfer of fiscal rights such as the right to distribute, reproduce and process an intellectual and artistic work must be made in writing, in a way that these rights are indicated separately. In this context, these rights can be specified separately in the smart contract. If it is accepted that the smart contracts meet the written form requirement stipulated in article 52 of FSEK, it seems that the transfer of the fiscal rights of the work can be made over the blockchain (NFT), provided that the transferred rights are specified one by one. Otherwise copyright remains with the creator of intellectual and artistic works. So the ownership of an NFT does not entitle the owner to the ownership of the NFTized work unless the commercialization of NFT includes the transfer of the property right of the author to the purchaser of NFT. It should be noted that in addition to it being certain that moral rights of the author pursuant to Article 49 of FSEK remains in the legal sphere of the creator.

2.  As part of the Digital Finance package of the European Commission, the “Markets in Crypto-Assets Regulation” (MiCA) which was mentioned first in the publication of the Commission’s Fintech Action plan in March 2018, proposed definition for crypto assets including NFTs being “a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology”. Within this perspective the bundle of copyrights, as previously mentioned, still belongs to the author, unless an external agreement is made between the author and the buyer. The Commission published the Proposal for a Regulation of the European Parliament and of the Council on MiCA and amending Directive (EU) 2019/1937 on 24 September 2020, and the Council adopted its position on the proposal on 24 November 2021, will have a significant impact on non-fungible digital assets, not only at a European level, given the potential of these rules being followed by companies worldwide.

As can be seen, due to the increasing importance of the aforementioned tokens, it is important to determine the rules regarding the use of such new technologies within the scope of Intellectual Property Law. For this reason, it is clear that there is a need for a special legal regulation for NFTs and their use.