USPTO, Copyright Office Joint Study on NFTs May Help Clear Confusion About IP Ownership in Media Content Underlying Digital Assets

On November 23, the US Patent and Trademark Office (USPTO) and the US Copyright Office published a joint notice of inquiry in the Federal Register announcing that the two agencies would collaborate on a study regarding legal issues related to intellectual property rights related to digital assets known as non- -fungible tokens (NFT). The announcement follows the dramatic increase in mainstream attention to NFTs due to their wildly fluctuating value, which in turn has created a great deal of confusion around IP rights to NFTs and the underlying digital files used to create them.

Leahy, Tillis Letter seeks response on IP transfers in NFT context

The decision by the two IP offices follows a few months after the heads of those agencies received a letter in June authored by Senators Patrick Leahy (D-VT) and Thom Tillis (R-NC), ranking member and chair of the Senate IP Subcommittee, asking them to complete a study on NFTs by June 2023. Leahy and Tillis’ letter urged that understanding the intersection of NFTs and IP rights was important due to the rapid adoption of digital assets as an emerging technology. The senators asked both agency heads to consider several issues, including how the transfer of an NFT affects the IP rights in the associated asset, whether licensing rights apply within an NFT context, and whether there are future uses for NFTs to secure and manage IP rights . On July 8, both agencies confirmed to Leahy and Tillis that they would participate in such a study.

The recent joint request by the USPTO and the Copyright Office seeks public comment on the issues raised by Senators Leahy and Tillis. It also recites the Merriam-Webster definition of NFT as “a unique digital identifier that cannot be copied, replaced, or subdivided, that is recorded on a blockchain, and that is used to certify authenticity and ownership (as of a specific digital asset and specific rights attached to it).” In addition to the NFT survey, the request also announced a series of three public roundtables to be held in mid-January.Requests to serve as a panelist on these roundtables should be sent to [email protected] latest at 11:59 PM Eastern December 21st.

Similar to blockchain and cryptocurrencies supported by the decentralized ledger technology, NFT collectibles such as Bored Ape Yacht Club have received significant attention for their incredible value appreciation despite seemingly limited use cases for digital collectibles. Although a new fad, NFTs were first introduced as early as 2017 when CryptoKitties were established, and quickly became a digital craze among CryptoKitty owners who wanted to “breed” digital assets to produce new unique collectibles that could then sold on. Backed by a number of celebrity advocates, NFTs had a global market of USD 11.32 billion as of 2021. The NFT market is expected to increase in value at a CAGR of 33.7% between 2022 and 2030 when it is expected to be valued at almost 232 billion dollars, according to the consulting firm Verified Market Research.

The rise of NFTs has created a good deal of copyright confusion

NFTs began to attract the attention of the intellectual property world during the COVID-19 pandemic as some advocates began to recognize that NFTs could serve as a new technological measure to protect the work of copyright owners. With piracy and illegal streaming as strong as they have been during the Internet age, some copyright advocates have seen NFTs as a tool for copyright owners to distribute virtual reproductions of their work while maintaining full control over the original.

At the same time, NFTs themselves have created contentious lawsuits over who owns the IP rights to the underlying digital asset. Last November, famed film director Quentin Tarantino was sued by film production company Miramax after Tarantino released a set of NFTs that gave fans access to Tarantino’s handwritten script from the 1994 film Pulp Fiction. While that particular lawsuit was settled last September, the case and other NFT copyright and trademark actions like it have raised questions about who has the right to create NFTs from content that already has IP rights attached to it.

Indeed, the USPTO and Copyright Office’s joint study on NFTs comes at a time when it has never been clearer that confusion abounds regarding IP rights in the NFT context. In August, blockchain consultancy Galaxy launched a survey of large NFT collections and found only one collection that actually offered a usage license to NFT buyers despite widespread misconceptions that buyers have complete ownership of the NFT they purchase. Galaxy found that the vast majority of NFT collections do not convey any intellectual property rights to the media content underlying the NFT.

Applications of the first sale doctrine for the purchase of digital assets

One of the biggest points of confusion regarding NFTs and intellectual property rights is the effect of the first sale doctrine on the purchase of digital content. Galaxy’s research points out that most purchases of digital content through major platforms such as Apple or Amazon are simply purchases of a license to the media content, not purchases that convey ownership in a way that exhausts a copyright owner’s rights. Furthermore, while many NFT collections have licenses that allow NFT buyers to obtain royalties on downstream sales of the digital asset, making it appear as if IP rights are involved in the transaction, Galaxy points out that NFT collection operators are able to change or even revoke these licenses at a moment’s notice without having to notify the NFT buyers who hold these licenses.

Of the top 25 NFT collections by market value, Galaxy found that only World of Women (WoW), an NFT collection of 10,000 unique images of women in various hairstyles and skin tones, made a genuine attempt to convey copyright to NFT- buyers. WoW’s Digital Ownership Agreement makes it clear that copyright ownership of the NFT’s underlying image is transferred to the original NFT purchaser, although Galaxy notes that it is unclear whether this framework governs downstream sales of NFTs to secondary purchasers. In contrast, Galaxy found that Yuga Labs, the world’s largest NFT issuer and owner of Bored Ape Yacht Club, used agreements that were explicitly deceptive. Although Bored Ape Yacht Club’s license agreement states that “[w]when you purchase an NFT, you completely own the underlying Bored Ape, the Art,” but the agreement does not have any language transferring copyright from Yuga to the NFT purchaser.

Those interested in submitting comments to the USPTO and the Copyright Office in response to their joint study on NFTs may do so until 11:59 PM Eastern on January 9, 2023. One week prior to each public roundtable, the USPTO will publish an agenda for topics to be covered by each session on this website which contains important information about the joint NFT study.

Image source: Deposit images
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Author: Irrmago