By Purple Fox Legal
April 6, 2022
While most people were barely beginning to wrap their heads around cryptocurrency, the introduction of NFTs to the arena has caused a spike in even more confusion. This is especially true since these unique digital assets vary significantly in price, with some individual works of art topping more than $100 million. And, as more people learn about their existence, NFTs continue to explode in popularity.
But really, what are NFTs? And, are you granted any legal protections after purchasing one?
In this article, what an NFT actually is will be broken down and then the rights you get by owning one will be explored. Finally, the legal implications that come with NFT ownership and recent lawsuits you should keep in mind to help keep yourself protected will be discussed.
Short for “non-fungible tokens”, NFTs are one-of-a-kind (or few-of-a-kind) digital assets that embody creativity and artistic talent. While graphics and videos are the most common form of NFTs, essentially anything that can be converted into digital form can be sold as one. This includes music, trading cards, virtual fashion, games, event tickets, and so much more.
NFTs primarily include different collectibles and works of art, though they are all classified as tokens due to their existence on the blockchain. This means that each sale and purchase of any NFT is recorded in a transparent manner, and cannot be edited by anyone.
Because NFTs are entirely digital, and no physical exchange ever occurs, it can be difficult to understand what you’re actually purchasing.
Is it a piece of art that can be displayed (on a screen) in your home?
Is it a graphic that you can display on a website?
Do you even own copyrights to the work at all?
The answer to these questions is messy and complicated. This is mostly because NFTs are entirely separate from the asset they were created for. In truth, when buying an NFT, the only thing you’re purchasing is a token that represents an asset. You’re not truly purchasing the asset, itself. And this is where legal trouble begins to arise.
The rights granted to you after purchasing an NFT are entirely dependent on the platform where you purchase it and the NFT creator themselves. Each of these entities has an opportunity to set distinct terms and conditions based on the NFT you choose to buy. Some questions you should consider finding the answer to before making your final purchase include:
Because it’s still very much in the infancy stages, the NFT space has remained largely unmonitored and unregulated. This is why lawyers, creators, and even large corporations are taking time to prepare for a ‘wave of litigation’ to hit this arena. And, the lawsuits are already beginning.
In February 2022, Nike filed a lawsuit against StockX for trademark infringement in their NFT collection. Though the online marketplace stocks Nike physical prices, they have not been authorized to create or ‘mint’ NFTs using Nike trademarks. Because of this, Nike asserts that StockX is earning income by selling “unauthorized products.” And, with there being more than 500 sales of the NFTs in question, there’s no telling how the consumers will be affected by it all.
That wasn’t the only lawsuit filed in February 2022. In that same month, a Canadian holding company called “Free Holdings” filed a lawsuit against Kevin McCoy over his sale of the NFT Quantum for $1.47 million. According to the suit, Free Holdings, not McCoy, was the actual owner of the NFT in question. The reason for the confusion, asserts Free Holdings, is McCoy’s failure to renew his ownership, which was a requirement of the blockchain software. This case really brings into question what it means to be an NFT owner, especially when it relates to blockchain technology.
The legal world of NFTs is only beginning to be explored, and it will be many more years before it’s fully understood. The sphere simply needs to be placed under the microscope of many more lawyers, especially those with experience in intellectual property. Until this can happen, there are some key legal issues to keep in mind when creating or purchasing an NFT.
Internet Security: Cybersecurity, data protection, and fraudulent trading are also major concerns in the world of NFTs. It’s important to keep a close eye on your online wallet and to maintain track of the NFTs that you own.