Written by Maraika Lumholdt

What are NFTs

NFTs, or non-fungible tokens, have gained massive popularity in recent years, touching industries from fashion to video games. They are non-fungible, meaning each one is unique, and their status as a token indicates they stand in for something else – i.e. they’re linked to a specific benefit or good, but the token itself is just a certificate of that. When it comes to what an NFT can represent, it could be anything from a digital replica of Starry Night to a particularly well-worded tweet. Contrary to non-fungible tokens, fungible tokens have also gained popularity in the form of cryptocurrencies. Each token, such as Bitcoin, is exactly the same as the next token. Thus, it is therefore fungible, but still a token. It is important to note that while both tokens are bought and sold on marketplaces like stocks are, their value is speculative. The value of cryptocurrencies is incredibly subjective, even more so than a stock which represents a tangible stake in a company.

Both fungible and non-fungible tokens leverage blockchain technology, which in simplest terms is a series of ‘blocks’ that each contain information and are connected to each other. The information contained in each block becomes an immutable record. To create an NFT, someone must ‘mint’ one, or publish the digital asset on the blockchain. NFTs can be bought and sold on a marketplace like a tangible good can, and the immutable record created by the blockchain provides proof of ownership for whoever has purchased the NFT. While ownership is solidified and proven with blockchain, another characteristic of blockchain technology is anonymity. Owners of NFTs are easily known, but not their actual identity.

NFTS UNDER COPYRIGHT LAW

NFTs occupy a unique space under copyright law, but are subject to the basic rules other art forms are. The law protecting digital assets, the Digital Millennium Copyright Act (DMCA), was passed in 1998 before NFTs were prevalent. The DMCA allows any artist to request a work be taken down if it is something they have ownership over and did not authorize its publication. This extends to artists with any ownership stake, whether they are a singer-songwriter with sole ownership over a song, or a whole team of writers and producers.

Basic copyright laws also apply to NFTs. NFTs that are derivatives of other work are only allowable if the person who created the derivative work is a copyright owner of the original work, since a copyright owner automatically acquires rights to reproduce the work or create derivatives. So, for example, Harry Styles could mint an NFT of his song “Treat People With Kindness,” which would then be considered a derivative work even if it’s the exact same song available on Spotify, because now it’s a digital version of the song tokenized within the blockchain. No one except Harry Styles can legally mint the song as an NFT because only he owns the copyright to the work. For someone else to legally mint this song as an NFT, they would need to make considerable changes to it in order for it to be allowable under the fair use doctrine of copyright law – such as samplings 10 seconds within a separate, original work of the artist who is minting the NFT. For NFTs that are copies or very close derivative works of an art work, the minter will need to follow basic copyright law to get permission from the copyright holder or license the work.

NFTS: AN EASY TARGET FOR COPYRIGHT INFRINGEMENT

While NFTs are subject to basic copyright laws, they are much more challenging to monitor and regulate than other digital assets, and the NFT industry is hesitant to put stronger protections in place.

The process for copyright owners to flag a violation and take their unauthorized work down is the same with NFTs as it would be with any other type of art per DMCA law. However, its anonymity and lack of regulations makes this process difficult. On marketplaces like OpenSea where an individual can mint, sell, and purchase NFTs, it’s easy to remain anonymous, especially as there is little internal or external regulation. Additionally, since the actual works are often not actually stored in the blockchain, just the representative tokens, it becomes hard to take down the actual work and not just the listed NFT.

People are motivated to infringe copyright to mint NFTs because of its intense popularity – demand for NFTs still outweighs supply. While popular marketplaces like OpenSea technically have policies against copyright infringement, enforcement is minimal. On OpenSea and Rarible (another popular marketplace), there is no verification required to prove that something a creative has minted and/or listed is their own. Experts also point out that copyright is less relevant because of the speculative valuation of NFTs. As a token, there is no intrinsic value to it, which is another reason why the industry is reluctant to put protections in place.

Additionally, minting NFTs is anonymous by default because of the blockchain. This makes the jurisdiction of where to take legal action murky, which makes taking action difficult despite laws outlining protection. Further, marketplaces make commission on sales, so there’s little motivating them to crack down on thousands of their hosted NFTs. Some marketplaces are working to create processes that better identify plagiarized content, but artists are still calling on them to do more.

NFTS & THE MUSIC INDUSTRY

NFTs have potential to benefit musicians. They offer a new revenue source, which is especially important when streaming platforms have significantly reduced the income artists get from their music. Artists can create excitement with NFTs because of their rarity – each can be unique and quantity can be closely controlled. DJ Steve Aoki released NFTs while COVID-19 forced his usual concert revenue to slow. They can be a new form of memorabilia, something a fan can buy like they would a tour t-shirt at a concert to remember their experience.

However, in practice, the music industry has fallen victim to the copyright issues NFTs present. Many musicians and other copyright owners are finding their work on NFT marketplaces being sold for vast amounts of money without their permission.

Music piracy has always been an issue, especially as easily-accessible digital formats of music have become the norm. When LimeWire and Napster came onto the scene in the early aughts, they quickly rose in popularity. These websites made music sharing via digital files accessible to the masses who were burning CDs to share otherwise. This quickly led to a wave of pirated music being sent all over the internet. While Napster was acquired and set down the legal path and Limewire was sued out of existence, similar websites have always cropped up in their place. As new technological capabilities evolve, it is expected that the pursuit of piracy follows, which is exactly what is happening with NFTs. While not free to share music like their predecessors, NFT marketplaces are in a way the next generation of music piracy.

Earlier this year, HitPiece was created as a marketplace to sell songs as NFTs – one of each recording. It touted exclusive access to the NFT version of fans’ favorite songs, and additional benefits like access to exclusive experiences with the artists behind the songs. However, it was not the artists’ or any owners’ rights to the songs who were authorizing, creating, and selling these NFTs. There was a large public outcry from professionals in the music industry, in reaction to a company they had never spoken to illegally profiting off their work. HitPiece was able to lift songs to mint them as NFTs via Spotify’s API, pointing to how easily anyone could do this.

HitPiece voluntarily shut down its operations after the negative reaction, including a scathing statement from the Recording Industry Association of America. However, as of the writing of this article, the company has not faced any legal trouble. The vulnerability of the music industry within NFT marketplaces remains.

LOOKING TO THE FUTURE: SOLUTIONS

Ultimately, better NFT copyright enforcement within the music industry will benefit artists and copyright owners, as well as NFT buyers who do not want to buy counterfeit NFTs.

Some marketplaces and sites that are related to NFTs have listened to artists’ calls to do more about copyright infringement. Sites that promote artists, like DeviantArt, have set up blockchain alerts that flag when something listed as an NFT is found on their website. This could be replicated within the music industry, with a site like Spotify, for example.

Outside of marketplaces and music platforms, some third parties see an opportunity to step in. MarqVision is a 3rd party that monitors sites that partner with them for NFT theft.

There is also an opportunity for the government to step in. NFTs are amongst a variety of digital changes that the DMCA is not equipped to regulate after 24 years since it was signed into law. Although COVID-19 slowed momentum here, there have been updates proposed in Congress that we could see come into effect in the near future.

There is much work to do in this space to improve copyright protection in the NFT industry. While some of the aforementioned solutions may gain traction, not everyone is optimistic. One expert offers the opinion that the only solution to avoid copyright infringement is for artists to stop creating art, as scammers will ‘always be able to outsmart them.’ In any case, music industry professionals should understand the vulnerability of their work and consider monitoring NFT marketplaces to get ahead of being victims of copyright infringement. And, if someone out there is thinking about buying an NFT, make sure you are certain there is no risk that it infringes copyright in any way.