This article is written by FEMINA P U,  BA LLB, FACULTY OF LAW, ALIGARH MUSLIM UNIVERSITY, ALIGARH during her internship with Le Droit India.

ABSTRACT

The purpose of this paper is to critically analyze the rise of non-fungible tokens (NFTs) and their impact on intellectual property rights. The recent development of Non-Fungible Tokens (NFTs) has caused a substantial shift in the digital marketplace, particularly in the area of intellectual property (IP). NFTs are distinctive digital assets that use blockchain technology to ensure the history, authenticity, and possession of both digital and physical goods. Unlike fungible tokens like bitcoins, each NFT is unique and non-interchangeable, making it suitable for representing rare or valuable goods such as art, music, films, and even real estate. Intellectual property rights now face both new opportunities and concerns as a result of the explosive growth of NFTs. NFTs give authors a fresh way to make money off of their work through smart contracts, royalties, and direct sales, but they also come with additional legal requirements. The extent of rights transmitted by an NFT, IP enforcement in decentralized digital markets, and resolving possible copyright breaches when NFTs are created from unapproved or derivative content are important problems. Furthermore, jurisdictional issues are brought up by the worldwide reach of blockchain technology, since IP rights enforcement practices might differ amongst legal systems. This article examines the relationship between NFTs and intellectual property rights, looking at the legal frameworks that oversee them, the effects they have on content providers, and possible ways to deal with the issues that keep coming up. In addition to highlighting the need for revised legislative frameworks to prevent disputes over IP in this new online frontier, the research shows how NFTs may empower creators by giving them greater influence over their digital distribution and revenue

INRODUCTION

By establishing a new type regarding ownership for digital assets, non-fungible tokens, or NFTs, have completely transformed the digital economy. Artists, musicians, and other creators are discovering new methods to use blockchain technology to monetize their work as a result of the growth of NFTs. Unlike cryptocurrencies like Bitcoin or Ethereum, that are interchangeable and fungible,

NFTs are distinct digital certificates kept on a blockchain that verify the ownership or legitimacy of a particular item.

Because digital files are easily duplicated and distributed, proving ownership of digital content was previously difficult. This is why NFTs are appealing: they offer a safe and dependable method of doing so. The development, ownership, and sale of NFTs, however, have brought up important concerns about intellectual property (IP) rights because these aspects of the transformation interact with legal frameworks which were not intended to support blockchain technology.

WHAT ARE NFTs?

Digital assets known as NFTs stand in for ownership of a particular object, be it a work of art, a music, a tweet, as well as virtual property within a metaverse. The primary characteristic that distinguishes NFTs from other tokens and renders them “non-fungible” is their individuality; every token possesses unique information. The uniqueness of NFTs and their ownership, which can be verified through blockchain technology, are what give them their worth.

The term “minting” refers to the process of generating an NFT. A digital asset is made unique on a blockchain when it is minted, and it has an exclusive digital signature that is unrepeatable. Once created, those tokens can be exchanged, bought, and sold on a number of platforms, including Foundation, Rarible, and open Sea.

NFTs AND INTELLECTUAL PROPERTY: A COMPLEX RELATIONSHIP

The emergence of NFTs has sharpened the attention on intellectual property rights and created new legal issues pertaining to infringement, ownership, and copyright. Intellectual property rules, such as those pertaining to copyright, trademarks, and patents, have historically been used to grant authors the exclusive right to reproduce, pass on, and license their works in order to protect them and their creations. The introduction of NFTs has brought various new challenges to this environment.

The proliferation of non-fungible tokens (NFTs) has raised a number of concerns regarding the best approaches to safeguard intellectual property, or IP, rights and prevent infringement. Any artwork as well as its legal documentation for upcoming intellectual property along alongside the smart document enables the document’s implementation and legal enforceability. It combines smart contracts with legal documents. A contract that establishes an asset’s ownership and contractual obligations, controls and manages those obligations, limits access to specific information, intellectual property, or other NFT assets, and adheres to the global

token standard, allowing the NFT to be used on blockchain and being enforceable in some jurisdictions.

Currently, India lacks a governing legislation for blockchain technology, NFTs, or cryptocurrencies because these topics are still in their early stages of development and public acceptance. These laws would need to address gray areas and compliance issues before they could be made legally binding and globally enforceable through digital means.

China issued its first judgement involving NFT infringement in the case of Shenzhen Qice Diechu Culture Creation Co., Ltd. vs. Hangzhou Yuanyuzhou Technology Co., Ltd²., a.k.a. “chubby tiger having its shot.”

INTELLECTUAL PROPERTY ISSUES SURROUNDING NFTs

TRADEMARK INFRINGEMENT

Unauthorized use of a brand or service mark is known as trademark infringement. This use, which may be related to goods or services, could cause misunderstandings, confusion, or deceit over the true source of a good or service. If trademark owners feel that their marks are getting used illegally, they may file a lawsuit. A court injunction can stop a defendant from exploiting a trademark if trademark infringement is established, and the owner of the trademark may receive financial compensation.

COPYRIGHT INFRINGEMENT

When someone exploits any of the creator’s exclusive rights to a work without authorization, it is considered copyright infringement. This covers every kind of distribution (such as selling, broadcasting, performing, etc.), as well as any modification or other duplication of the work. A party may violate copyright whether or not they intend to make money off of the use of the infringed work, but in general, the case opposing copyright infringement is stronger when there is no financial benefit involved.

• Illegally downloading music files
• Uploading someone else’s copyrighted material to an accessible web page
• Downloading licensed software from an unauthorized site

² No. (2022) Zhe 0192 MinChu 1008 Hao

• Modifying and reproducing someone else’s creative work without making significant changes
• Recording a movie in a theater
• Distributing a recording of a TV show or radio broadcast
• Including someone else’s photographs on a website without permission
• Publishing or posting a video with a copyrighted song to a company website
• Selling merchandise that includes copyrighted images, text or logos. PATENT INFRINGEMENT

A patent is violated when someone else creates, utilizes, or markets a patented product against the patent holder’s consent. Written agreements, such as licenses, are used to obtain permission. After paying the patent holder licensing costs, an individual or small firm is granted a license. Right now, the patent proprietor has some options. They might start by writing the other party a demand letter. This is sometimes referred to as a “cease and desist notice.” Secondly, the entity that is infringing may be sued to stop their actions. By doing this, the owner of the patent may request payment for the unapproved usage.

OTHER RIGHTS

Different from statutory laws, state jurisprudence governs the regulation of right of publicity legislation, which must also be taken into account. Although the extent of protection varies, it is widely acknowledged that this right pertains to the use of one’s name, likeness, image, or “other indica of identity” in commercial or trade endeavors. A subset of the tort of privacy gave rise to this privilege. As more and more things are created online, the problem with this right becomes increasingly pressing.

SMART CONTRACTS AND ROYALTIES

For developers, one advantage of NFTs could be the possibility to incorporate “smart contracts” within the tokens. Smart contracts are automatically executing agreements with terms encoded directly into the code. Every time an NFT is offered for sale on a secondary market, they can be configured to automatically credit creators with royalties. Reselling can give artists steady streams of income, which is a big change from traditional art marketplaces where artists hardly ever get money from their work being resold.

Smart contracts do have some limits, even though they provide a novel approach to continuing remuneration. Because smart contracts depend on the blockchain’s underlying infrastructure, artists may lose out on these advantages if a platform or marketplace does not allow royalties. Furthermore, because these contracts function in a decentralized setting outside of established legal systems, it is still uncertain if they can be enforced.

JURISDICTIONAL CHALLENGES AND CROSS-BORDER ISSUES

Because NFTs are purchased and sold internationally, enforcing intellectual property rights can be difficult from a jurisdictional standpoint. The degree of intellectual property protection and enforcement varies throughout nations, and the decentralized structure of blockchain platforms adds to the complexity. For instance, it could be challenging for a creative in one nation to file a lawsuit against an infringer if they discover that what they have created is being offered as an NFT on a site run by a foreign nation.

Moreover, one problem in the blockchain arena is anonymity. Since wallet addresses and transactions are frequently pseudonymous, it may seem challenging to track down and prosecute IP rights violators. In order to maintain accountability and transparency, this has prompted calls for more regulation in the NFT market; nevertheless, it is still difficult to strike a balance between regulation and the decentralized nature of blockchain technology.

CONCLUSION

In conclusion the rise of Non-Fungible Tokens (NFTs) has brought about a revolutionary change in the digital economy by providing new avenues for producers to monetize their creations through decentralized markets and verifiable ownership. Significant intellectual property (IP) difficulties have also been brought up by this breakthrough, mainly with regard to preventing unauthorized minting, enforcing IP rights across international jurisdictions, and differentiating between the ownership of an NFT and the underlying copyright.

NFTs have given artists more financial options via smart contracts and resale royalties, among other means, but the decentralized and frequently anonymous nature of blockchain makes it more difficult to enforce intellectual property rights. Stronger IP verification procedures, more transparent license agreements, and multinational collaboration are necessary to overcome these obstacles. To ensure that NFTs support a just and sustainable ecosystem for artists while

upholding regard for intellectual property rights in the age of digital media, it will be essential to update legislative frameworks as technology advances.

REFERENCES

1. Dastar corp. V. Twentieth century fox film corp., 539 U.S. 23 (2003).

• Himanshu deora, Decoding NFTs and intellectual property: global legal perspectives, Legal500 (Sep 7, 2024, 8:15 P M),

https://search.app/Zmv2bLe666aDiB3WA

• The copyright act, 1957, No.14 of 1957, https://copyright.gov.in/Copyright_Act_1957/chapter_iii.html

• Shenzhen Qice Diechu Culture Creation Co., Ltd. vs. Hangzhou Yuanyuzhou Technology Co, (2022) zhe 0192 minchu No. 1008.