Minted NFT of Someone Else’s Artwork? A New Flavor of Copyright Infringement

Photo by Marco Verch Professional Photographer on Flickr

Lisa Rosenof, Associate Member, University of Cincinnati College of Law

I. Introduction

Non-fungible tokens (“NFTs”) are the latest cryptocurrency phenomenon to go mainstream. After Christie’s auction house sold the first-ever NFT artwork—a collage of images by digital artist Beeple for $69.3 million—NFTs have quickly captured the world’s attention.[1]  A lot of the conversation surrounding NFTs is an evolution of fine art collecting, only with digital art. NFTs can work like any other speculative asset, where it is bought in hopes that the value of it goes up one day, so it can be sold for profit.

An NFT is a digital certificate of certain rights associated with an asset—typically, a digital one—that is made immutable (i.e., the ownership records cannot be altered) through blockchain technology.[2] This is a powerful tool in the digital asset space given that ownership cannot be demonstrated through physical possession, and works can be quickly and easily replicated. While considerable attention has been focused on the commercial value of NFTs and the creation of an “ownership economy,” there are equally compelling questions about the scope of legal rights being acquired, and the extent to which content creators, rights holders (who may be different from the content creators), NFT purchasers, and NFT marketplaces, are protected.

One advantage to purchasing an NFT is that all authentication is done on the blockchain. As long as the buyer can confirm the original selling account is linked to the artist (which is often “verified” by the marketplace), the buyer knows for a fact that the purchased piece is authentic, no matter how many times it changes hands. What the blockchain doesn’t tell the buyer, though, is whether that piece was merely a copy of somebody else’s copyrighted work—rendering that purchase worthless and subjecting the buyer to substantial legal liability if it is resold.

This article addresses the likelihood of success under a copyright infringement suit as it relates to minting an NFT of someone else’s art and selling it for profit. Part II of this article will summarize the elements of a copyright infringement claim, describe the limitations to a copyright infringement claim, and mention two methods by which an NFT may be minted. Consequently, Part III will examine a split in circuits and argue that both methods of minting an NFT of someone else’s artwork likely infringe on copyright.

While copyright on art exists automatically as soon as that art is “fixed,” that art needs to be registered with the U.S. Copyright Office to be legally protected.[3] Therefore, this article concludes in Part IV by urging artists to register their work with the U.S. Copyright Office in order to successfully sue for infringement damages.

II. Background

A. A Cause of Action for Copyright Infringement

One area of law in need of a technology-friendly upgrade, particularly with respect to NFTs and transfers of ownership via blockchain technology, is copyright law. While certain legal aspects of ownership with respect to tangible works of art fall under property law, it is copyright law that governs intangible rights.[4] Thus, while NFTs provide the potential to fully own digital property, there remain issues associated with the recordation of these works on a blockchain, which necessarily requires continuous replication.[5]

A copyright owner has the exclusive rights to perform and authorize the reproduction of the copyrighted work in copies or phonorecords.[6] A copyright owner also has the exclusive rights to perform and authorize the distribution of copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.[7] Any reuse of original work must be within either a license, in which the copyright holder grants permission for the use, or within the scope of fair use, in which there is a right to use the copyrighted work under certain conditions without permission.  

To evaluate whether a particular use of copyrighted material qualifies as fair use, courts must engage in an open-ended and context-sensitive inquiry that focuses on four non-exclusive factors: (1) the purpose and character of the use; (2) the nature of the work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of copyrighted work.[8] 

The first factor in the fair use inquiry, which has been described as the heart of the fair use inquiry, asks in part whether the new work merely supersedes the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message—it asks, in other words, whether and to what extent the new work is transformative.[9] 

A work is transformative, and thus fair use of copyrighted material, if it adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.[10]  However, a secondary work may modify the original without being transformative, such that it is not a fair use under copyright law; for instance, a derivative work that merely presents the same material in a new form is not transformative.[11]

Copyright law is exceedingly unforgiving. The sale of an infringing work, even if done by a completely innocent actor who unknowingly violated somebody else’s copyright, makes the seller automatically liable for actual damages and/or statutory damages of $750 to $30,000 per infringement.[12] If that infringement is found to be willful (i.e., the seller knew this was a copyright infringement but sold it anyway) that number bumps up to $150,000 per infringement.[13]

B. Limitations to Copyright Infringement

Under copyright law, several limitations exist with respect to copyright ownership. For example, the first-sale doctrine provides that it is legal to resell or otherwise dispose of physical copies of copyrighted works.[14] As a result of the first-sale doctrine, the sale of an oil painting from your private collection, for instance, does not require that you obtain permission from the artist. The same goes for books, albums, memorabilia, etc.

Digital copies, however, are a different story. In 2001, the U.S. Copyright Office published an opinion stating that a digital first sale right could not exist due to the non-fungibility of digital works which are, by their very nature, copies.[15] The Second Circuit, in Capitol Records LLC v. ReDigi Inc., noted that it was impossible to transfer a digital file without making a copy, and such a transfer would be subject to a copyright owner’s ongoing reproduction right, as opposed to the distribution right limited by the first-sale doctrine.[16]

C. Methods of Minting an NFT

Minting an NFT refers to the process of turning a digital file into a crypto collectible or digital asset on the blockchain. In the context of digital art, artists “mint” their artwork into NFTs by uploading an image or video file of their work to a third-party platform.[17] Critically, while an NFT is stored on a blockchain, in many cases the work associated with the NFT is not.[18] When a buyer purchases an NFT minted from a digital artwork, the buyer effectively acquires a link to access the file that contains a copy of the associated digital artwork.[19] Unless a sales agreement provides otherwise, the buyer does not acquire ownership nor any copyrights over the original digital artwork itself.[20]

Importantly, there are two methods of minting an NFT. The first involves making a copy of the original and storing it in a different location.[21] This method may use file storage systems that rely instead on content identification, such as the Interplanetary File System (IPFS), a peer-to-peer file-sharing system.[22] In a content identification system, files are identified through a Content ID—a cryptographic “hash” of the content—as opposed to where the file is located.[23] If a creator modified its digital work, the modified work would generate a new Content ID, while the original file linked to the NFT would remain.[24]

The second method involves creating an NFT that merely points at the original file.[25] Most NFTs include a metadata field with a pointer or link to an off-chain resource where the associated work is stored.[26] For example, an NFT might include a pointer to an online location, such as a URL, where the underlying work can be observed.[27] The risk of location-based pointers is that the file at that location can be changed, much the way a website can change from one visit to the next.[28]

III. Discussion

Where minting an NFT is not covered by an applicable license, it is likely not fair use. A 1 for 1 use of the original work makes no physical transformation of the work, aside from the act of minting the URL. Therefore, most courts will likely be highly skeptical of the argument that the mere act of minting and selling imbibes the work with a new purpose, message, or meaning. That leaves the basic question: does it infringe?

Courts will likely find that both methods of minting NFTs of someone else’s artwork infringes on copyright rights, with one more clearly being infringement. The first method of making a copy of the original and storing it in a different location (such as IPFS) likely infringes on the reproduction right since it is a straightforward copy of the original. [29]

The second method of creating an NFT that merely points at the original file does not involve creating a copy so it may not infringe on the reproduction right. However, there are filesharing cases that have held that sharing links can violate the distribution right.[30] The Copyright Act provides that “the owner of copyright under this title has the exclusive rights to do and to authorize the following… (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.”[31] However, the Act does not define the term “distribute.” Thus, courts are split regarding whether making copyrighted materials available for distribution constitutes distribution under §106(3).

Compare the decision of the Eighth Circuit which held that infringement of the distribution right requires the actual dissemination of copies or phonorecords[32] with the decision of the Fourth Circuit which held that making copyrighted material available is sufficient to constitute a distribution.[33] Those siding with the Eighth Circuit reason that the use of the term “distribution” in other provisions of the Copyright Act, as well as the evolution of liability for offers to sell in the analogous Patent Act, lead to the conclusion that the plain meaning of the term “distribution” does not include making available and, instead, requires actual dissemination.[34] However, those siding with the Fourth Circuit reason that, within the Copyright Act, the term “distribution” is synonymous with the term “publication.”[35] Under the Copyright Act, “publication” is the “distribution of copies.”[36] Thus, according to the Fourth Circuit, the offering to distribute copies constitutes a publication.

Thus, courts relying on the Fourth Circuit’s decision certainly have enough to hang a decision on if they want to rule that minting an NFT of someone else’s artwork infringes on the distribution right. Given that the value of NFTs is linked to the underlying art, it is doubtful that many courts are going to have much trouble seeing it as a distribution right violation.

IV. Conclusion

Therefore, the act of putting something on IPFS or elsewhere out of the control of the artist while minting very likely infringes the reproduction right. Additionally, minting without changing the link potentially infringes the distribution right. When such a case goes to court, it is likely the NFT minter will not prevail.

Given the proliferation of new technologies such as blockchain and NFTs, perhaps it is time for Congress to revisit its copyright laws. In the interim, it is important that buyers of NFTs be aware of these potential legal pitfalls and retain qualified legal counsel to review title and contractual terms of sale. In addition, creators of NFTs should consider, for this and several other reasons, registering NFT-based works with the U.S. Copyright Office to preserve their rights to sue for infringement damages.

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[1] Jazmin Goodwin, What is an NFT? Non-fungible tokens explained, CNN Business (Nov. 10, 2021),  https://www.cnn.com/2021/03/17/business/what-is-nft-meaning-fe-series/index.html [https://perma.cc/9P3U-BNHW]. 

[2] Stuart D. Levi, NFTs Raise Novel and Traditional IP and Contract Issues, Bloomberg Law (Mar. 30, 2021), https://www.skadden.com/insights/publications/2021/03/nfts-raise-novel-and-traditional [https://perma.cc/86M2-5624].

[3] Jonathan Schmalfeld, Copyright violations could crash the NFT party, Fortune (Aug. 4, 2021),  https://fortune.com/2021/08/04/nfts-copyright-violations-penalties-non-fungible-tokens-collectibles-nfttorney-jonathan-schmalfeld/ [https://perma.cc/ARS9-ZKGX].

[4] Katya Fisher, Esq., Once Upon A Time in Nft: Blockchain, Copyright, and the Right of First Sale Doctrine, 37 Cardozo Arts & Ent. L.J. 629, 631 (2019).

[5] Id.  

[6] 17 U.S.C.A. § 106 (2002) (emphasis added).

[7] Id. (emphasis added).

[8] 17 U.S.C.A. § 107.

[9] McGucken v. Newsweek LLC, 464 F. Supp. 3d 594 (S.D. N.Y. 2020).  

[10] Bassett v. Jensen, 459 F. Supp. 3d 293 (D. Mass. 2020).  

[11] Cariou v. Prince, 714 F.3d 694 (2nd Cir. 2013).

[12] 17 U.S.C.A. § 504 (2010).

[13] Id.

[14] 17 U.S.C.A. § 109 (2008).

[15] U.S. Copyright Office, DMCA Section 104 Report (2001).

[16] 934 F. Supp. 2d 640 (S.D.N.Y. 2013).

[17] Simon J. Frankel, What Copyright Lawyers Need to Know About NFTs, Bloomberg Law (Jul. 16, 2021), https://news.bloomberglaw.com/ip-law/what-copyright-lawyers-need-to-know-about-nfts [https://perma.cc/B8LQ-7AX8].

[18] Levi, supra note 2.

[19] Frankel, supra note 17.

[20] Id.

[21] Id.

[22] Id.

[23] Levi, supra note 2.

[24] Id.

[25] Id.

[26] Id.

[27] Id.

[28] Id.

[29] 17 U.S.C.A. § 106 (2002).

[30] See London-Sire Records, Inc. v. Doe 1, 542 F. Supp. 2d 153 (D. Mass. 2008).

[31] 17 U.S.C. § 106(3).

[32] Nat’l Car Renal Sys., Inc. v. Computer Assocs. Int’l, Inc., 991 F. 2d 426, 434 (8th Cir. 1993).

[33] Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199 (4th Cir. 1997).

[34] Capitol Records, Inc. v. Thomas, 579 F. Supp. 2d 1210, 1219 (D. Minn. 2008).

[35] Id.

[36] 17 U.S.C. § 101.