A non-fungible token (NFT) group called SpiceDAO recently spent nearly $3 million on a copy of Alejandro Jodorowsky’s unpublished manuscript for an unmade film adaptation of Frank Herbert’s science fiction novel Dune.
Though the manuscript is rare, it was originally estimated to be sold for around $40,000.
The group falsely believed that they would also acquire intellectual property rights associated with the book. They planned to sell NFTs based on the contents of the book and produce an original animated series.
Needless to say, buying a copy of something doesn't give you the right to monetise the underlying content. The relationship between NFTs and copyright works in a similar way.
When You Buy an NFT, What Do You Really Own?
Just like cryptocurrency, NFTs exist on blockchains, which are a digital form of cryptographic ledgers. However, unlike cryptocurrency, each NFT is unique (hence the name 'non-fungible').
An NFT has monetary value and is useful to track and authenticate the origin and ownership of an artefact which is in the form of digital media – it is a wonderful tool for digital certification.
However, an NFT is not the digital media itself. Neither is owning an NFT the same as owning copyright or any other intellectual property.
Consequently, owning an NFT does not give a person any ownership over the underlying media associated with that specific token.
Exactly this point leads to confusion amongst the investors in this emerging market.
But then the logical question that arises is - why would one want to own an NFT?
A few prominent reasons are that the NFTs are considered as collectors objects and the emotional value attached to the underlying artefact etc.
It is more of a status symbol.
But the catch is that it may sound reasonable to think that once you buy a particular NFT, you own the underlying digital media. That is incorrect.
The underlying intellectual property along with the digital media continues to belong to the original creators, and buyers of the associated NFT may only enjoy the close emotional bond with the digital media.
It is also noticed that the NFTs are being promoted demonstrating scarcity and over hyped value of authentic origin/ownership. However, such scarcity is only virtual and limited to the blockchain marketplace. The digital objects remain infinitely reproducible.
What Does Indian Copyright Law Say?
In India, too, there appears to be an increasing popularity amongst the Indian celebrities to capitalise on the NFT craze. Film actors such as Amitabh Bachchan and cricketers like Rohit Sharma have launched their own NFTs.
Various digital collectibles, such as autographed posters, digital art and reels are up for auction or sale. The buyers can hold such NFTs, or resell them for a higher price.
But, before discussing the ownership of copyright and intellectual property rights, one must understand that there is no specific separate legal framework governing the NFTs in India.
Just like cryptocurrencies, as of today, the NFTs have no legal sanctity in India.
The existing Copyright Act in India mandates that if a copyright in a work has been registered with the copyright office, and its particulars have been recorded in the copyrights register, then the transfer of ownership may be recorded in the same register after an application has been made to the Registrar of Copyrights.
Thus, if one looks at it from a legal standpoint, the entire arrangement offered by NFTs is not legally recognised, and any dispute related to NFTs may not be entertained by Indian courts of law.
The existing property ownership laws in India do not offer much recourse either, and the rights of an NFT owner are not well crystalised in India.
The Question of Jurisdiction
Blockchains are global ledgers. Just like cryptocurrency, NFTs can be stored anywhere, and it cannot be attached to specific geographical locations.
Because of the decentralised nature of blockchains, jurisdiction is a big question mark. It is unclear how foreign players selling to Indian buyers will be dealt with in case of any dispute or crime.
In India, the Supreme Court has already opined that cryptocurrencies cannot be stored in any one geographical location.
Thus, in a scenario when transactions happen across jurisdictions (globally) which jurisdiction will apply in case of a crime or dispute – is a burning question associated with the relatively new asset class which is unregulated in India at this moment.
Most of the regulatory framework which exists across various countries is still evolving and much clarity is awaited in coming years.
Other Unanswered Issues
There are more issues which must be addressed before we can conclude that NFTs have arrived as a safe cryptoasset class.
Taxation, money laundering, royalties, data protection, and theft are some of the many issues which demand more clarity.
The NFT marketplaces, their dynamics too will have to undergo due security scrutiny.
How the multi-billion-dollar NFT ecosystem will deal with malicious trading behaviour will also be required to be analysed.
Unless we get some positive answers to these questions, it is possible that the NFT system will lead to financial losses for many.
(Satya Muley is an advocate at the Bombay High Court. This is an opinion piece and the views expressed are the author's own. The Quint neither endorses nor is responsible for his reported views.)