PART II of the series “Gaming, NFTs & Ownership”
What does ownership mean in the NFT space?
The information available in this article is for informational purposes only and not for the purpose of providing legal advice.
According to a NFT 2020 report published by L’Atelier BNP Paribas, in 2020 Gaming made up 23% of all NFT sales in terms of USD, 47% in terms of volume, and the secondary market, that is the NFT resale market, made up for 89% of the activities.
Given the maturing of the secondary market, in this Part II we will first look at the meaning of ownership from (A) the perspective of the NFT buyer; and then from (B) the perspective of the NFT creator and legitimate owner of the underlying asset.
A. Buying NFTs
As discussed in Part I, a NFT is a digital asset that is linked to an underlying unique asset and is stored in a Smart Contract on the blockchain that automatically executes upon the occurrence of a set of preconditions.
Together, the NFT and the Smart Contract act as a certificate of authenticity for the underlying asset.
The NFT buyer upon successfully completing the transaction obtains a digital certificate of authenticity for the digital asset linked to that NFT.
Does this mean that the NFT buyer owns the underlying asset?
No, it does not.
In most instances it means that the NFT buyer owns a right to access to the underlying asset and the right to perform some operations in accordance with the terms and conditions of the license / service agreement between him/her and the platform that sold him/her the NFT.
Smart Contracts have the capacity to transfer all intellectual property rights to the purchaser if the legitimate owners of the underlying assets wish to do so and the contractual terms are valid under applicable law; however, in most case they do not and all intellectual property rights remain with its creator and/or legitimate owner.
Very much like the songs you've purchased on iTunes. You do not own the intellectual property rights to the songs but you have certain usage and access rights to these assets.
However, unlike iTunes songs which are fungible digital assets; NFTs are non-fungible and therefore unique, making them much more valuable.
Does this mean that the underlying asset is free from third parties’ intellectual property right claims?
No, it does not.
Anyone can create a NFT on pretty much any digital assets.
Dapper Labs the company behind the game CryptoKitties provides NFT buyers with a limited license allowing them to make commercial use provided that such use does not result in an earning above USD 100,000 in gross revenues each year.
The license further stipulates that all legal rights to the art and all intellectual property rights therein shall remain with its creator and are therefore not transferred to the NFT buyer.
The digital marketplace OpenSea allows you to buy and sell NFTs through their platform but according to their terms of service, OpenSea provides users with no guarantees that they or any OpenSea party can affect the transfer of title or right in any cryptographic assets, as well as a long list of other disclaimers.
Other NFT sale platforms grant the buyer a non-exclusive license to use the digital copy of the creative work in a non-commercial manner; and generally, each platforms states in one manner or another that all intellectual property rights attached to the underlying assets are not transferred to the buyer of the said NFT.
Also, not all the platforms vouch that the NFT being offered for sale is free from third party liabilities. This basically means that you could unknowingly buy a NFT that is linked to a digital asset that is legally speaking owned by someone else and that was tokenized without the consent of its owner.
When venturing into the NFT market, it is important to look at the terms and conditions of the platforms that facilitate the sale of NFTs to know what your rights and limitations are.
There is a clear trend right now in favor of content creators holding the rights to their content, forcing the notion of ownership to evolve.
B. Selling your own NFTs
Creative works are for the most part governed by copyright laws. To date there is not a universal copyright system and each country has its own copyright legislations. There are a number of international conventions such as the Berne Convention, the WIPO Copyright Treaty and more that set forth a minimum framework of protection for creative works.
In broad terms copyrights are designed to protect the economic interests of an author of an expressive work by giving the author the exclusive rights to copy, distribute, re produce, prepare derivative works, publicly performed and display and otherwise exploit his/her work.
Therefore, if the underlying work qualifies for copyright protection, the work will be protected by applicable copyright laws, meaning that the author of the work will own the copyright to his/her work.
Let's assume that the NFT you put on sale is linked to a work protected by copyright law that you legitimately own; the question now becomes whether any of the intellectual property right attached to your copyrighted work pass through to the NFT buyer once the NFT is sold?
The answer to this question depends on the terms of your Smart Contract and whether or not it transfers, in compliance with applicable law, any intellectual property rights to the underlying asset once the transaction is successful. If we assume that the Smart Contract does not expressly transfer the intellectual property rights of the underlying asset; then it depends on the interpretation of the existing legal system that governs the transaction.
The current case law emerging out of the Court of Justice of the European Union suggests that the resale of digital copyrighted works, other than straight forward software, within the EU requires the consent of its original legitimate owner.
As a NFT seller you may set your own terms limiting usage and exploitation rights while providing NFT resale rights and explicitly stipulate that all intellectual property rights remain with you, the legitimate owner.
If the underlying works have a name ex. CryptoKitties, the name can also potentially be protected by applicable trademark laws if it qualifies and complies with the applicable legal requirements to obtain protection.
If you have created a process for generating cryptographic digital assets for your underlying assets ex. watches, it can also potentially be protected by applicable patent laws if it qualifies and complies with the applicable legal requirements to obtain protection.
In short, you as the legitimate creator of the underlying asset that has been tokenized are the owner of the underlying asset and can potentially own various intellectual property rights attached to that asset.
Once the asset is tokenized , you will also become the owner of the first NFT linked to the underlying asset.
It is worth mentioning that Smart Contracts can have royalty clauses.
This means that when authorizing NFT buyers to resale NFTs linked to your underlying asset(s), you could make sure, when incorporating a royalty clause in your Smart Contract, to receive agreed royalty payments automatically upon each resale. OpenSea has put in place a procedure to do just that.
It’s a rapidly evolving space. Play 2 Earn and Access 2 Assets, instead of owning the assets, are becoming the new normal.
 Smart contracts are self-executing agreements in which the terms of the agreement are directly written into lines of code.
 Tokenization is the conversion of physical or virtual goods into digital units that can be bought and sold.