Titan Tips: Do you know what exactly you have bought from NFT Trading?

Author: Ching-Yuan Yeh, Managing Partner

With the explosive growth of the NFT (Non-fungible Token) worldwide, more and more artists start selling their digital artworks as NFTs and many more investors seeking massive gain from this newly developed cyberspace.  Before jumping into it yet, I would like you to think two questions: Have you ever considered what you have really bought or sold?  Do you realize what are the potential risks embedded in each NFT transaction?

One of the best features about NFTs is it solves the problems of credibility issue in both product source and trading history of traditional transaction.  At the same time, NFTs allow traders to observe the liquidity of each digital artwork and to better evaluate its value.  Nevertheless, legal disputes for intellectual property rights such as plagiarism and duplication have intensified due to the lack of censorship on the NFT platform.

NFTs give rise to innovative new business models.  Before the new type of technology is developed, no one can predict the operation and drawbacks of all transaction process.  In order to protect creators’ and buyers’ rights and interests, we have listed the following potential risks investors should be aware of.

  • Do the NFTs you purchased come with infringement disputes?

Due to anonymity and pseudonymity features in crypto space, anyone can create his/her own NFT works without revealing true identity.  Although the transaction history can be tracked through blockchain records to verify the authenticity, it doesn’t reveal whether if the digital work is the original creation or plagiarism.  All participants should watch out for NFT discord scams, as OpenSea, the largest NFT trading platform, claimed on a Twitter post that 80% of the company’s NFTs minted for free were unoriginal or fake.  Thus, we advise you to be extra cautious before you make any purchase.

  • Buying NFTs ≠ Ownerships of copyright and intellectual property right.

With every part of the NFT transaction living in cyberspace, only selling history can be found in blockchain records, However, it remains to be determined whether transferring electromagnetic records has the same effect as transferring the rights over real properties.

According to Taiwan’s Copyright Act, “the author of a work shall enjoy copyright upon completion of the work;” and it will not be affected by the sale or transfer of his/her creation.  To avoid disputes, many authors specifically state that all the copyright, trademark right, and any other intellectual property right of the NFT works shall not be transferred to the Purchaser and shall remain owned by the author.  As a result, if investors use the NFTs they purchased, it may lead to copyright infringement disputes.

  • Not every NFT has investment value.

OpenSea states that “OpenSea will take down works in response to Digital Millennium Copyright Act (“DMCA”) takedown notices and/or other intellectual property infringement claims and will terminate a user’s access to the Service if the user is determined to be a repeat infringer.”  The statement clearly shows the transaction of NFTs is not exempt from infringement disputes.

Taking “MetaBirkins” for example, on December 2, 2021, Mason Rothschild published his latest works “MetaBirkins” on Twitter and Discord; the outline of “MetaBirkins” is very similar to the Birkin bag of Hermès, as Rothschild claims paying a “tribute to Hermès most famous handbag.”  As a result, Hermès filed a lawsuit against Rothschild over trademark infringement.  OpenSea soon removed the collection of “MetaBirkins” from its platform once being notified about the violation of intellectual property.  Consequently, the value of previously traded “MetaBirkins” may drop dramatically due to lack of liquidity.  This is the kind of risk all investors should think of before entering into the NFT world.

To sum up, the legal systems worldwide will need some time to fully understand how to protect all participants in this new NFT economy.  The rights of creators and buyers of NFTs will undoubtedly be challenged, hence it is important to stay cautious about the potential risks of copyrights, trademarks, and intellectual property rights.