“An NFT purchase does not automatically give you ownership rights.”

A couple of American entertainment heavyweights found themselves in court late last year because of the alleged theft of intellectual property.

Los Angeles-based Miramax sued filmmaker Quentin Tarantino for allegedly breaching an agreement where the latter supposedly agreed to surrender all copyrights and trademarks of the 1994 hit "Pulp Fiction."

For the first time, an American court will finally have its opinion on intellectual property rights within blockchain technology's state of affairs. If that is indeed the case, this ruling could very well become a landmark case with a significant impact on how NFT artists and creators move forward.

Tarantino, known for his violent, neo-noir, and dark humour films, announced a plan to sell NFTs related to "Pulp Fiction," a film that brought him worldwide recognition.

The NFTs would include excerpts of the movie script and audio commentaries. Tarantino pitched the "secret" or surprise nature of the NFTs, explaining that the buyer will only know what they bought after the NFT is transferred to them. Hence, there's no way the public would know what was sold.

But Miramax isn't having any of it. The company claims that Tarantino committed trademark infringement. The case opens up a lot of questions that the courts will now have to try and untangle. This doesn't bode well for Tarantino, but what does this mean for NFT creators and buyers?

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Intellectual Property Concerns

What are Intellectual Property rights? Investopedia states: “Intellectual Property is a broad categorical description for the set of intangible assets owned and legally protected by a company or individual from outside use or implementation without consent. An intangible asset is a non-physical asset that a company or person owns.”

Creatives are influenced by the world around them. It inspires them and fuels their desire to create, express, make and build. When Andy Warhol set out to create the single greatest piece of pop art, he did not get a licence from Campbell Soup; technically he was breaking the law when he made his most famous artwork.

And indeed, the executives at Campbell’s were initially very hesitant but, gradually, as their sales climbed from the free publicity they relented and eventually came around to embrace their connection to one of the most famous artists of the 20th century. In fact, fifty years later, Campbell Soup even collaborated with The Warhol Foundation by offering limited-edition cans, commemorating the artwork.

Now the Warhol Foundation has just sold 5 Warhol NFTs for a total of $3.4 million. One of those NFTs is based on the famous Campbell Soup painting. The money has gone to the Foundation to cover costs for the Andy Warhol Museum in Pittsburgh which saw a dip in visitors after COVID, and to help emerging artists who are also suffering.

There is no indication on Christie's website, the online auctioneer which sold the NFTs, that Campbell's Soup was compensated as Intellectual Property holders. Once again Campbell’s Soup was left out in the cold. Perhaps they are hoping for another boost in sales.

This just illustrates the sometimes murky waters that exist between creators and intellectual property holders and how sometimes this relationship can be mutually beneficial even without a clear agreement.

And sometimes, as in the case of Pulp Fiction, the two sides can be fractious and it can lead to lawsuits.

Intellectual property is designed to protect artists and creators so their assets aren’t sold or used in ways the creator didn’t intend.

This might include a logo, a business name, designs, artwork or even ideas.

This is the reason why you cannot draw a Disney character and sell it as either a physical asset or an NFT. Disney created those characters and even though you might have been the artists and your artwork might be somewhat original, the likeness and creative idea still belong to Disney.

But as demonstrated, not everything is so black and white. If we go back to Pulp Fiction for a moment, could John Travolta sell an NFT of a photograph of himself acting in Pulp Fiction? It’s his likeness after all, but does Miramax own that as well? Or does it belong to whoever took the photograph?

It might depend on what was in John Travolta’s contract, but the validity of either argument hasn’t ever been tested in court. You might think this is hair-splitting, but the popularity of NFTs has made what once was a fun keepsake into something potentially worth thousands or (in the case of Quentin Tarantino’s NFT) millions of dollars.

Another factor is that an NFT can also be any type of asset from audio, to a picture, to a text which opens up more possibilities and flexibility causing legal conundrums. Whereas once we were limited by the physical ability to create something, NFTs have almost no limits – and therefore more confusion.

For example, if you recorded an audio clip of your opinion on a Disney film could you then sell that as an NFT? Is that your intellectual property or Disney’s? Or how about Jack Dorsey’s Tweet that sold for $2.9 million?

Should Dorsey be able to sell that Tweet or should Twitter have taken the money? (Dorsey, while the founder of Twitter only owns 2% of the common shares) When social media enters the picture, you need to be careful. While the original author owns the intellectual property, you have to licence social media to use that content for other purposes, potentially to make an NFT and sell it without you ever seeing a dime.

Again, this hasn’t been proven in court so we don’t know for sure. Under the licence agreement that you most certainly didn’t read when you first signed up for the platform, it grants the social media platform great leeway and flexibility in choosing how to use your content and is not legally entitled to inform you.

If Facebook wanted to, it could be possible that they could create NFTs of their most popular memes, potentially without any of the money going to the artists.

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Intellectual Property Rights in the Context of an Underlying Asset

Anyone who plans to buy an NFT must understand what they're getting.

Remember that an NFT purchase doesn't automatically give you ownership rights to the underlying asset or vice versa. To own the underlying asset, you’ll need a separate document that transfers the intellectual property rights to the new owner. This should be clearly stated in the documentation.

Generally, the burden is on the buyer as he or she has no recourse once the sale is complete. However, describing the assignment (or transfer) of intellectual property rights in the sale of NFTs can easily be understood if you break it down to its most basic parts.

The seller (if he or she happens to own the intellectual property rights of the underlying asset) could easily transfer those rights to the buyer. But everything must be done explicitly in writing to ensure the official transfer.

There's also the option of selling the NFT along with its underlying asset (if there is one). This way, it gets easier for the buyer to obtain proof of ownership.

But like every NFT sale by default, the would-be buyer must first determine who owns the underlying asset. This is critical because the absence of this information may lead to a dispute later and protects collectors from being the victim of fraud.

Just like every other sector, NFTs are not immune to scammers and fraudsters, who will use the market’s excitement, the lack of knowledge of this new innovation, and the desire to make quick money to con, defraud, scam and steal.

As a collector, you should make sure the purchase should push through only if there are clear terms and conditions regarding ownership from either party. This prevents any disputes from arising over intellectual property rights.

When it comes to securing intellectual property rights and ensuring there are no future disputes, sellers and buyers of NFTs can agree to license the use of the rights in the underlying asset for a specific purpose.

When the issues of intellectual property rights are settled, digital asset owners who minted their works into NFTs may incorporate royalty payment in the NFTs code. It means that once the buyer sells the asset, a certain percentage of the sale goes to the original owner. This is one of the key benefits of NFTs that creates new income sources for creators.

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Conclusion

When Bitcoin and cryptocurrencies became part of the public conscience much of the lack of understanding and misconceptions people had of them were the result of the lack of understanding people have of how currency and money works - many still think their currency is backed by gold which has stopped being a thing since Nixon!

With NFTs, we see a similar situation, where people’s lack of understanding and misconceptions are driven by their lack of understanding of how intellectual property works - many don’t know that you don’t own the copyrights to a thing just because you paid for it and that the transfer of copyrights is an explicit process that needs to be documented to take place.

No matter what becomes of the lawsuit between Miramax and Quentin Tarantino, there will have to be more clarity between what is creatively acceptable and what needs to be licenced.

NFTs were not foreseen by intellectual property holders, content creators or lawmakers but they are here to stay. We need to adapt to this multibillion-dollar market that is seeing millions of dollars change hands. These blurred lines and new realities need to be addressed through more information sharing, better education, and new legislative frameworks.

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By Hussein Hallak