Monkey business: Seth Green’s bored ape NFT and a barrel of IP issues
Headlines such as “Actor Seth Green to pay $260,000 in ransom to retrieve rights to develop a television show based on the character in a stolen NFT!” have drawn recent attention to non-fungible tokens (NFTs).
Embodying copyrightable works as NFTs presents unique risks. However, a generalisation of the alleged facts related to Seth Green’s stolen NFT offers some insight into the current state of NFTs and some unique, unsettled IP issues.
At a high level, all NFTs are implemented on blockchain technology that provides for data immutability using distributed, non-centralised storage. NFTs are unlike a lot of other technologies in that the information that makes up the NFT (eg, the information that is maintained on the blockchain) can vary greatly. Accordingly, it can be confusing to think of NFTs as a standard technology having common IP issues.
Transaction history
Consider the example of a digital image associated with an NFT. The NFT may only include a transaction history (who sold and purchased the image) in the blockchain—the image itself may not be part of the NFT.
More commonly, leveraging the immutable nature of blockchain, an NFT can include the digital image (perhaps with watermarking) and the transaction history.
With this approach, the immutable nature of blockchain facilitates the generation of a unique version/copy of an image that would otherwise easily be copied and widely distributed.
In a more complex form, an NFT can not only include the digital image and transaction history, but also include additional information such as executable code/passwords that control the viewing experience, smart contracts that can establish rights to the digital image, etc.
While these three forms of NFTs are substantially similar technologically, they may raise vastly different IP issues. Accordingly, NFTs should be considered as a managed user experience using technology, and potential legal issues analysed based on the managed experience of the specific NFT.
Turning to the Seth Green issue, for the common form of an NFT (eg, an image and transaction history), it would be difficult to conclude that the doctrine of a good faith purchaser of a copyrighted work would result in the purchaser acquiring the full set of copyright rights to the character depicted in the digital image simply because it was embodied in an NFT.
This correlates to a real-world analogy that a good faith purchaser of a stolen painting would not likely have acquired full rights to the subject matter depicted in the painting.
However, if the NFT were in the more complex form of including a smart contract that purported to grant (and possibly transfer) a greater set of copyright rights to the character, as may be the case with Seth Green’s NFT, this raises some interesting IP issues that may not be as well settled.
Good faith
Does the doctrine of good faith purchaser extend to licensing rights contained in smart contracts embodied in the NFT?
Does the language of the particular smart contract impact the analysis? Is the good faith purchaser required to know about the smart contract when acquiring the NFT?
Does the purchase of the NFT need to have consideration attributable to the smart contract (or additional rights)? Are there equitable principles that would otherwise prevent application of good faith purchaser to NFTs with smart contract rights?
At this point, there does not seem to be any precedent that has addressed some of the issues/questions in the context of NFTs.
Accordingly, analogy to other technologies and general property principles may inform recommendations and strategies moving forward. Stay tuned!
