NFTs and art: a journey into the world of cryptoart and its legal issues

We analyze the impact of NFTs in the art industry and how to address their legal issues and exploit their market potential.

We have already discussed in a previous article what NFTs are, which have achieved considerable renown in the art world. In fact, over the past year, so-called “cryptoart” (or crypto art) – i.e. digital artworks sold through NFTs – has become a real hype, reaching one of its peaks last March, with Christie’s auction of Beeple’s “Everydays: the first 5000 days,” a collage composed of 5,000 images, selling for $69.3 million.

While NFTs have the potential to be a disruptive technology, it’s not yet clear whether they will truly revolutionize the art world or be a temporary fad.  In any case, when approaching this technology, it is important for investors, collectors, and artists to keep a few legal issues in mind.

First, it is crucial to note that NFTs provide reliable information solely with respect to what is on the blockchain, but nothing says about the authenticity of the underlying asset.  In other words, the NFT does not “certify” that the asset corresponding to it is an original, nor that the token issuer is actually the owner of the relevant intellectual property rights.

This issue, in fact, has already emerged in a recent case, where the online sale, through the OpenSea platform, of Jean-Michel Basquiat’s drawing “Free Comb with Pagoda” together with an associated NFT, was first announced and then canceled, due to the opposition of the artist’s estate.  The sale announcement not only guaranteed the authenticity of the physical work (and therefore also of the token) but also stated that anyone who purchased the NFT would even have the right to destroy the physical work associated with it.  However, the artist’s foundation announced that the owner of the design, who had created the NFT, did not actually own the exploitation rights of the work and, consequently, had no right to tokenize and auction either the design or the associated NFT.

The reason for this is that the exploitation rights of works of art are not automatically transferred to the buyer at the moment of purchase.  In Italy, for example, art. 109 of the copyright law clearly states that exploitation rights, which include the reproduction of the work, i.e. the multiplication of all or part of the work into copies, belong exclusively to the author and are not transferred with the sale of the work unless otherwise agreed in writing.

This rule applies, of course, to NFTs as well, with the effect that (i) the only parties authorized to transfer a given physical work as a token are the holders of the relevant exploitation rights, i.e., the artist, his Estate, or the owner of the work (provided that such rights have been expressly assigned to him); and (ii) when purchasing an NFT, it is important to be aware that ownership of the token does not translate into ownership of the underlying original work’s exploitation rights.

Another feature of NFT technology is that it allows conditions to be established for the resale of works of art in the secondary market.  In fact, NFTs can be sold by way of smart contracts, where artists can enter a predetermined resale royalty that is automatically applied to each subsequent resale of the asset on the secondary market.

In this way, even US artists – who are not normally entitled to the so-called droit de suit, as it is not regulated by US copyright law – can enjoy it.  In Europe, this is not new, since the droit de suite was introduced by Directive 2001/84/EC, whereby artists are normally required to receive a percentage of the resale price obtained on the secondary market through sales managed by professionals, such as auction houses, galleries, etc.  However, although smart contracts are transnational, many are structured in relation to a specific platform, with the effect that only royalties relating to resales made on the same platform where the original NFT was sold will be counted.

In the coming weeks, the professionals at law firm DLA Piper will continue to publish the series of articles on the legal issues of NFTs covering art, music and other areas of interest. In that context, don’t miss the article “What are NFTs: speculative bubble or next digital revolution?“.

Image courtesy id-iom

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Lara Mastrangelo

I work in the Intellectual Property & Technology department at the law firm DLA Piper in Italy where I specialized in copyright, trademark, and patent law, as well as any aspect pertaining to intellectual property law.

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