Ever since a jpeg file sold at a Christie’s auction for $69 million, lawyers have been scrambling to get up to speed on what the non-fungible token (NFT) phenomenon means. This came to a head at the end of April, when an NFT of a Basquiat drawing was offered for sale. The sellers had announced that the winning bidder would have the option of destroying the physical work once the digital version had been acquired. The hasty withdrawal of that sale after an intervention from the Basquiat estate underscored the plethora of intellectual property and other legal issues that makers of NFTs have so far neglected.
An NFT is a unique data file that is encrypted. It is therefore non-fungible because it cannot be exchanged for an identical item (as opposed to cash, which is fungible). Arguably the entire point of visual art is that it is non-fungible. Of course digital art, whether a jpeg or a video file, can be replicated identically to an infinite extent. What the NFT attempts to do, through encryption and blockchain, is to say that this copy of that digital file is unique, the way that the brushstrokes of a Velasquez or the marbled surface of a Bernini are. In one sense this is quite Dada-esque: it’s equivalent to presenting a poster of the Mona Lisa as a unique work of art.
The difference is that the Mona Lisa is in the public domain and many of the videos and images being sold as NFTs are not. While the culture of appropriation online and on social media is undeniably powerful, it does not answer the question of whether that copying is infringement, fair use, or something else. And as the Basquiat sale highlighted, it does not account for moral rights, either.
In the case of the Basquiat, a work on paper from 1986 titled Free Comb with Pagoda, the NFT sale not only claimed to offer ‘reproduction and IP rights that will be sold to the highest bidder in perpetuity’ but also the purported option to destroy the original Basquiat itself. The proposal, it seems, was intended to make the NFT the only surviving unique work and to sell the copyright in that work to the buyer.
There are at least two problems with this. First, creating the NFT in the first place may be copyright infringement. Any work by Basquiat, who died in 1988, is still protected by copyright. In the United States, taking a photograph of a work protected by copyright intrudes, if not infringes, on the exclusive rights of the Copyright Act. Is it fair use? Maybe, certainly after the Supreme Court’s decision last month in Google LLC v. Oracle America, Inc., which involved exact copying of software code but deemed that copying fair use as ‘transformative’ – because it was ‘a copying use that adds something new and important’. But the Google opinion expressly limited itself to that case, and it is far too soon to tell how broadly courts will apply it. Is an NFT ‘new and important’?
Moral rights also complicate an owner’s rights to damage or destroy a work of art. in the United States moral rights are far weaker than in the EU, UK, or Switzerland, but even here the Visual Artists Rights Act of 1990 (VARA) allows an artist to prevent the ‘intentional distortion, mutilation, or other modification of that work which would be prejudicial to his or her honor or reputation’ (referred to as the right of attribution) or to ‘prevent any destruction of a work of recognized stature, and any intentional or grossly negligent destruction of that work’ (known as the right of integrity). VARA rights normally attach only to works created after that law was passed and last only as long as the life of the artist, but can still apply to works that the artist created and still owned when VARA was passed – in which case the VARA protections can last for the full copyright term of the author’s life plus 70 years. Moral rights in other jurisdictions are stronger.
In the Basquiat case, the artist’s estate demanded that the NFT be withdrawn from sale and it was, though not as a result of any judicial interpretation. As Basquiat died in 1988, even if he still owned Free Comb with Pagoda then, it’s not clear that his estate could bring a VARA claim now. But it’s not clear that it couldn’t, and many other artists would be fully able to assert present-day VARA rights in a similar situation.
Where does these leave NFTs? In the simplest sense, it means you can’t turn anything you want into an NFT just because it occurs to you. Rolling the dice on fair use may carry the day – but moral rights vary from country to country enough that you may be exposed. Then again, if you sell it for $69 million, you may not care.
Nicholas M. O’Donnell is an art lawyer and a litigation partner at Sullivan & Worcester LLP.