Melbourne’s Marvel Stadium played host to the third day of Australian Blockchain Week on Wednesday where the focus was on non-fungible tokens (NFTs) and how intellectual property (IP) rights are beginning to be considered in the industry.
“The IP aspect [of NFTs] has been something very much overlooked for quite some time,” said Michael Bacina, partner at Piper Alderman. “People are rapidly becoming aware that IP is super important around any NFT project.”
NFTs provide immutable ownership evidence of digital assets through blockchain technology, but a lack of clear guidance on IP for certain projects leaves investors vulnerable to fraud or unsure of the limits of their ownership of the asset.
Lawsuits concerning NFTs are becoming increasingly common, such as one over a “Pepe the Frog” NFT recently filed in the U.S. The litigant bought one Pepe NFT for half a million dollars, believing the other 99 would not be released, only for an additional 46 to be released a few days later, sending the value of his plummeting.
He is now suing Pepe the Frog’s creator and issuer of the token, Matt Furie, for US$500,000 over the incident, in what Bacina described could be a “really weird precedent” if it were the first piece of NFT law out of the U.S. given how prominently Pepe’s buttocks features in the image.
It’s not the first time the little green guy has been the center of an NFT dispute; last year Furie issued a takedown notice to OpenSea over an inauthentic minting of Pepe.
“I couldn’t even count how many takedown letters are politely sent to OpenSea in relation to projects where counterfeits have appeared,” Bacina said. “That’s all we can do at the moment is go in and say, here are the owners, here’s how we prove the ownership.”
Issuing a takedown notice, such as a Digital Millennium Copyright Act (DMCA) notice in the U.S., can be costly for the issuer, especially if the other party decides to escalate the issue further.
A recent dispute between owners of V1 CryptoPunks and their creator, Larva Labs, is another high-profile example.
Panelist Susan Corbisiero, director at Global Business & Talent Attraction Taskforce, works to future-proof the digital game industry and spoke of the increasing need for specific licensing in digital games as the industry evolves.
A third panelist, Alanah Kushnir, art lawyer at Guest Work Agency, is involved in the Australia-based Coalition of Automated Legal Applications (COALA), which is working on a product to standardize licensing for NFTs in Australia.
Aside from working to keep the licensing regime fair and equitable, COALA is also exploring other technical options, such as requiring the licensing regime to be written into the NFT metadata, ensuring it is always available.
Kushnir said she was also examining the terms of service of some NFT marketplaces that forbid users from reselling them elsewhere.
“I think that’s worth being [legally] tested,” she said. “If we look at contract law there are certain contracts that are not enforceable as they are not legally recognized, and those that restrain one of the parties can come into question.”
Both lawyers on the stage agreed there is more that marketplaces and issuers can do to protect consumers and make licenses more available through technology and transparency, but ultimately the old adage of “do your own research” will always have a place in investing.
“Consumers have a role to play in understanding what they are buying,” Bacina said. “As we move to more standardized licenses, it’ll help people have an understanding and a summary of what it is they’re buying so they’ll be able to make a smarter choice.”