March 2021 - Ignace Nédée & Laurens Kasteleijn for Art Law Services
Keywords
Copyright, unregistered IP right, lack of transparency, NFTs, blockchain technologies, functioning, potential (dis)advantages regarding transparency, future challenges
Introduction
On the 11th of March 2021, the digital artwork “Everydays: The First 5000 Days” made by the American artist Beeple (Mike Winkelmann) has been auctioned at Christie’s for the astronomical amount of $69.3 million. Alongside David Hockney and Jeff Koons, Beeple is now one of the three best-selling artists in the world (1). What it actually more interesting is that this work is sold purely digitally; it has been sold in a mere digital form, as a 21,069 × 21,069-pixel JPEG file and a “non-fungible token” or NFT. So the buyer has paid almost 70 million dollars to become the owner of an ‘intangible’ online product. To put in simple terms, a “non-fungible token” is a virtual currency that is indivisible and linked to a virtual asset. It uses blockchain technology to give a digital proof, a digital certificate of ownership of a work (2).
In this article we will discuss how this blockchain technology actually works and which (dis)advantages it might engender in the digital art sector, and more specifically from a copyright perspective.
Importance of copyright
Before discussing the functioning and importance of blockchain and NFT’s, we will shortly present the scope of copyright. Copyright concerns exclusive, absolute, temporary and territorial rights on an intangible good. First of all, these are private and subjective rights that give control over an immaterial object, a creation of the mind. Secondly, they are absolute in the sense that everyone must respect these rights, and they are exclusive meaning that only the copyright holder is authorized to use these rights. Only the latter has the right to enjoy, benefit or exploit his or her creation and to allow or forbid others to use it.
Basically, the reason to give these rights to creators – as an intangible form of property – is to promote creativity. In fact, copyright give authors a legal monopoly on their works. Only they have the exclusive right to decide who and in what manner their works can(‘t) be used by others. For example, when you buy a book, you get the property of the book. You can read it or you can destroy it, because it’s your property. Nevertheless, as a buyer you don’t acquire the intellectual property rights on the creation, on the words, on the story of the book; those fall under the exclusive rights of the author. You can’t change his creation without his or her consent.
So the main idea behind IP rights is not only to protect artists and inventors, it also to promote cultural, economic and social prosperity. Through giving IP rights as incentives and rewards, people might be encouraged to be creative, to be innovative.
Also in the digital environment, copyright plays a fundamental role. Hence, the arrival of new technologies is shaking our societies and reshaping our priorities in a globalised world. Although digitalisation certainly offers opportunities within the art sector, it also gives rise to new legal questions.
Problem of copyright: lack of registration, lack of transparency
In theory, when a person creates a work that is ‘original’ and forms his/her own intellectual creation that expresses his/her personality, the work is simply copyright protected. Within the EU, this ‘originality’ requirement is generally easily fulfilled (3). From the moment a work is created, the author acquires automatically economic rights – such as the right of reproduction, distribution and communication to the public – and moral rights on the work, such as the right of disclosure, the paternity right and the right to object to modifications of his/her work. The author enjoys this copyright protection starting from the moment of creation, and this protection continues until 70 years after his/her death. This is of course the theory. Practice shows that the enforcement of these rights isn’t always evident, especially in the digital environment.
Contrary to other IP rights – such as trademarks, patents or designs and models – copyright doesn’t require a prior registration in most jurisdictions of the world (4). This principle of automatic copyright protection precluding a mandatory registration is provided for by the Berne Convention which has been signed by 179 countries worldwide. For instance, both the EU, the US and China are bound by the Convention and cannot mandate an obligatory registration upon their citizens and are obliged to recognise foreigners’ copyright if the author is from a member state or district of the Berne Convention (5). Of course many countries (such as China and the US) have implemented voluntary copyright registration policies which facilitate proof related issues (6). But these policies remain purely voluntary. Hence, the absence of a legal registration requirement can be seen as both a curse and a blessing.
On one side, the fact that the copyright conditions are rather flexible, and that copyright protection can be automatically obtained is beneficial in terms of art and creativity. But on the other, the fact that no registration is required entails a lack of transparency. When is the artwork created? Who is the actual author of a (digital) work? And who actually owns the rights? These are important questions that frequently arise. But despite the potential of the internet, relevant information concerning the provenance, authenticity or authorship of artworks are often very hard to find.
In this regard, blockchain technology might serve as an appropriate tool to register artworks, whereas the production and trade of art is increasingly happening online. Blockchains could actually function as trustworthy, cross-border public databases to register works and could offer a possible solution to get rid of this lack of clarity and transparency.
As we stated above, Beeple’s digital artwork “Everydays: The First 5000 Days” has been sold in a purely digital form, as a JPEG file and a “non-fungible token”. But what is an NFT? NFTs are a sort of indivisible virtual currency being linked to a virtual asset and they use blockchain technology to give a digital proof of ownership of a certain work (7). In fact, NFT’s are cryptographic tokens on a blockchain that contain unique information. They are “non-fungible”, which basically means that they are irreplaceable or non-interchangeable (8). This entails the advantage to prove the authenticity or property of an item within the digital environment.
Traditionally the veracity or certificates of authenticity of artworks being digitally sold are saved in central hard drives (9). But today, NFT’s give the possibility to record ownership on a blockchain. It is a decentralised approach to conserve authentic information of a work instead of using external databases. Besides, it is actually safer in the sense that cryptography and peer-to-peer networks are more resistant to hacking (10). From an economical perspective, artworks don’t actually have inherent value. It depends on the economic value being attributed to the work by people. What is interesting now is that that a fraction of or even the integral value of an item can be represented by NFTs. In this sense, the work can be stored and traded as tokens on a blockchain.
But what are blockchains and how do they actually work? Blockchains can be described as decentralised and immutable databanks that contain specific information.
Firstly, a blockchain forms a databank (‘ledger’) where several ‘blocks’ constitute a chain. Each block contains specific data, a ‘hash’ (meaning a sort of digital fingerprint), and a hash of a previous block. This digital signature is calculated based on the information in the block and based on the previous signature (11). For instance, this information can concern monetary transactions, the property of a certain good, certain characteristics of an artwork, the financial value of it, the applying copyright and the information about who owns or can(t) lawfully exercise the rights on the work.
Secondly, the databanks or ‘ledgers’ of blockchains are decentralised. This means that the information isn’t stored by private databases owned by one or more private entities, but that is owned by a network that is publicly accessible to everyone. So, the information is sort of distributed to different (often cross-border) nodes and doesn’t require an intermediary person like for example a bank or another central authority.
Thirdly, the data being saved within blockchains are considered to be ‘immutable’. In each blockchain, there are network computers (‘nodes’) that have a copy of the ledger and that verify (‘mine’) the information. If a certain number of nodes have verified the information, a consensus is obtained, and a new block will be added to the chain. Since the hashes are based on the data in the block and that each block contains a hash of the previous block, it means that if the information of one block is modified, the entire chain fails. In other words, if you want to modify the info of one block, all the other blocks must be modified. So, it appears that blockchains offer a very strong protection considering that it is really difficult to modify data being stored within the blocks (12).
From a copyright perspective, NFTs and blockchain technologies are beneficial for several reasons. The first beneficial aspect concerns the immutability. In this respect, Clark clarifies that “transactions are verified and validated by the multiple computers that host the blockchain. For this reason it is seen as “near unhackable,” because to change any of the information on it, a cyber-attack would have to strike (nearly) all copies of the ledger simultaneously” (13). In other words, the data contained by a blockchain are almost impossible to modify or to hack. Therefore, it might actually be an efficient mechanism to register artworks, to ensure their authenticity, to establish their exact provenance and date, and to provide legitimate information concerning the relevant (copy)rights. In that sense, the problem of transparency might be solved.
A second important advantage of this technology is cost-efficiency. Blockchain technologies (and in particular NFT’s) allow parties to check the veracity of information without giving the possibility to one person to unilaterally change the data and without needing to rely on an intermediary person (14). These technologies appear as a cost-effective mechanism in terms of copyright protection, copyright registration and copyright enforcement online. They are able to represent with clarity and certainty the authenticity and provenance of artworks and might facilitate the detection of unlawful use of works, counterfeited products or stolen artworks.
However, a legal issue concerns the lack of a control mechanism. Whereas the immutability of blockchains might have an important impact on the traceability and transparency of (digital) artworks, there is no guarantee that the authenticity or provenance or alleged authorship are actually true. National legislations might forbid unlawful registrations, but who is entitled to check the information? Should we rely on the bona fides of artists and sellers? And even if it appears that a judge observes an unlawfulness or an incorrectness of information – for instance if the rights are actually expired or transferred to another party, or if the claimed rights are false – the data within an NFT need to be changed. Also when an author decides to make some adaptations to his/her work, or if the financial value of it changes drastically, the information needs to be modified. But the immutability of data is the whole idea of blockchain technologies.
Whereas NFTs and blockchain bring forth essential opportunities in terms of copyright protection, providing efficient control mechanisms and foreseeing some flexibility within the technologies – while ensuring strong protection of data – will be thus an important future challenge.
Do you want to learn more about copyright registration of (digital) works and NFT’s, or any questions about the authenticity or authorship of artworks?
Contacts us at: info@artlawservices.com
Sources
(1) K. Bonneure, “Veiling virtueel kunstwerk gaat door het dak en levert 58 miljoen euro op”, VRT NWS, 11 March 2021, available at: https://www.vrt.be/vrtnws/nl/2021/03/11/veiling-virtueel-kunstwerk-gaat-door-het-dak-en-levert-58-miljoe/.
(2) Ibid.
(3) Court of Justice (EU), 16 July 2009, C-5/08, ECLI:EU:C:2009:465, Infopaq International A/S v Danske Dagblades Forening and Court of Justice (EU), 1 December 2011, C-145/10, ECLI:EU:C:2013:138, Eva-Marie Painer v. Standard VerlagsGmbH and Others.
(4) S. F. Schwemer, “Article 17 at the Intersection of EU Copyright Law and Platform Regulation”, Nordic Intellectual Property Law Review 3/2020, 1 June 2020, p. 15.
(5) Berne Convention for the Protection of Literary and Artistic Works, 9 September 1886, as revised at Paris on 24 July 1971 and amended in 1979.
(6) China IPR SME Helpdesk, “How to File a Copyright Registration in China?”, 2016, p. 1, available at:https://www.china-iprhelpdesk.eu/sites/china-hd/files/public/v8_How_to_Register_Copyright.pdf.
(7) Nick, “What are NFTs and Crypto Art? A Guide With Top Examples Of Musicians In The Space”, thissongissick, 24 February 2021, available at: https://thissongissick.com/post/what-are-nfts-and-crypto-art/.
(8) S. Schroeder, “Wat zijn NFTs? Hier is alles wat je erover moet weten”, Mashable Benelux, 11 March 2021, available at: https://nl.mashable.com/tech/4098/wat-zijn-nfts-hier-is-alles-wat-je-erover-moet-weten.
(9) Denise Thwaites, “A token sale: Christie’s to auction its first blockchain-backed digital-only artwork”, The Conversation, 24 February 2021, available at: https://theconversation.com/a-token-sale-christies-to-auction-its-first-blockchain-backed-digital-only-artwork-155738.
(10) Ibid.
(11) X, “Hoe werkt een blockchain blockchain – simpel uitgelgd”, YouTube, 13 November 2017, available at: https://www.youtube.com/watch?v=SSo_EIwHSd4.
(12) B. Dickson, “What is blockchain?”, https://bdtechtalks.com/2016/09/07/what-is-blockchain/, Techtalks, 7 September 2016.
(13) B. Clark, “Blockchain and IP Law: A Match made in Crypto heaven?”, WIPO Magazine, February 2018, available at: https://www.wipo.int/wipo_magazine/en/2018/01/article_0005.html
(14) Ibid.
Image by Beeple: Everydays July 2016