In the world of blockchain, NFTs are an increasingly common fraud topic. Let’s find out one of the most popular ones: copyright.
On the rise since the year 2020, crypto art is giving everyday people the chance to become pixel millionaires thanks to non-fungible token technology (NFT). To illustrate this madness, digital work every day: The first 5,000 days of crypto artist Beeple fetched $69 million at a virtual auction in 2021. Despite its promises to protect artists, NFT technology is the basis for many fakes. So, what are the legal implications and solutions for rights holders?
Rare censorship of NFT-related business by exchanges
Sometimes the non-fungible tokens are associated with the work, guaranteeing the ownership of the digital file because it is a unique certificate of authenticity registered in the blockchain, i.e. an electronic record that is not tampered. However, NFT does not in any way guarantee ownership of the support of the work to which it refers and is not a work of mind within the meaning of intellectual property law, which subjects copyright to the originality of the work. In fact, there is no authenticity in the digital copy to work by way of a digital file, which itself can be accessed from a link entered into the token code. In practice, NFT platforms rarely verify whether issuers of tokens associated with a core business own the intellectual property, as authors or licensees. This then leads to numerous copyright infringements. For example, fake Banksy’s NFT was sold for 512 ETH (over $1 million) on the OpenSea exchange.
Counterfeiting is a serious violation of intellectual property rights
It cannot be accommodated in either cryptocurrency or digital tokens, and NFT is not subject to any specific regulations. However, the creation of an NFT associated with the work without the permission of its author constitutes a serious infringement of intellectual property, and the responsibility lies with the issuer but is also likely to fall on the market.
From an intellectual property perspective, copying, downloading and publishing a work to the public for profit purposes usually falls under the exclusive rights of the author or rights holders. However, forgery corresponds to any act that infringes the exclusive rights of the author. In this case, the release of the NFT relating to a copyrighted work without the permission of the right holder constitutes an infringement. From the point of view of criminal law, any act of counterfeiting in France is an offense punishable by a fine of at least 300,000 euros and imprisonment for three years.
In order to overcome identification difficulties on blockchain protocols where anonymity prevails, the 2019 European Copyright Directive on the Digital Single Market (DAMUN) has established a phased liability regime for certain platforms. This liability regime is aimed at online content-sharing service providers who “one of their main goals is to store and make public access to a large amount of copyrighted work.” However, NFTs marketplaces often host protected businesses and are therefore likely subject to the obligations detailed by the ordinance which moves the direction to Article L.137-1 of the Intellectual Property Code. First, the respective platforms should make every effort to obtain permission from the rights holders when making their work available. Second, they must act immediately, upon receipt of notice from the copyright owner, to block the infringing content and prevent any further publication of the content in question. To be clear, the obligation to prevent any new “upload” of reported illegal content does not affect young content-sharing platforms with a turnover of less than €10 million.
Actions available to copyright holders
First, the author of the infringing work can request the platform, through a notification, to quickly remove the content that infringes his or her exclusive rights. The notification must contain evidence of copyright ownership.
In the event of a dispute regarding the handling of the complaint by the platform, the rights holders may seize Arcom (the French general authority for the regulation of audiovisual and digital communications), which may impose measures to ensure that the infringing content is withdrawn.
Judicial order. In the absence of a satisfactory solution implemented by the platform, there are two procedures that allow for an injunction. Before any proceedings on the merits and on a provisional basis, an injunction may be requested in accordance with the classic summary procedure provided for in Article 835 of the Code of Civil Procedure.
Furthermore, Article L. 336-2 of the Intellectual Property Code gives the civil judge the power to issue “all appropriate measures to prevent or put an end to such infringement of copyright or related right, against any person likely to contribute to its remedy.”
An injunction can be directed to the platform but also to the ISP to block the site or to the search engine to reverse the results.
Commitment to criminal and civil liability. Finally, the copyright holder has the option to initiate criminal proceedings before the criminal court to punish the infringer with the penalties mentioned above. Damage paid to the victim can also be added.
Otherwise, the victim of forgery can file a civil action against the forger or, in the absence of a possible identification, against the platform in order to obtain compensation for the damage suffered. The case will be brought before the judicial court by subpoena and representation by an attorney is mandatory. A civil lawsuit makes it possible to obtain a decision more quickly and redress more than criminal proceedings, but it requires more substantial work to establish the evidence.