By Steve Hawley
This article is the first installment of an occasional series about piracy and the metaverse, which, depending on your perspective, is a threat to your business, an enormous opportunity, an online land-grab, or just totally confusing.
Merriam-Webster has several definitions of a Non-Fungible Token, or NFT. One of them says an NFT is “a unique digital identifier that cannot be copied, substituted or subdivided, that is recorded in a blockchain…used to certify authenticity and ownership.” Another says NFTs “are certificates of ownership of a unique digital item such as a video, recording, or cyber artwork. These digital receipts reside on the blockchain …”
…Which leads to other questions of definition, such as “what is a blockchain,” “what is the metaverse?” (and is that word capitalized?), “How are NFTs bought and sold?” – and starting below, what are some piracy use-cases that can apply to NFTs? Piracy Monitor will get to those over time.
Ball of Confusion
In recent months, I’ve come to see that there’s a lot of confusion over what they really are, what they are intended to do, what they actually do – and whether or not they can be pirated. These conversations have also exposed use-cases that may be addressable with today’s anti-piracy technology.
While all in all, it’s clear that it’s still ‘early days,’ both for NFTs, and for any emerging anti-piracy solutions that can be applied to them, two initial courses of action are apparent: to protect the intellectual property and its use by ensuring that the contract carried by the NFT is comprehensive, and to ensure that the actual content carried with the NFT is, itself, protected.
Two personal friends of mine, a couple, are both trying their hands at NFTs. The husband is a creator of video art pieces, with a portfolio going back to the 1960s. The wife is an analyst in the fashion design industry. We’ll call them Ray and Annie.
Ray was keen to experiment with NFTs and created several seconds-long loops of abstract video art for that purpose, in the believ that their unique nature carries value. He posted them to one of the better-known NFT marketplaces, and in fact some of them have sold.
“But what happens if someone opens it, captures the screen and re-sells a counterfeit,” I asked. He expained that the Blockchain carries a chain of ownership, so that 1) it can be proven that he’s the artist, and 2) that the mechanism exists so that ownership can be transferred. “The counterfeit would not be the original, and the NFT proves that,” he said.
“Plus,” Annie chimed in, “One of the great virtues of NFTs is that they create and reflect community. Think of the massive followings that actors, sports figures, movie franchises – even designers – have;” and she cited several examples from the fashion industry. By examining the information that came with the NFT (the metadata), its counterfeit nature is exposed. “The counterfeiter is not part of that community – and therefore, the copy has no value,” she said.
But that doesn’t stop counterfeiting
These were good answers as far as they went, but what if the counterfeiter isn’t following the rules? What if it’s someone posing as the artist, and ‘saying’ that he or she ‘is’ that artist and registering the NFT under the name of the artist? For example, buyers may not be sufficiently well-informed to know how to identify the difference before they make the purchase. That’s where technology might come in.
One answer that occurred to me – which has occurred to some of the technology companies I’ve spoken with – is to apply a second layer of protection. Analogous to “two-factor authentication,” but where the Blockchain is the first layer; to supervise the chain of custody, nature of ownership, and enable a sale or licensing transaction. The second layer might be DRM – so that once an item has been purchased or licensed, only the holder of the decryption keys would have access to it – and that the keys be distributed separately.
It was clear to me that the answers to these questions are not apparent, nor are they easy. DRM might in fact be applicable but what else? What happens if DRM is hacked – the streaming video industry can point to well-known examples. Do we need watermarking too? How does monitoring work when the asset is surrounded by an NFT?
And what are the legal issues? What does an effective NFT contract look like? What are some of the other non-technical issues?
Why it matters
Piracy Monitor is not aware of any major studio or TV programming content trying their hands selling potential blockbusters as NFT, but such experiments must certainly be brewing.
Designs (and fine art) have enormous value; as do film and TV series franchises. By analogy, consider the success of Nike’s CryptoKicks virtual shoe collection, which according to one report, had taken in $185 Million as of August 2022.
To address whether or not a buyer really owns the content of an NFT or just a copy of the original content, the contract carried by the NFT will need to be clear about that ownership. And then, if the owner is selling the NFT through a distributor or marketplace, have they been granted the rights to communicate the NFT?
The law firm Norton Rose Fulbright asks some important questions: “Any creative endeavour is in theory capable of being tokenised or “NFT’d”. Record prices are being reached for the sale of non-fungible tokens (NFTs). But what are NFTs? How are they created? Why are they so valuable? What does the buyer own? What rights do they confer? And why should IP lawyers care?”
And I would add, “When and how can they be pirated?” Certainly the problems and their countermeasures are a combination of the technical and the non-technical.
These questions are important. Also, NFTs are often mash-ups, which will make their protection even more tricky to navigate, because the debate as to whether or not brands can be protected when media content depicting a consumer product is part of an artistic creation – and whether or not unlicensed distrbution constitutes piracy – isn’t fully resolved.
Interesting reading and further reference
Being at the beginning of this discovery process, here are a few interesting pieces from the legal sphere:
NFTs and Intellectual Property Rights (Norton Rose Fulbright, October 2021)
Litigation in the Metaverse: Is IP Fit for Purpose? (World IP Review, 2022 issue 2 – register for access)
Applying the Rogers Test: A Step Too Far? (World IP Review, 2022 issue 3)
NFT Now is dedicated to NFTs. Worth following, subscribing.