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An Introduction of Non-Fungible Tokens (NFTs), their legal frameworks and Copyright ownership

What are Non-Fungible Tokens (“NFTs”)

NFTs in recent times have gained a tremendous amount of attention along with the evolution and fame gained in the Cryptocurrency field, NFTs can be the next recognized digital unit. They are a unique data unit stored on a digital ledger i.e., blockchains. NFTs can be termed as digitally produced objects such as photographs, images, video clips (2D or otherwise), audio clips, digital renders and any other type of unique digital file which can hold digital monetary value and define public proof of ownership.

NFTs are digitally recognised assets which are minted, and once minted cannot be edited or deleted from the platform. The process of minting in NFTs can be defined as the process of conversion of the NFT from an ordinary digital file to a digital collectable asset on the Blockchain which once created and uploaded shall not be edited, modified, or deleted from the Blockchain.


NFTs can be sold and/or traded on blockchains such as Ethereum. The NFTs that are sold and/or traded shall hold their unique digital value for which they are recognised in the digital market.


Legal Framework for NFTs in India

These crypto assets which are digitally created do not hold any legal recognition in India as there is no separate legal framework which would govern them in India. As of today, India does not have the legal framework needed for NFTs to be traded in India, but we do expect some new rules and regulations to come up in context with NFTs and fungible tokens.


NFTs gain their digital asset recognition after the minting process wherein, there is the involvement of creation of a code on the blockchain network such as Ethereum, Bitcoin Cash, EOS and other blockchain networks. Thus, after the creation of the unique code to the digital asset with the relevant ownership details, an NFT is created and the same can be listed/ offered on sale to the buyers in the open digital market.


Copyright and NFTs in India

Many believe that NFTs being digitally created works might have a certain amount of copyright once the NFT is purchased. Although it does have a certain limited amount of copyright protection, it does not allow the owner of the NFT to gain the copyright benefits the creator of the work can have in a non-digital world.


For instance, the person minting such work will have to seek permission from the owner of such work and seek approval for creating NFTs of such original work. We are all aware that the copyright law in India grants the owner of such copyright work to reproduce, distribute and create derivatives, etc. Thus, without the prior consent of the owner of the original work, one cannot create an NFT. Once such permission is granted, the person who wishes to upload the NFT on the blockchain shall have the right to sell it on the blockchains.


In India, the creative works of the author can be registered under the Copyright Act, 1957. According to Section 13 of the Act, a person can obtain copyright over their original literary, musical, dramatic, and artistic works. Section 22 of the Act provides that the copyright over the work will exist till the author's lifetime and for sixty years after the author's demise.


With reference to section 17 (a) of the Indian Copyright Act, 1957 “in the case of a literary, dramatic or artistic work made by the author in the course of his employment by the proprietor of a newspaper, magazine or similar periodical under a contract of service or apprenticeship, for the purpose of publication in a newspaper, magazine or similar periodical, the said proprietor shall, in the absence of any agreement to the contrary, be the first owner of the copyright in the work in so far as the copyright relates to the publication of the work in any newspaper, magazine or similar periodical, or to the reproduction of the work for the purpose of its being so published, but in all other respects the author shall be the first owner of the copyright in the work”


It is a well-established principle of law that the creator of the work shall remain the first owner of the work so created. Thus, once the permission is granted to such person to create the NFT for the work, the creator of such digital asset shall have ownership rights towards one particular digital asset only and the right to re-create or make copies of such NFTs shall not vest in with the creator of the digital asset. Therefore, if the creator of the copyrighted asset does not transfer or assign any right over the asset, the same shall not vest with the NFT owner.


In generic terms, an NFT shall only grant ownership of a particular copy of the work which that NFT represents and does not provide any rights over other NFTs of such similar work being uploaded on any blockchains.


Conclusion

One of the most significant difficulties is the widespread misunderstanding of the rights buyers gain when they purchase an NFT. Some purchasers believe they receive the underlying work of art and all rights associated with it. In actuality, though, they are just purchasing the metadata linked with the piece and not the actual art itself. The exclusive rights owned by the creator of a work include reproduction, publication, lending and leasing, public performance, adaptation, public communication, and permission to perform any of the aforementioned activities. As long as there is a causal relationship between the token and the work, only the right of communication to the public could be infringed through a link in an NFT. As an NFT is merely code, it is not a significant duplication of the work, hence it does not violate these rights.


Thus, NFTs shall hold digital monetary value for every copy of the work that is created, minted, and posted on blockchains for sale/transfer. Although there is no established law that governs NFTs, the Indian Copyright Act, 1957 does play a significant role when it comes to creating, distributing, and transferring copies of NFTs being created for digital recognition.


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