Copyfraud and copyright infringement in NFTs

| Part 1 | Part 2 | Part 3 | Part 4 | Part 5 |

Here we go again. I was seriously planning not to blog again about non-fungible tokens (NFTs), and instead concentrate on writing a full academic paper about the subject, but events have overtaken us, and it seems like a day in NFT-land is like a month in the real world, much like time has become irrelevant in the pandemic, but I digress.

So much has happened in the last week that it’s difficult to keep up. Jack Dorsey sold an NFT of his first tweet to a crypto entrepreneur for an equivalent $2.5 million USD, beating another crypto entrepreneur. The NBA had been selling NBA Top Shots, “unique” NFTs of NBA moments, the value of which exploded with the rest of the scene. Then an NFT of a collage of works of digital artist Beeple was placed at auction at Christie’s and it was purchased by another crypto entrepreneur for the eye-watering sum of almost $70 million USD, and all hell broke loose. Astute observers of the space have noticed that the buyer of the Beeple NFT already owned several tokens on other works, prompting questions about the validity of the value being exchanged in this space. In short, most of the action seems to consist at the moment of crypto-bros buying stuff off each other, adding to the hype and further inflating the market. But I digress again.

The incredible hype has brought about a gold rush in which everything is being tokenized and released as an NFT, so it was just a matter of time until someone tokenized something that didn’t belong to them, or something in the public domain. That time has just passed.

A few things have been happening in this front. First, a few artists started noticing that some of their art was being tokenized without their permission. This was to be expected, as the hype grows, the incentives to put something up for sale also increases, even if what is being tokenized doesn’t belong to the poster.

And now another inevitable and foreseen thing has happened. An entity known as the Global Art Museum (GAM) has started tokenizing public domain works and placing them for sale in the NFT marketplace OpenSea. GAM is “an art initiative that aims to transform grand Old Masters, from the Renaissance to Neoclassicism, into NFTs.” They claim that each painting is unique in the collection, and that 10% of sales will go to the museum.

This has generated a bit of a small twitterstorm, and it will be interesting to see what happens. However, this raises quite a lot of potentially interesting legal questions that I have not seen answered elsewhere. The first question is about the validity of making NFTs out of public domain works, and whether this is some form of copyfraud. The second is that of possible copyright infringement taking place in the NFT space. I will deal with each question separately. However, first we need to look at the underlying technology.

Minting a work

This question is related to what actually happens when a work is made into an NFT. I explained a bit about tokens in my previous blog post, but with possible copyright infringement and copyfraud claims taking place, we really need to look a little bit closer at what is happening under the hood when an NFT is created.

When we remove all of the hype, an NFT is really nothing more than metadata written into a blockchain. There are many ways of doing this, you can even test it yourself by installing a local ethereum node in your computer, downloading an NFT form contract, and applying it to a file in your computer and compiling it following one of the many tutorials out there that will allow you to create a local NFT (it’s sort of easier than it seems). The resulting data can be written into a blockchain, which requires access to a cryptocurrency wallet that can transact in the target blockchain (most likely Ethereum).

So assuming we want to mint an icon of a horse (these examples were created by developer Andrew Coathup), and you have an Ethereum wallet and funds, you can install an implementation of the ERC721 contract in your computer, and use the file to compile a contract which produces metadata that can be written to the Ehtereum blockchain, as is the case with this horse here. This metadata is using standards that are publicly verified and verifiable, so other intermediaries can just look at the data and see that this is a valid NFT. Because this metadata was encoded with a file and a set of private keys and private accounts, the resulting token is unique and intrinsically encoded with the original file.

While it is possible to do the entire minting operation on your own, the easiest way for anyone interested in minting their work is to use a third party service. Again, all one needs is an Ethereum wallet and funds for the transactions, there ain’t such a thing as a free lunch in cryptoland, so everything has to be paid with gas.

You may notice one thing about all of the above, which I think may be important when we analyse the issue from a legal perspective, and it is that while the image of the horse was used to encode the NFT and make it uniquely attached to the image, the NFT is not the actual image itself, it is the metadata that ties it to the original file. This is an important point that I feel is also being missed in some of the media coverage of NFTs. In some ways, it seems like what is being bought is a work of art, or a tweet, or a video, but that is not correct, what people are purchasing is a unique receipt written into the blockchain.

Many of you will see one of the first glaring aspects of the vaunted scarcity that is being created here, and it is that nothing stops me from making another unique metadata of the same work, the resulting data will be uniquely tied to the original, but there’s nothing stopping me from creating various versions of different metadata from the same image. In fact, I could even just re-size it by one pixel, and also produce all sort of “unique” metadata of the same thing, or of a different format of the same image.

The second thing is that one can add all sort of copyright related data into the contract and include it in the encoding of the file, but this again is just a claim that is written by the minter, it doesn’t make it true, and it is not a claim of property. One owns the NFT because one owns the keys that were used to mint it, and these can be transferred. There is a lot of misunderstanding of what the ownership of the NFT means, some people seem to think that if you buy an NFT of an NBA shot, you own that clip, when in reality you don’t, the terms of the NBA NFT are hazy on that respect, and on whether there will be other versions of the clip made available, and you can’t even really use the image without permission.

Moreover, one does not need to own the original itself, anyone can create an NFT of anything in the world, even if it doesn’t belong to them. Which brings us to the questions of copyfraud and copyright infringement.

Copyfraud

Copyfraud is generally understood as making a false or dubious copyright claim over a work that is in the public domain. Works that are in the public domain can be used by anyone, but sometimes an institution will make a copyright claim over one such work. There is little or no effect to copyfraud, to my knowledge only Chile has made it a criminal offence to falsely make a copyright claim over a work in the public domain, and there’s very little litigation on this subject. However, there has been some backlash against heritage institutions that have made dubious ownership claims involved with public domain works (unrelated note, I used to get more comments in the blog!).

So while there may not be a legal issue with copyfraud taking place, we have to ask if the tokenization of works by GAM is doing here even copyfraud. As we have seen above, when one makes an NFT of an image, one has to have an original file that is being used to mint the token. In the case of GAM, they took artworks from the digital collection of public domain works at the Rijksmuseum in Amsterdam. This is a very famous and celebrated collection that has gone entirely digital, and most of it is flagged as being in the public domain.

Found at the bottom of all artwork.

The Rijkmuseum encourages re-uses of its works, and this is a strong political statement in defence of the public domain. When visiting Rembrandt’s The Night Watch, one is allowed to make prints of details, download the image to use in a new creation, and even to order posters of the work. This is keeping with the idea that one should not enclose the public domain, it’s for everyone to use. The copyright status of the work is clearly set as being in the Public Domain, and while there could be some claims over the photograph of the painting, it’s unclear that it would meet a threshold for protection. The Rijksmuseum claims ownership of all the photographs of its artwork, but doesn’t seem keen to enforce it.

So the GAM project had legitimate access to the Rijksmuseum works, and so there is no issue with regards to minting a work and turning it into an NFT, as is the case with the same painting. One may not like the possible enclosing of a public domain work, and personally I find the use of PD works in this way in order to profit and make an NFT as rather distasteful, but it’s definitely not illegal.

Furthermore, one could argue that what is being done here is not even copyrfraud at all. GAM has made clear that all the works come from the Rijksmuseum, and do not claim any involvement with the institution. What they have done is used an image, and I have to say a sort of low quality copy at that, and used it to mint some metadata and write it in the Ethereum blockchain.

So there are no claims of ownership, just the minting of a “unique” version of the work which is not even a copy of the work itself. No copyfraud here.

But then what’s the point? Here is where I’m more critical. While legal, I find that the inevitable rush to make an NFT out of all public domain works is a good indication of the vacuousness of the NFT scarcity idea. The people at GAM can mint Rembrandt’s works, but so can I! I just can’t be bothered to pay about $40 USD at today’s prices to have the work minted. Moreover, the mythical uniqueness of this token still baffles me, it’s just metadata. All files in the world are unique in one way or another, an NFT is just having a cryptographically signed version of it, and one not even from the author (because, you know,  public domain artists are no longer with us). So I can buy something and tell everyone that I own an exclusive metadata, which everyone else can reproduce.

So while my initial reaction was one of disgust, I have come to see it mostly as slightly unethical at worst, and pointless at best. There may even be a silver lining, with all the amount of money flying around at the moment, it would not be the worst thing in the world if some of it made it to a museum to continue preserving the public domain. (edited to add: apparently it was all a big joke!).

Copyright infringement

While the minting of public domain works is interesting, the issue that is most likely to generate legal conflicts is the minting of a work from a person that is not its author or owner. The other phenomenon taking place is that people have now started minting works that do not belong to them.

Artist WeirdUndead complained that someone had been minting their works and placing them in OpenSea, while another artist called CorbinRainbolt had some of his works on dinosaurs also tokenized without his permission.

In both instances works have been removed from the NFT marketplaces, but it prompts us to ask the question of whether the unauthorised minting of a work would actually be copyright infringement.

I actually think that this is a trickier question than it would appear at first, and again I revert to the manner in which works become tokens. As explained above, you need a file to digitally sign and turn it into a non-fungible token. This could be done with your own works, a photographer can do this with a digital file of their picture, and an artist can do the same with their digital art. But what if I wanted to mint a work by Beeple, or by Banksy? Who would do that? Well, I did, at least in a local blockchain using Ganache and Pinata (instructions on how to do this can be found here).

I wrote a smart contract called PirateNFT and used it to compile an image by Banksy (I thought about using Beeple, but I really dislike his art). Then I uploaded the picture and a metadata file to Pinata, which added a hash to the work, and the metadata claims that I am Banksy. The next step was done to compile the NFT locally putting everything together, in effect minting it to my local blockchain. In a real implementation I would be minting it for real into a blockchain using either a third party service, or on my own (with the appropriate tools and wallets). Let’s imagine that I went the extra step and uploaded the metadata not only to a file service such as Pinata, but turned it into a full NFT in a public blockchain. Have I infringed copyright in some form? (Edited to add: I’ve gone ahead and minted the image).

For certain I downloaded the file from the Internet, and then went and produced some metadata that is intrinsically linked to it. While the file is online, it need not be, an NFT is not the image itself, but the tokenized version of the image. Is this unauthorised copying? Is it a communication to the public? I am not sure, as I said, my NFT is not the work itself, it is just a non-fungible token of it. My thinking right now is that the NFT is not a communication to the public as long as a copy of the original hasn’t been made available, but I’m willing to listen to other people’s ideas.

My pirate token also has some encoded metadata making false ownership claims, and that could possibly be an infringement of the moral right of attribution, which may be a better avenue to pursue this.

Concluding

We really have not many answers, I tend to think that building an NFT out of an image may not necessarily infringe copyright unless an infringing copy of the work has also been uploaded and made available to the public. I also do not think that making NFTs out of public domain is illegal in any sense. The public domain is for everyone to use (and abuse).

I do think strongly that the current craze is unsustainable both in a market and environmental level. Until Ethereum moves away from Proof of Work, the environmental concerns about the waste of resources used in the creation of an NFT will not go away. I also think that NFTs will lose their shine once people realise that what is being exchanged is not the work itself, or any ownership claim over the assets, and that there’s nothing stopping the token issuer from making more copies of their assets. I can’t help but thinking that NFTs are a just a pound-shop version of DRMs, with added environmental end monetary expense.

Whatever happens, I may have to write another blog post next week at the current pace.