The intellectual property challenges of artworks turned into NFTs

What is an NFT? 

An NFT (Non-Fungible Token) is a unique digital asset that represents ownership or proof of authenticity of a specific item, often digital art, music or virtual goods, stored on a blockchain. An NFT is not the content itself, but a marketable token that points to an internet URL displaying the underlying content (such as an image or song) containing a linked line of code that serves to verify authenticity. So, the primary purpose of NFTs is to certify the authenticity of digital works of art. But does ownership of an NFT also grant the owner intellectual property rights, particularly copyright, allowing them to use the artwork freely? To answer this, we first need to clarify what copyright protects in relation to an NFT. The NFT itself is an element of the blockchain, a computer-generated digital code, but it is not a unique and original creation by a specific individual. So, while the NFT itself is not protected by copyright, the underlying content, such as the painting, song or drawing that the NFT certifies as authentic, is likely to be protected. When an artist sells an NFT depicting their work, they retain the copyright unless there is a specific agreement for the transfer of those rights. Thus, the purchase of an NFT does not allow the underlying work of art to be exploited commercially unless the artist transfers or licenses these rights. The main rule under Hungarian copyright law – with certain exceptions – is that authors cannot fully transfer their copyright but only grant licences to it. Therefore, when an NFT artwork is sold, the ownership of the copyright remains with the artist, while ownership of the NFT itself is transferred.

Smart contracts

Smart contracts can facilitate the transfer of NFTs in some jurisdictions, but Hungarian law requires a strict written form for contracts involving the granting of copyright licences. Under current regulations, smart contracts do not satisfy the written requirement. Thus, even if the copyright holder artist intends to grant permission to exploit the work alongside the NFT, this cannot be validly executed through a smart contract. The solution is to conclude a separate, traditional written contract. But this approach undermines one of the key advantages of NFTs: the ability to transfer a work of art and all associated rights that the creator wishes to transfer simply, digitally and traceably, through NFTs and smart contracts. 

authors: Márk Kovács, Bálint Bodó