Digital art and collectibles have been revolutionized by non-fungible tokens (NFTs), creating a frenzy among enthusiasts and investors alike.
However, as the hype around NFTs continues to grow, creators need to take note of the complex legal considerations that come with this territory.
From copyright and ownership issues to smart contract disputes, the legal implications of NFTs are vast and rapidly evolving.
NFT artists must know their rights and obligations in this new digital landscape to navigate this exciting but potentially treacherous terrain.
Here are 5 common questions that NFT creators should be asking themselves.
Table of Contents
Do I own the intellectual property rights to my NFT?
As the creator of an NFT, you may own the intellectual property rights to the digital asset but not necessarily the underlying content or materials used to create it.
Regarding digital art, the original creator of the NFT owns the rights to how the artwork is presented.
This includes the color, composition, and other artistic choices made in creating the piece.
It’s important to note that the person who buys an NFT does not automatically own the rights to the artwork’s subject matter. Instead, they only own the NFT itself.
For example, let’s say Jen creates an NFT of a digital painting that features a well-known celebrity, and she does not have permission from the celebrity to use their likeness.
Jen sells the NFT to a collector, who now owns the NFT but not the rights to the celebrity’s likeness.
The celebrity could potentially take legal action against the artist for unauthorized use of their likeness, and the collector may not have the right to display or reproduce the NFT without permission from the celebrity.
In this scenario, it’s crucial to understand that owning the NFT does not automatically grant ownership of the subject matter depicted in the artwork.
Can I use copyrighted material in my NFT?
In some cases, you may use copyrighted material in your NFT under the doctrine of fair use.
Fair use allows the limited use of copyrighted material without permission from the copyright holder.
However, whether or not a particular use of copyrighted material qualifies as fair use depends on the specific circumstances of each case.
For example, an artist might create an NFT featuring a satirical cartoon of a famous politician.
If the use of the politician’s image is transformative, serves a critical purpose, and is not for commercial gain, it may qualify as fair use.
On the otherhand, if the artist uses the same image of the politician for commercial purposes, such as on merchandise or in advertising, it may not be considered fair use.
If you need clarification on whether your use of copyrighted material is legal, it’s best to consult with a qualified crypto attorney.
Do I need to pay taxes on NFT sales?
Creating an NFT is generally not taxable, but NFT creators need to be aware of certain taxable events related to cryptocurrency transactions.
Creators of NFTs are subject to taxation under certain circumstances.
Specifically, they must report and pay taxes when:
- Selling an NFT for cryptocurrency
- Receiving recurring NFT royalties for each sale, which are also taxable
Income earned through such transactions is considered ordinary income.
Want to understand NFT taxes better? Our NFT Tax Guide can help!
Can NFT creators get sued?
Yes, NFT creators can potentially face lawsuits depending on the circumstances.
As with any creative work, there is a possibility that the NFT may infringe on someone else’s IP or violate other legal rights.
Let’s take a closer look at some situations where NFT creators could find themselves in legal trouble:
- Intellectual Property Infringement: NFT artists could get into trouble if they use copyrighted material or IP without permission.
- False Advertisement: Selling an NFT with false or misleading claims about its unique features can land an NFT artist in legal hot water. Such claims could lead to allegations of fraud and potential litigation.
The FTC can take over your business and repossess your home, making it a matter that should not be taken lightly.
If you’re under investigation, our FTC defense lawyers can help you avoid hefty fines from the FTC.
- Privacy violations: If the NFT creator collects personal information from buyers without consent or uses it to violate privacy laws, they could face legal action.
An NFT creator may collect personal data from buyers or users of their NFT platform for various reasons.
For example, they may collect personal data such as email addresses, names, and social media profiles to send updates about new NFT releases or promotions.
Data on users’ NFT preferences or purchase history to improve the user experience by providing personalized recommendations may also be collected.
Do I need a license to create and sell NFTs?
Typically, no. Creating NFTs usually doesn’t require compliance with SEC laws.
However, if the NFTs involve regulated financial instruments or securities, then compliance may be necessary.
As NFTs continue to gain popularity, it’s crucial to stay informed about the legal considerations surrounding their creation and sale.
Why NFT Artists Need Legal Help
To sum up, NFTs have opened up new possibilities for creators and investors, but navigating the legal side of this emerging market can be complex.
Understanding the legal questions around NFTs is crucial, as creators and investors need to protect their work and investments.
Our proven cryptocurrency lawyers can help you successfully run your business while avoiding any run-ins with the law.