Non-fungible tokens (NFTs) have attracted global attention as they re-imagine the notion of ownership and authenticity in the digital age.
The emergence of NFTs in South Africa, like in other countries, presents distinctive challenges and opportunities in the way IP rights are perceived and managed, particularly with regard to trademarks and copyright.
This article explores how NFTs interact with trademarks and copyright within the South African legal framework, delving into the potential benefits, drawbacks and legal considerations that arise when these worlds converge.
NFTs: a Primer
NFTs are unique digital assets that represent ownership or proof of authenticity of a specific item or piece of content, often using blockchain technology. They can include digital art, video clips, audio files and even tweets.
Unlike cryptocurrencies like Bitcoin or Ethereum, NFTs are non-fungible, meaning each token has a distinct value and cannot be exchanged on a one-to-one basis. This uniqueness is at the heart of NFTs, making them one of a kind.
When an NFT is created or “minted”, it typically involves the use of a “smart” contract. This contract, based on software in the underlying blockchain technology, defines the rules and properties of the NFT, such as ownership, transferability and any royalties that should be paid to the creator upon resale.
Various artists and creators have dipped their toes in the water of NFT creation. For example, Mike “Beeple” Winkelmann’s collage of over 5,000 pieces titled The First 5000 Days sold for US$69.3 million in March 2021. In December 2021, digital artist Pak’s creation, Merge, fetched US$91.8 million, setting a new record for the most expensive artwork sold by a living artist. Jack Dorsey, former CEO of Twitter (now known as “X”) and CEO of Square, minted an NFT of his first tweet, which sold for a jaw-dropping price of over US$2.9 million. On the topic of art, South African artists such as Jan Hendrik Viljoen, aka “Portchie”, Norman Catherine and Paul Du Toit have also joined the trend and created NFTs.
An NFT is like a label on a digital item, stored on a digital ledger called a blockchain. The label is created using the digital item, but it typically doesn’t imply ownership of the actual digital item itself, unless specified in the NFT’s contract or terms of sale. An similar analogy is owning a limited edition print of an artwork, where the ownership is limited to the physical print itself, but not any special rights to the original artwork. Many stories about NFTs overstate ownership rights of people who own them; suggesting that owners have real-world rights to underlying digital items.
When buying an NFT, it is important to note that ownership of the token does not equate to ownership of the underlying asset it represents. Instead, buyers acquire a digital certificate proving ownership, without obtaining usage rights to the asset itself.
Take Jack Dorsey’s tweet, for instance. When it sold as an NFT, the platform likened it to buying an autographed baseball card, ergo an autographed certificate of the tweet. But buying the NFT doesn’t confer the right to use the tweet or print it on merchandise. The copyright still belongs to X and Jack Dorsey.
While luxury brands like Gucci have embraced NFTs, so far their application has primarily been attached to digital products. But the technology can, in theory, be used to establish ownership and provenance of just about anything.
For instance, distillers William Grant and Son sold 15 bottles of 46-year-old Glenfiddich whisky for $18,000 apiece, each accompanied by its own NFT revolving artistic impression of the bottle. These NFTs not only allows the owner to showcase their purchase but also act as a counterfeit-proof certificate of ownership.
NFTs have gained immense popularity in the art, entertainment and gaming industries, as they provide opportunities for value preservation and monetisation. Artists and creators can find NFTs to be a profitable means of bypassing the conventional methods of selling their art through galleries and receiving royalties through regulatory organisations. By selling their NFTs on online NFT marketplaces, they can directly engage with consumers, potentially earning significant compensation for their creations.
However, creating NFTs within the predominantly unregulated realm of NFT marketplaces poses a significant risk to brands and creators, as it opens the door to potential misuse of their trademarks and copyright.
Copyright and Trademarks in South Africa
South Africa has a robust legal framework for protecting IP, including copyright and trademarks.
Copyright provides legal protection to original creative works, including literature, music, art and software, once they are fixed in a tangible form. Copyright owners have exclusive rights to reproduce, distribute, perform and adapt their works. Copyright protection is automatic upon the creation of a qualifying work and generally lasts for the lifetime of the author plus 50 years.
Trademarks are distinctive signs, names or symbols used to identify and protect goods and services in the marketplace. Generally, any sign that is capable of distinguishing an item and can be represented graphically can be registered as a trademark, which includes:
- words (eg, Amazon);
- logos (eg, Starbucks’ siren);
- letters (eg, the Yankees’ “NY” monogram);
- a shape (eg, Coca-Cola’s original fluted, curvy glass bottle);
- colours (eg, the signature red colour of Christian Louboutin’s soles); or
- a combination of the above.
Registered trademark owners in South Africa are granted exclusive rights to use and protect their marks against unauthorised use or infringement.
Benefits of NFTs
Making Money
NFTs can generate revenue through various mechanisms, primarily based on their unique properties and the digital assets or content they represent. The most common way to make money with an NFT is by selling it to someone else.
Empowering for Creators
NFTs offer South African artists, musicians, writers, and other creators a novel avenue to monetise their digital content directly. This potentially reduces their reliance on traditional intermediaries like galleries or record labels, thereby promoting economic empowerment.
Global reach and Market Expansion
NFT marketplaces offer South African creatives a platform to reach a global audience, encouraging cultural exchange and showcasing the nation’s rich artistic talent to a broader community, potentially increasing the value of their work.
Innovative Licensing
Trademark owners may use NFTs as a novel way to license their trademarks. They can tokenise these licences, granting specific usage rights to NFT buyers within certain constraints, while maintaining control over their brand identity. This potentially opens up new revenue streams for trademark owners.
Proof of Authenticity
NFTs serve as a valuable tool to prove the authenticity and provenance of digital creations. In the South African context, this can be particularly significant in disputes involving the authorship and originality of creative works.
Digital Representations
NFTs are essentially digital certificates of ownership, often linked to digital or physical assets like art, music or collectibles. In South Africa, the creation and sale of NFTs representing copyrighted works can raise important questions about copyright infringement and licensing.
The Interplay in South Africa: Copyright versus Trademark
Many NFTs consist of digital artwork or other creative content. However, when these NFTs incorporate trademarks, it may lead to disputes over IP rights. This raises questions about the relationship between copyright and trademark law in the context of NFTs.
NFTs and Trademarks
Trademarks as NFTs
On the flip side, trademark owners in South Africa may explore the possibility of tokenising their trademarks as NFTs. This could provide a unique way to showcase brand authenticity and ownership – although it raises questions about the enforcement of trademark rights in the digital realm.
Ownership and Licensing
NFT ownership often involves the purchase of digital assets containing trademarked elements. Understanding the boundaries of ownership and licensing becomes crucial in distinguishing between lawful NFT transactions and trademark infringement. Trademark owners should also be aware of the potential misconceptions surrounding NFT ownership.
Enforcement and Infringement
The South African legal framework offers robust protection against trademark infringement. If a registered trademark owner can demonstrate that their mark is used in a way that confuses or deceives the public regarding the origin of goods or services, they may pursue legal action against the infringing party.
Unauthorised use of Trademarks in NFTs
As mentioned, trademarks in South Africa encompass various forms of representation, including words, logos, sounds, and even unconventional signs. Given the diverse nature of NFTs, the use of trademarks in NFT-related content can be multifaceted. If an NFT includes a registered trademark, logo or brand name, that belongs to a third party without permission, it may infringe upon the owner’s trademark rights.
The crucial question in trade mark infringement proceedings is whether the trademark registration in question cover NFTs and digital assets based on blockchain technology or related goods or services. If they do, there might be a clear case for trademark infringement:
- if the same or similar trademark is used for the same goods or services as those registered by the trademark owner; or
- if a same or similar trademark is used for similar goods or services, causing confusion.
However, even if the owner doesn’t have trademarks registered for NFTs and digital assets, it doesn’t necessarily mean they’re without recourse. In certain situations, it might be argued that, within the framework of traditional trademark dilution principles, the unauthorised use of a trademark through an NFT unfairly benefits from the reputation, advertising value or even negatively affects the distinctive nature of the registered well-known trademark.
To date, the number of legal proceedings between major brands and NFT sellers for trademark infringement has been relatively low. South African courts have not had to grapple with questions of enforcement and protection of IP rights in the context of NFTs, but there are likely to be interesting times ahead.
NFTs and Copyright
Tokenisation and Minting
South African artists may tokenise their digital art as NFTs, allowing them to sell these unique digital assets to collectors. The act of minting an NFT is the prerogative of the copyright owner, allowing them to commercialise their original work. For example, a South African artist can mint an NFT associated with their painting and offer it for sale in what is known as an NFT “drop”.
Infringement: Crypto-Artists and Minters Beware
The unauthorised minting of copyrighted works as NFTs or their sale and distribution can potentially infringe the copyright owner’s rights, particularly if the NFT is a direct copy or a derivative work.
Copyright, Ownership and Usage Rights
It’s essential to note that buying an NFT does not transfer the underlying IP rights, such as the copyright in the digital content. When buying an NFT, buyers gain the digital token and often the right to use a digital version of the artwork and sell that digital version. However, they don’t acquire the copyright or the right to display the artwork on other websites or products. These rights still belong to the artist.
Creators who tokenise their copyrighted works, retain their copyright while granting specific usage rights to buyers. These rights can be defined through smart contracts and may range from full ownership to limited use. For instance, CryptoKitties give NFT owners permission to use, copy and display the “kitty” (which is a digital asset) for commercial purposes, but only up to a maximum of US$100,000 per year. On the other hand, in some cases like NBA TopShot Moments, NFT owners get permission to “use, copy, and display” a “moment”, but they can’t make more copies or use it for commercial purposes.
Retaining the copyright empowers the artist to have exclusive control over the original work. This exclusivity allows them to exercise certain rights that traditional copyright rules allow, like creating copies, showcasing their work to others, or reselling it. It’s important to note that these rights don’t extend to the NFT buyer. The transfer of copyright to the underlying work or property rights related to a physical asset, only occurs when expressly agreed upon and properly assigned.
Nonetheless, there are special cases. For instance, in 2019, Nike obtained a patent for a concept known as “CryptoKicks”. They use NFTs to verify ownership of their shoes. Through this system, designers and companies can exercise control over their shoe designs and restrict the number of copies produced. This not only combats counterfeit shoes in the market but also facilitates the creation of limited-edition products, fostering brand loyalty and ensuring the business remains contemporary and competitive.
Fair Dealing
South African copyright law recognises the principles of fair dealing allowing limited use of copyrighted material for purposes such as research or private study. Determining what qualifies as fair dealing can be complex, particularly when applying these principles to NFT-related activities.
NFT Sales and Royalties
NFTs enable creators to receive royalties each time the NFT changes hands, potentially revolutionising the compensation structure for artists and content producers. However, the distribution of royalties must align with copyright law and agreements made with creators.
Enforcement and Infringement
South African copyright law enables copyright owners to take legal action against the unauthorised use, reproduction, or distribution of their work, even if it has been tokenised as an NFT. If someone mints an NFT of a copyrighted work without permission, the copyright owner has the right to pursue legal remedies.
Potential Drawbacks
Copyright infringement
The decentralised nature of NFT platforms can result in unauthorised tokenisation of copyrighted works, posing a risk to the IP rights of creators. Preventing the unauthorised tokenisation, use and distribution of copyrighted material is challenging due to the ease with which digital content can be copied and minted as NFTs.
Trademark Infringement
The proliferation of NFTs featuring trademarks without proper authorisation can have detrimental effects, including brand dilution, damage to brand identity, and consumer confusion.
Counterfeiting
The digital and decentralised nature of NFTs and NFT marketplaces can make it tricky to distinguish between genuine and counterfeit tokens, as well as controlling the distribution of NFTs that infringe upon trademarks. This can result in the propagation of counterfeit digital goods and potential harm to the reputation of trademark owners.
Regulatory and Legal Uncertainty
Currently, South Africa lacks specific regulations tailored to NFTs, which creates hurdles in addressing legal issues and effectively enforcing IP rights. This lack of clarity within South African copyright and trademark laws can potentially lead to legal disputes in dealing with NFT-related matters.
Legal Considerations
Trademark Registration
In order to benefit from the maximum protection under South African law, trademark owners should ensure that their trademarks are protected in the correct classes and registered with the Companies and Intellectual Property Commission.
Copyright Protection
While copyright is automatically conferred upon the creation of an original work in South Africa, creators may still opt to register their works in other jurisdictions for added protection, especially if they plan to tokenise them as NFTs.
Licensing and Transfer Agreements
Creators and IP owners, when minting NFTs, should establish clear and legally binding agreements to define the rights and limitations, licensing, any transfer of copyright, and royalties related to the NFTs’ terms of use and resale.
Jurisdiction and Cross-Border Enforcement
NFTs, by their very nature, transcend geographical borders, making the enforcement of IP rights a daunting task when NFT transactions span across global jurisdictions. International treaties and agreements, such as the Berne Convention, can be relevant in cross-border NFT transactions.
It’s imperative for trademark and copyright owners to understand the hurdles presented by jurisdictional issues as they seek to protect their rights in the NFT realm. In such cases, the expertise of legal professionals well-versed in both South African and international IP law becomes indispensable.
Tax & Legal Implications
NFT transactions may have tax implications, and individuals should be aware of any tax obligations associated with NFT sales and purchases. South Africa may need to develop specific regulations and taxation policies concerning NFTs and their interaction with IP rights, including trademarks.
The legal landscape surrounding NFTs is still evolving. It’s essential for creators, buyers, and IP owners to consult with legal professionals who have expertise in both IP law and emerging digital-asset technologies.
In addition to securing traditional forms of IP right protection, there are certain measures that brand owners can take to monitor and enforce their valuable IP assets, listed below.
Monitoring and Enforcement
Brand owners should structure their watch notices to also cover key NFT marketplaces. Vigilant monitoring of NFT marketplaces and the metaverse for copyright and trademark infringement is essential, with legal recourse available to protect IP rights.
Establishing Presence in Metaverse
Offering goods and services and setting up virtual showrooms not only extends companies’ opportunities for growth but may assist in preventing widespread unauthorised use of IP rights by third parties.
NFT Platforms’ Responsibilities
NFT platforms operating within South Africa must take measures to prevent trademark and copyright infringement on their platforms. This may involve implementing robust IP policies and mechanisms for reporting and takedown procedures to address potential IP rights violations.
Staff should be educated that unauthorised use of IP is impermissible – whether in an NFT or any other manner.
Enforcement Actions
When NFTs infringe on IP rights in South Africa, creators and trademark owners have several legal avenues to protect their interests against both:
- minters who do not have permission to mint NFTs associated with the brand’s underlying asset or work; and
- marketplaces where NFTs are offered for sale – takedown notices may be issued in addition to utilising blockchain forensics for experts to trace the flow of NFTs and identify infringers.
Practical Considerations
Due Diligence
Creators and collectors should conduct thorough due diligence to ensure that the NFTs they create or purchase don’t infringe on existing trademarks or the copyright of third parties.
Ownership Documentation
For creators minting NFTs of their own work, it’s advisable to keep clear records of the NFT creation process, including any licensing agreements, to demonstrate ownership and copyright permissions.
Licensing and Permissions
To avoid legal issues, seek permission or licences from trademark and copyright owners when incorporating trademark elements or copyright-protected works into NFTs. Given the evolving nature of NFTs and IP law, consulting with legal experts who are well-versed in both areas can help navigate this complex legal terrain.
Appropriate oversight should be given to the use of a business’s IP by third parties (whether buyers of an NFT or third parties) and steps taken where appropriate.
Final Observations
The emergence of NFTs has introduced new dynamics to IP rights in South Africa. While offering opportunities for monetisation, NFTs also present challenges tied to the management of IP rights, particularly with regard to trademarks and copyright.
To address this, businesses and stakeholders involved in NFT transactions must establish clear terms of sale within smart contracts and well-defined licensing agreements. By doing so, they can protect their IP assets, optimise monetisation strategies and thrive in the evolving legal landscape.
As NFTs continue to surge in popularity, the imperative for protection grows alongside their vast potential. Clearly there are many issues to navigate and ultimately how the law evolves remains to be seen. Staying informed and adapting to the evolving legal framework is crucial for participants in South Africa’s creative and digital asset ecosystem.
DELTA Data Protection & Compliance Academy & Consulting – info@delta-compliance.com
