Fair Use & Non-Fungible Tokens

traverselegal - October 21, 2022 - Non-Fungible Tokens (NFTs)

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Non-fungible tokens (NFTs) are the latest vehicle for capturing, linking, and licensing intellectual property. NFTs are used in all entertainment, gaming, art, and science forms. The tokenization of digital files so that a single file owner can be recorded on the blockchain and identified is an essential breakthrough in IP protection.  

Intellectual property should be registered with the USPTO or Copyright office to receive maximum protection. Linking your copyrighted work to an NFT and recording ownership on the blockchain shows provenance or immutable ownership. That NFT can be transferred or licensed to subsequent NFT owners, all of which are recorded on the blockchain. 

Owners of NFTs linked to copyright-protected works, whether buying or selling, need to be aware of both copyright and trademark law. You bought a Bored Ape NFT.  But can you use the words “Bored Ape” when that brand is registered as a trademark by the project owner Yuga Labs?  The Bored Ape image you bought, as linked from your NFT, feels like it is yours.  But is it?  You need to check Yuga lab’s licensing terms to determine what rights you received in the image when you bought the NFT.

You, as an NFT owner, may – or may not- have received the rights you need to make commercial use of your digital work.  If you don’t own the NFT, you might still wonder how you can use the image which appears on Google search or at the OpenSea marketplace.  Can I copy and use a digital asset linked to an NFT? What if I ‘right-click’ and save an NFT-linked digital image?  

Trademark and copyright infringement are risks you need to assess before you buy an NFT or use a linked digital asset. This post will discuss the defense of “Fair Use” to a copyright infringement lawsuit or threat letter.  Like all other copyrighted works, the issue of “Fair Use” also arises in the Eeb3 and NFT space.

What is a Fair Use Defense to a Copyright Infringement Claim?

The argument for fair use is a legal defense to a copyright infringement claim. There is no hard and fast rule on what can be considered fair use of copyrighted items, but a few factors can help determine if fair use will apply. 

  • Purpose of use: Is the intellectual property used commercially or for non-profit educational purposes?
  • The portion of copyrighted work used: How much of the protected work was used, and how substantial was it?
  • Effect on market value: Has the use of intellectual property affected its market value?
  • Nature of use: In what context is the IP being used?

A few examples of what may be considered fair use include: teaching, journalistic reporting, criticism, comment, or research. This list is not all-inclusive. Each scenario is different. 

Does “Fair Use” Apply to NFTs? 

Fair use applies to any copyrighted intellectual property, including digital files (images, videos, artwork, documents, audio files, etc.) linked from non-fungible tokens. The newness of NFTs and how they can potentially be used in the future creates instability and legal confusion for individuals. 

A digital work linked to an NFT can be for personal use or for commercial use. The Fair Use defense works better when the use is non-commercial.  

NFT Copyright Infringement Issues

Before any type of fair use determination can be made, there must be a colorable copyright infringement claim.  The digital files linked to NFTs are sometimes protected by copyright laws. You may be guilty of copyright infringement if you are misusing an NFT you purchased or creating an NFT from copyrighted work you do not own. It cannot be stressed enough to know what you are purchasing and what rights of use come with it. If you are not infringing on the copyright, fair use is not required and does not need to be considered. 

NFT legal information online can be inconsistent and outdated. Each case is different regarding NFTs, copyright infringement, and the defense of fair use. Legal counsel will have the knowledge and experience to navigate each factor of the fair use clause to help you determine if your prospective use of an NFT-linked file is protected under the fair use doctrine.


Stay Up To Date with Blockchain and NFT Lawyer Enrico Schaefer.

We are doing this together and solving the legal issues presented by NFTs as we explore these new intangible assets. Join us on this journey, participate and keep up to date.

Subscribe to our YouTube Channel, ‘The NFT Lawyer,’ to stay on top of the latest legal developments, and issues for Brand NFT drops.

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Additional NFT Resources, Templates, Forms, and Information.

TL Blockchain Attorneys: https://www.traverselegal.com/blockchain-attorneys/

FREE! NFT License Agreement Template/Sample – https://nft-license.weebly.com/

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