Difficulties with NFTs, NFT acquisition, NFT sale, NFT creation:

Metavers, crypto-currency, non-fungible tokens (NFT) or even Altcoin, blockchain, these are new words that have become very popular for several months, associated by the media with pharaonic transactions and prodigious virtues.

The firm assists you with your NFT, cryptos, blockchains issues

Museums celebrate the NFT. The metaverse is unleashed. The literature on the subject is abundant.

While the NFT representing the first SMS in history in 1992 was sold for 107,000 euros, and the first tweet by Jack Dorsey, co-founder of Twitter, was sold for 2.9 million dollars in NFT, this new windfall shows that the phenomenon is not anecdotal and is ahead of all its competitors.

Counterpoint: the entrepreneur Sina Estavi: Surfing on the wave of NFTs, he bought the first tweet in history posted by Jack Dorsey in 2006 last March, for the sum of 2.9 million dollars. Half April, he tried to resell it, except that almost no one wants it: the latter only collected about twenty offers, the highest being 3.3 ethers, or about 10,073 dollars.

Sales of NFT have been exploding for a few years, many platforms are dedicated to it. In 2021, the NFT market has also jumped and reached a transaction amount of 2.5 billion dollars.

What is NFT really? How does French law apply to NFTs? What is the relationship between NFTs and copyright? How is the purchase, creation and exchange of NFTs carried out?

To understand what an NFT-art is and why its end is near, it is necessary to define the context in which it takes place: the register, the encoding, the blockchain, the work of art and the right to author.

What is a ledger, what is blockchain?

A register, in the legal world, is a ledger (or file) that identifies and lists people, property, rights, and events, as well as the operations relating thereto: transfers, rentals, licenses, shares , union etc.

The register can be consulted and verified by all or by some, and each register has its operating methods. It is debited in “files”, like any file or database for data processing.

The objective of a public register is to make it possible to record rights or situations, this can be, for example, civil status, the cadastre, the trademark register, the criminal record, and more generally any database or file which may contain data relating to a person or property, to transactions.

For example, a trademark right is the subject of a deposit with the trademark register, a file corresponds to it, and the contracts which concern the mark must in principle be recorded in the register, on the file which concerns the mark. Thus the register keeps track of successive holders.

The "certificates" or "titles" or "extracts" are documents which certify the content of the register file on such date: thus extracts from the civil status, the kBis, the trademark registration certificate, which can give rise to the establishment of more sophisticated documents, for example an identity card, a passport.

These documents basically remain extracts from the register, and certified by the authority that maintains the register. This authority guarantees the reliability and security of the register, its integrity, and certifies the rights of such and such a person as recorded in the register.

The register therefore allows a data subject to certify their rights, identity, etc.

In the same way, the "blockchain" is a public computer register that records goods and the operations that concern them (sale, rental, etc.).

In the blockchain, the security of the ledger is ensured by a chaining mechanism

In the Blockchain, the certifying authority disappears and is replaced by a chaining mechanism, much like a mechanism for securing the pages of a book or notebook to ensure their inviolability: one cannot change a link in the chain without breaking the chain, or a page in the book without tearing the book.

If the chain is broken, the whole register is to be put in the trash, but as long as this is not the case, each link in the chain remains authenticated by the whole chain.

In the blockchain, each link is a “block” hence the expression “chain of blocks” or “blockchain”.

What is a token?

A digital identifier is recorded in a block of the blockchain, it consists of a unique encoded number (a “hash”) which is incremented (“minting”, “tokenization”) in the chain. It is called “jeton” or “token” in English.

This identifier can be compared to the number of a file which would be inserted in a large paper file (the register containing all the files). It is the form that allows the production of an “excerpt from the register” mentioned above.

Except that here the form is a “file” in the computing sense of the term, that is to say a unit containing data and executable by the same application.

The token encrypts the file and its url address.

The file describes a right or right to something and the conditions under which this right can be manipulated (sale, rental, partial transfer…).

The “right” means an option, a value, a right to something (ownership, rental, usufruct, etc.), a claim, a debt, etc.

The token identifies the file and therefore represents a right.

According to article L551-2 of the monetary and financial code,

“For the purposes of this chapter, a token constitutes any intangible asset representing, in digital form, one or more rights that can be issued, registered, stored or transferred by means of a shared electronic recording device making it possible to identify, directly or indirectly, the owner of said property.”

The token has value only as long as it represents rights registered in the file.

There is a debate: does holding the token confer rights?

Sometimes yes and sometimes no, depending on the legal conditions which are recorded in the file and which describe the right, the holders of the right, the operations carried out on the right, the changes of holder, the operations that can be carried out on the right and the legal conditions in which these operations can be performed.

These legal conditions may be included in a “smart contract”. This smart contract will include an execution program allowing the computerized, online execution of the operation envisaged, a sale for example.

To assign a token to his digital work, the artist must open an account on a dedicated platform with a public key (username) and a private key (password), and deposit his file there.

The platform saves the file on a unique url address, like any “drive”, and it is this address and this file which will be encrypted under a unique identifier deposited in the blockchain. The token is this unique identifier or “hash”.

The file cannot be modified but additional information and additions may be associated with it.

The successive operations that may occur on this “address+file” set will be identified by the platform as additions, each addition being the subject of its own hash.

The token is not strictly speaking transferred. The token is a hash.

It is the right of access to the file and the related additions, therefore to a set of hashes (or tokens), which is assigned.

Each change of holder of the right of access is recorded in an addition. This change is assimilated, by abuse of language, to a token transfer, whereas it is only a transfer of access to a set formed by a file and its additions.

This change of holder will be equivalent to a transfer of the token and its underlying assets under the terms of the legal conditions described in the file and its additions.

If, again, the legal conditions attached to the file provide that the transfer of access to the file according to such or such modality entails the transfer of the right described in the file, then there will be transfer of this right.

This right may relate to a digital asset, such as the aforementioned file, itself containing a digital pictorial work of art, much like a master painting supports the pictorial work.

The digital work of art can thus be transferred with the token.

But it is only ever a copy of the work, the original or a legal or illegal copy.

Indeed, this copy may be illegal, that is to say, it may have been made without the right to do so.

What rights does an author enjoy over the work of art he creates?

The author of the work of art holds copyright on the work which allows him to prohibit its exploitation without his authorization.

The purpose of these copyrights is to allow the author to derive income from his work: anyone who finds the work interesting, in particular an entrepreneur (producer, house, publisher, museum, etc.), and wants to take the risk of exploiting it, will be able to assert it, produce it, reproduce it, adapt it, represent it, mount it, etc., depending on the type of work of art in question, and derive income from it, in particular by paying back to the author an income in principle proportional to his own income.

In a way, copyright remunerates the success generated by the originality and appeal of the work. It should be distinguished from any remuneration paid for the work provided by the author and the other actors in the artistic chain to update the work, within the framework of an order or an employment contract.

The example of Mona Lisa

The Louvre Museum probably holds the original Mona Lisa painting by Leonardo da Vinci.

This painting, as a physical support, authenticates and incorporates the work, but is not the pictorial work itself, which can be reproduced ad infinitum, it is only its support.

Its possession allows the Louvre Museum to demonstrate, if anyone doubts it, that it is the sole holder of the original of the work, and that any copy that appears on the market would necessarily be a fake.

If the Louvre Museum holds the right to exhibit the Mona Lisa, it is because it holds certain exploitation rights transferred – by contract, as induced by the transfer of the support – by the legitimate holder of the copyright, originally the author himself Leonardo da Vinci.

It is this contract that allows the Louvre Museum to exhibit the work and derive income from it, and not just the physical possession of the canvas that incorporates the pictorial work.

This detention allows the work to be physically exhibited, but does not confer any copyright in itself.

This explains why the thief who holds the painting has the physical possibility of doing anything with it, including selling it on a parallel market, but does not however enjoy the legitimate rights of the author, among which the right of exposure, which allow the author to legally reserve the income induced by the success of the work.

In this sense, Article L. 111-3 of the Intellectual Property Code and case law specify that “the incorporeal property of the work is independent of the property of the material medium. »

Consequently, the purchaser becomes the owner of the material support of a work and can benefit from it within the framework of a private use, but does not enjoy, except explicit contract, the rights of exploitation on the work, which make it possible to reproduce the work and exhibit it to earn income from its success.

Copying a digital artwork to a computer file, such as the Mona Lisa photograph, is easy, and may reproduce the original perfectly, and may circulate and sell as well as the original.

As could be a physical copy of the canvas representing the Mona Lisa, except that a perfect copy of the Mona Lisa canvas would be more difficult to manufacture and would be denounced as fake.

The legitimate owner of the original may be offended by this but may find it very difficult to assert exclusivity, that is to say to assert his right of exploitation relating to his status as the original author of the work (or its status as the legitimate owner of the copyright).

The right to graphic and plastic works

For graphic and plastic works (sculptures), which are intimately linked to their support, it is difficult for the author to assert his rights.

Successive sales of the same medium are legal. They do not make it possible to exploit the work but to enjoy it for private use in the sense that only resale allows a price to be drawn from it.

The artist often derives his income from the first sale of one or a few copies of his work.

However, this first sale does not reveal much of the work's future success. Hence the institution of the resale right which allows the author to receive a percentage each time the medium is resold.

The NFT, “Non Fungible Token”, in the art world, is a token that designates a digital creation incorporating a work of art

The NFT (in English “non-fungible token”) is a so-called “non-fungible” token, that is to say unique and specific to any file.

Its transfer can translate, as we have seen above, according to the legal conditions attached to it, the transfer of a work.

For example, a digital creation, such as a word file containing text, will be deposited on a platform and encrypted with its unique url address under a unique identifier realizing an anchor in the blockchain.

The identifier will make it possible to date the digital creation, and to identify the depositor.

The transfer of the NFT may involve an illicit resale of the work

The NFT is a good, a "non-fungible" token, i.e. it is unique and cannot be exchanged for another non-fungible good, unlike a unit of currency which is exchanged for a unit of currency of the same value, 1 euro is exchanged for 1 euro.

It is exchanged for Ethers (Ethereum cryptocurrency similar to bitcoin or XRP), according to the price attributed to it by the market.

Transactions on these non-fungible tokens are done through a “wallet” type browser extension, for example Metamask.

Metamask is a digital wallet. It allows you to buy NFTs with Ether (Ethereum), for example on the SuperRare platform.

NFT art is a real opportunity for artists. This is a new source of income for some artists.

Indeed, the exhibition of digital works of art seems much more accessible than the exhibition of a physical work in an art gallery, since the exhibition on a simple website is a priori much easier.

Except…some web platforms will inspire more trust than others.

A website, like a renowned gallery, will inspire confidence when it is able to present a process of selection and verification of the authenticity and ownership of works.

However, the value of NFT art depends on the prices of crypto-currencies and more particularly Ethereum. If the value of the cryptocurrency decreases, the price of the NFT also decreases on its side.

Unique tokens are increasingly used in the sale of works of art, video games, but also as compensation for certain professional players.

The NFT identifies a digital creation which itself can reproduce all kinds of objects that can be put on a medium or a computer file, for example:

pictorial works
gifs
tweets

The misunderstanding is that anyone can, without right, make a copy of the artwork in a computer file, assign it an NFT of their own, and then sell the NFT presenting it as the lawful sale of a work of art.

In December 2021, legal action was taken by luxury group Hermès against Mason Rothschild for creating NFTs depicting fur bags inspired by the brand.

Mason Rotschild indeed created an NFT attached to the work “Baby Birkin” which he sold for several thousand euros.

Even though the purchase of an NFT may allow the purchaser to claim ownership of a digital file incorporating a digital work of art, this does not in itself imply that such purchaser has the right to derive income from it. this work.

Thus, when I photograph the Mona Lisa painting, I am the owner of the photographic shot that I took and no one has the right to copy this shot, especially if it gives, for example, a new dimension to the Mona Lisa , brings something original in the perception that one can have of the Mona Lisa work.

But I do not have, however, in principle, the right to exhibit or use a faithful reproduction of Mona Lisa without restriction, as the Louvre does, without special authorization. Copying of the medium incorporating the work is prohibited.

The notoriety of the Louvre protects the rights of the Louvre on the Mona Lisa, and it is hard to imagine someone charging a visit to contemplate a perfect reproduction of the work of Leonardo da Vinci.

But not all works have the reputation of the Mona Lisa, nor do they benefit from the reputation of the Louvre…

The rights of the author on the digital work are to be distinguished from the rights on the NFT

Article L. 122-4 of the Intellectual Property Code specifies that

“Any representation or reproduction in whole or in part made without the consent of the author or his successors in title or assigns is unlawful. The same applies to translation, adaptation or transformation, arrangement or reproduction by any art or process whatsoever”.

The NFT is associated with a work, but it is not in itself the work, it identifies an example, or a copy.

When it is assigned, it is usually associated with an assignment contract, which allows the sale of the copy that it identifies.

The creation of an NFT can therefore sometimes give rise to counterfeiting and copyright infringement.

We must take the example of the Mona Lisa: Do I have the right to make a copy of the Mona Lisa and sell it? No, if I do not have the agreement of the author or the legitimate holder of the rights.

Nor do I have the right to claim to be the author of it. I do not have the right, and if I do so I incur the legal action of the author or the holder of the rights.

The acquisition of an NFT allows the acquisition of the underlying file, which may relate to a simple prohibited copy of the work.

Therefore, the purchaser of the NFT does not acquire exploitation rights of the original work but only a file that can incorporate a simple prohibited copy.

Like the purchaser of a snapshot of the Mona Lisa, who would exhibit without restriction the work reproduced by his snapshot.

Moreover, a creator who has not taken care to deposit his work or to create an NFT of it, to take a date, may have difficulty in demonstrating that he is the original author.

The NFT is still comparable to a domain name: I am the only one to own a public website with such a domain name but anyone else can reserve another domain name pointing to a website copying mine.

The creation of an NFT results in the uploading of a file to a platform and the dissemination of the NFT with the aim of selling it.

If the NFT itself does not constitute a work, the file attached to the NFT may carry a work protected by copyright.

Therefore the creator of an NFT must ensure when downloading the file that it does not require the author's agreement.

Failure to do so could result in the creator of the NFT being sued for copyright infringement and infringement.

On copyright contracts:

https://roquefeuil.avocat.fr/cession-des-droits-dauteur-avocat-propriete-intellectuelle-paris/

Buyer's rights

The buyer of an NFT in principle acquires the underlying asset, but which may be a prohibited copy of the original work.

In this sense, he does not acquire the intellectual property rights on the work, but on a copy of a work of which he has no guarantee that it is an original and lawful copy.

He therefore incurs the prosecution of the legitimate holder of the rights to the work.

NFTs and copyright

Legally, the NFT is a non-fungible token that represents a digital asset and is unique to that asset. Another cannot create an identical NFT.

In this sense, the NFT makes it possible to certify the authenticity of an asset, but which may itself be an illicit copy of a work of art.

Thus, the equating of an NFT with a work of art is inaccurate.

Indeed, article L. 112-2 of the Intellectual Property Code lists the various intellectual works of which the NFT is not a part.

Also, the NFT cannot be assimilated to a work of the mind since its creation comes from a mathematical calculation, a tokenization process that does not require any originality.

The development of NFTs and Metavers raises many questions about their counterfeit nature.

In the absence of protection, trademark holders protect themselves by filing 3D models and logos that can feature their products as trademarks.

Even if they fail to secure their trademark rights for virtual goods and services, they have already taken other steps.

Indeed, recently, the Converse brand has filed numerous applications to obtain protection for its trademark. She indeed wishes to be protected from her original drawings representing her different models.

For its part, the Nike brand has also filed requests to protect its emblematic NIKE models, JUST DO IT and the AIR JORDAN logo.

NFT: creation, purchase and exchanges. How's it going ?

First of all, buying or trading NFTs cannot be done until the Metamask browser extension has been installed.

Once the extension is installed, there are different platforms where you can get unique tokens. Payment can be made either by credit card or by ApplePay or any other means of payment.

Many platforms allow the purchase of NFT: eToro, OpenSea, Crypto.com, Foundation, AtomicMarket, Enjin Marketplace, Rarible, SuperRare, BakerySwap, Myth Market, Known Origin or even Coinbase.

The NFT can be created by anyone, as long as they have the necessary tools. It is indeed necessary to know perfectly the workings of Blockchain technology and to know how to choose the right platform.

Creating an NFT only takes a few minutes and requires first creating its non-fungible token.

In the event of copyright infringement and counterfeiting, numerous legal remedies exist, civil, criminal and administrative, against intermediaries or counterfeiters, and it is advisable to turn to a lawyer specialized in digital and intellectual property.

Thus, for example, Article L336-2 of the Intellectual Property Code provides:

“Article L336-2

Version in force since January 01, 2020

Amended by Ordinance No. 2019-738 of July 17, 2019 – art. 10

“In the presence of an infringement of copyright or a related right caused by the content of an online public communication service, the president of the court ruling according to the expedited procedure on the merits may order, at the request holders of rights to works and protected objects, their beneficiaries, collective management organizations governed by Title II of Book III or professional defense organizations referred to in Article L. 331-1, all measures specific to prevent or put an end to such an infringement of a copyright or a related right, against any person likely to contribute to remedying it. The request can also be made by the National Center for Cinema and the Moving Image.

Online platforms and operators, search engines, may be reluctant to remove or maintain an infringing work on their services without adequate argument and evidence.

NFT and the resale right

It is interesting to note that the author of a work enjoys a resale right on successive resales of his work, provided for by article L122-8 of the intellectual property code:

Article L122-8 – Version in force since December 24, 2016

Amended by Ordinance No. 2016-1823 of December 22, 2016 – art. 2

“Authors of original graphic and plastic works who are nationals of a Member State of the European Community or of a State party to the Agreement on the European Economic Area benefit from a resale right, which is an inalienable right of participation in the proceeds of any sale of a work after the first transfer made by the author or his successors in title, when a professional in the art market intervenes as seller, buyer or intermediary. By way of derogation, this right does not apply when the seller has acquired the work directly from the author less than three years before this sale and the sale price does not exceed 10,000 euros.

By original works, within the meaning of this article, we mean works created by the artist himself and copies executed in limited quantities by the artist himself or under his responsibility.

The resale right is the responsibility of the seller. Responsibility for its payment rests with the professional involved in the sale and, if the sale takes place between two professionals, with the seller.

The art market professionals referred to in the first paragraph must provide the author or a resale right collective management organization with all the information necessary for the settlement of the sums due under the resale right for a period of three years. from the sale.

Authors who are not nationals of a Member State of the European Community or of a State party to the Agreement on the European Economic Area and their successors in title are entitled to the benefit of the protection provided for in this article if the legislation of the State of which they are nationals admits the protection of resale rights for authors of Member States and their successors in title.

A Conseil d'Etat decree specifies the conditions of application of this article and in particular the amount and the methods of calculation of the duty to be collected, as well as the sale price above which sales are subject to this duty. It also specifies the conditions under which authors who are not nationals of a Member State of the European Community or of a State party to the agreement on the European Economic Area who have their habitual residence in France and have participated in the life of art in France for at least five years may request to benefit from the protection provided for in this article.

Under what conditions can a platform be qualified as an “art professional” and more generally allow its users to benefit from the resale right? The answer is not fixed.

The smart contract will be able to organize the resale right and collect it.

NFT platforms dedicated to art

Crypto trading or auction platforms invest in NFT exchange functionalities (eBay > KnownOrigin)(Binance) but some platforms are dedicated exclusively to NFTs:

Superrare (graphic works)

Ledger market (graphic works)

Opensea (graphic works, music, trading cards, metaverses, domain names)

Magic Eden (digital gadgets)

NFT art, qualification test and copyright protection