The success of NFTs (non-fungible token or non-fungible token) is due to its characteristics that make its use very promising. An NFT first of all has the advantage of being a single intangible asset that represents, in digital form, one or more rights. Unlike cryptocurrencies which are fungible (one bitcoin has the same value as another bitcoin), an NFT is not fungible and therefore is not the same as any other. NFT thus allows us to introduce scarcity into the digital world. It also has the advantage of being issued and managed on the blockchain, which allows it to benefit from a technology without a control body, therefore totally transparent and difficult to forge.
NFT, what opportunities in the virtual and real world?
Tokenization of the digital world …
By registering an intangible asset in an NFT registered on the blockchain, tokenization allows it personalize digital content e to make it unique. Thanks to NFT, digital content can become scarce (which was not possible before) on the Internet) and then can do it object of collection and speculation. In 2021, the purchase of NFTs linked to digital content exploded. We will quote in particular the auction organized by Christie’s for 69.3 million euro of a digital work produced by Beeple, an artist then unknown to General public; making the latter the third most expensive living artist1.
“By leveraging the blockchain, all companies can become a key digital player by connecting their tangible assets to the Internet”
But the world of NFTs is so much more vast of the only world of “crypto-art”. It is also about the world collectibles, video games, metaverse, music, etc. How example, the French company Sorare (who achieved a fundraising record for an amount of 680 million euros2) offers an online fantasy football game where players shop virtual cards of the players in the form of NFT that allow them collect them, dial a team and compete against other players.
… But also from the real world.
By relying on the blockchain, companies can all become a key digital player by connecting their tangible assets to the Internet, thus creating a digital access key and therefore the possibility of optimizing their processes, developing new services or new content. NFTs are also excellent means of secure and authentic traceability that can be used, for example, in the context of regulatory traceability obligations (particularly in the healthcare sector), to enhance the customer experience or to protect brands.
For example, LVMH, Prada Group and Richemont have launched Aura, the first international luxury blockchain to guarantee the authenticity of their brands’ luxury products.3. Nike, for its part, has developed Cryptokicks which, in addition to allowing the authentication of Nike sneakers purchased in the real world, also provides access to exclusive services, including the possibility of virtually combining the pairs of shoes purchased.4.
NFT, new legal challenges?
An unidentified legal object …
NFTs are currently not regulated as such and it is difficult to link them to a legal concept. For example, it is not relevant to legally qualify NFT (i) as works, as they are based on a standardized standard5 and therefore they are not original, or (ii) supporting as they do not contain the property itself but refer to it through a URL link (for intangible assets) or describes or identifies it through a registration number (for tangible assets).
… Without prejudice to the existing legal framework. However, the creation, use and operation of NFT remain subject to the existing legal framework.
Thus, for example, data protection law, competition law, or even intellectual property law continue to apply. It is therefore forbidden to create or use an NFT in violation of an intellectual property right held by a third party. It is in this context that Hermès asked artist Mason Rothschild to stop selling NFTs called “MetaBirkins” made up of digital replicas of the famous bags.6. Similarly, the production company, Miramax, sued Quentin Tarantino who wanted to sell Pulp Fiction films in NFT, claiming that he was the only one holding the rights to develop, market and sell NFTs related to this film.7. Finally, it would no longer be conceivable for an NFT holder to freely exploit the NFT if it were supported by an element that can be protected by intellectual property law or personality rights, without the author’s consent.
On the buyer’s side, platforms that allow the purchase and sale of NFTs, such as OpenSea and Binance, position themselves as mere intermediaries and make no representations or warranties regarding the content of NFTs. They remind you that the user alone takes responsibility for verifying the authenticity and lawfulness of the NFTs. It is therefore up to the buyer to verify compliance with the law by the seller or to obtain contractual guarantees directly from the latter, which in practice appears to be illusory.
Will NFTs Create New Legal Challenges? We can, without taking too many risks, answer in the affirmative, but only the future will tell us, according to their uses, the extent of these new challenges. In the meantime, one thing is certain, NFTs could help companies fight fraud, provide evidence, or comply with traceability, transparency and security obligations. The ways in which legal evidence is acquired could be challenged with the arrival of this new technology.
About the Authors. Caroline Goupil is an associate attorney at BCTG Avocats and Manon Zaoui is an associate attorney at BCTG Avocats. BCTG Avocats IT / Data department supports companies in their technology and data protection issues, from consultancy and litigation: IT and digital projects, related legal issues the exploitation of data and the digitization of activities, compliance regulations, difficulties of execution, contractual disputes, litigation.
5Most of the NFTs created to date are registered on the Ethereum blockchain, the standard of which is ERC-721: https://ethereum.org/fr/developers/docs/standards/tokens/erc-721/