NFTs & Intellectual Property Law

The Legal Complexity of Digital Ownership

One of the most misunderstood aspects of NFTs is what you actually own when you buy one. The answer is not as straightforward as most people assume, and understanding the legal landscape is essential — especially if you are creating or investing in NFTs.

What Does Buying an NFT Actually Give You?

When you purchase an NFT, you receive:

1. The token itself: A unique entry on the blockchain proving you hold a specific tokenId in a specific contract.
2. Whatever rights the creator explicitly grants: This varies enormously between projects.

What you do NOT automatically receive:

• Copyright: Unless explicitly transferred, the artist retains copyright. You own the token, not the intellectual property rights to the artwork.
• Commercial rights: You generally cannot use the NFT image on products (t-shirts, mugs) for commercial sale unless the terms explicitly allow this.
• Exclusivity: The artist can still display the work, license it to others, and create derivative works unless restricted by the NFT terms.

The Spectrum of NFT Rights

Famous Legal Cases and Disputes

The NFT legal landscape is still being defined through precedent-setting cases:

Hermès vs. MetaBirkins (2023):

An artist created "MetaBirkins" — NFT versions of Hermès' iconic Birkin bag. Hermès sued for trademark infringement. The court ruled in Hermès' favor, establishing that NFTs based on existing trademarks can constitute trademark infringement. This case is significant: minting an NFT of a logo, brand, or trademarked design you do not own can result in legal action.

Yuga Labs (BAYC) IP Grants:

Bored Ape Yacht Club famously granted commercial rights to NFT holders, leading to Bored Ape-branded restaurants, merchandise lines, and even a music label. However, when Yuga Labs was acquired, questions arose about whether IP rights transfer to the new parent company or remain with individual holders. The situation highlighted the need for clear, on-chain licensing terms.

Copyright Basics for NFT Creators

If you are a Sri Lankan artist creating NFTs, understand these fundamentals:

• You own the copyright to original work automatically: Under both Sri Lankan intellectual property law (Intellectual Property Act No. 36 of 2003) and international conventions (Berne Convention), copyright is automatic upon creation. You do not need to register it (though registration provides additional legal protections).
• Sri Lanka is a Berne Convention signatory: This means your copyright is recognized in 181+ countries. If someone in the US infringes your NFT artwork, you have legal standing to pursue action.
• Minting does not create copyright: You cannot gain copyright over someone else's work by minting it as an NFT. If you mint artwork you did not create, you are infringing the original creator's copyright.
• Specify your license terms: Clearly state in your NFT metadata and collection description what rights buyers receive. Use established frameworks like Creative Commons licenses where appropriate.

Protecting Your Work as a Sri Lankan Creator

1. Timestamp your creation: Before minting, establish proof of creation date — email the work to yourself, post low-resolution previews with timestamps, or register with the National Intellectual Property Office of Sri Lanka (NIPO).
2. Write clear terms: Create a license agreement that accompanies your NFT. State explicitly what buyers can and cannot do.
3. Use watermarks on previews: Share low-resolution or watermarked versions publicly; mint the full-resolution file.
4. Monitor for infringement: Use reverse image search tools to check if your art is being minted by others without permission.
5. Consider registering with NIPO: While copyright is automatic, registration with Sri Lanka's National Intellectual Property Office provides stronger legal standing in disputes.

The Future of NFT Law

The legal framework for NFTs is evolving rapidly:

• On-chain licensing: Projects like a][ Protocol are developing standardized on-chain license agreements that are embedded in the NFT smart contract itself — removing ambiguity.
• Token-bound accounts (ERC-6551): NFTs that can own other NFTs and assets, creating complex ownership structures with clearer legal implications.
• International coordination: WIPO (World Intellectual Property Organization) is studying NFTs and digital assets, which may eventually produce international guidelines.
• Sri Lankan developments: While Sri Lanka has not yet addressed NFTs in legislation, the country's IP framework (based on international conventions) provides a foundation. As the digital economy grows, expect NIPO and the CBSL to eventually issue guidance.