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NFT buyers warned of legal risks
Whilst NFTs have been labelled a “must buy” for 2022, buyers are often unaware of their legal rights regarding their NFTs, according to this Brisbane-based cyber lawyer.
Lauren Croft
The rise of non-fungible tokens (NFTs) – a digitally unique token that is not interchangeable with other digital assets – raises a number of buyer concerns, namely, what buyers can and can’t do with their NFT.
As the NFT market has reportedly grown by almost 300 per cent over the last year, numerous questions have been raised by legal professionals.
Last year, Guest Work Agency founder and director Alana Kushnir said that despite tokens leading to more creative transactional approaches, misleading and deceptive conduct was “alive and well in this space”.
Piper Alderman partner Michael Bacina has also noted a number of legal issues to be aware of in the NFT space, including data concerns and issues in the event that an NFT, which uses a digital title, needs to be recognised at law for a real-world asset.
This can be seen across the world, as four major Italian museums, including the famed Uffizi Gallery in Florence, are currently selling NFTs of limited-edition digital replicas of six masterpieces by the likes of Leonardo da Vinci and Raphael as part of an exhibition in London.
Each purchaser will receive not only the NFT but also the physical components of the work on display – a digital screen and handmade replica frame with the same proportions as the original work and a built-in drive that generates the image on the screen.
Treasury Wine Estates also recently sold a Penfolds Magill Cellar 3 barrel of wine to the BlockBar marketplace to be traded through NFTs, wherein “300 bottles will be uniquely identifiable and tethered to a unique NFT which provides the holder with the right to redeem the individual bottle”.
However, Ms Zhu said buyers of NFTs need to be very clear about what they legally can do with their purchases – and that they can possess it, but nothing more.
“Generally, the platforms that sell the tokens, such as OpenSea, have trading terms that address the transaction taking place, but do not provide any guarantees about other tokens being created – in other words people buy these tokens thinking they are getting a unique thing – that there is only ever one of those tokens – but that may not be the case,” she said.
“People print artwork prints in limited numbers. Customers buy the prints because there are limited numbers only. They are buying a unique thing and that thing is not produced again, thus their investment is considered to be secure. But what if someone was then to run off more prints after the first prints have been sold? It would devalue the initial prints because there are more in the market. People aren’t getting the uniqueness they thought they were buying.”
Whilst people often think they’re buying a unique product in an NFT, this assumption may often be wrong, Ms Zhu added.
“Buying the NFT does not mean you are buying the copyright rights. This is something misunderstood,” she said.
“That is actually misunderstood when it comes to buying the physical assets as well – people buy a painting and think they own all rights in it – not just possession rights – but really they are just getting possession rights for the physical item.”
According to Ms Zhu, the crucial first step for anyone wanting to buy or sell an NFT is to know exactly what they are and what they are not. While, in most cases, the NFT is merely a token linked to a separate artifact, in some limited cases, the NFT itself is the underlying cultural artifact.
“However, these examples don’t change the fact that when you buy a NFT you don’t automatically acquire the copyright rights over it,” she said.
“Make sure you own it to sell it and if buying it, realise you are not buying copyright or reproduction rights. You are buying that item to possess it alone, nothing more.”
Lauren Croft
Lauren is a journalist at Lawyers Weekly and graduated with a Bachelor of Journalism from Macleay College. Prior to joining Lawyers Weekly, she worked as a trade journalist for media and travel industry publications and Travel Weekly. Originally born in England, Lauren enjoys trying new bars and restaurants, attending music festivals and travelling. She is also a keen snowboarder and pre-pandemic, spent a season living in a French ski resort.
