If you buy an NFT for $10,000, what do you own? This is a source of confusion for buyers and lawyers. Many people think when you buy an NFT, you own the art, but in reality, you don't own the artwork or the rights to it. You only own a unique blockchain token that points to the art piece. What you can do with the NFT depends on what rights the developer gives you. Unfortunately, many do not learn this until after acquiring the NFT. They assume they can use the JPEG as they see fit to promote or sell the artwork. They often receive cease and desist letters informing them that they purchased a receipt with limited rights. The issue of NFT intellectual property is where there is a misunderstanding between what you think you own versus what you actually own.<h2>Three Different Things You Have to Deal With</h2>There are basically three different components involved with owning an NFT. Just because you have one of the three components doesn't mean that you automatically own the other components. Digitally creating the art itself is the first component and can be in many formats, including but not limited to JPEGs and MP4s. The art is kept in either a centralized storage facility or an IPFS server and is typically represented with a link in the NFT and the NFT itself isn't physically stored somewhere, it only links back to where the digital art is stored. Second, there is the token associated with your NFT which is a unique number assigned to the NFT on the Blockchain and acts as a certified certificate of ownership. The Blockchain will record the NFT creator, the NFT owner, and the history of the NFT transactions, serving as a publicly accessible record that demonstrates your ownership and provides proof of ownership that cannot be altered. Intellectual Property Rights (IPRs) are a third component and determine how you can use and exploit the art commercially. The area where most people get confused is with IPRs. Using the car analogy is great. When you buy your Honda Civic, you receive not only the physical car but also its title and a legal document confirming ownership. But when you buy a Honda Civic, you don't get access to Honda's intellectual property (IP) nor do you possess the legal rights to manufacture or sell more Civic vehicles. Similar to a Honda Civic purchase, when you buy an NFT, you receive the electronic token (title) and potentially the ability to showcase it (use it), but there is no guarantee that the token gives you ownership of the underlying IP associated with the NFT such as the right to create, sell, or distribute replicas of the NFT.<h2>What You Automatically Own</h2>When you buy an NFT, you are usually only granted the right to use the NFT yourself, for instance by displaying the artwork in your own home, using it as a profile image internationally, displaying it to others, and selling the NFT. You may not print the NFT on merchandise, assign it to someone else, make derivative works based on it, or use the NFT for advertising purposes unless the creator gave you permission via a contract. Therefore, these are not exceptions and are not included in the sale. According to copyright law, purchasing an item does not automatically grant an individual the rights to do anything and everything with that item. In other words, even if you paid $50,000 for a Bored Ape, you do not have the right to create derivative works, reproduce it, or resell it without obtaining that permission from the copyright owner. The same principle applies to physical works of art; once again, while you may own the physical object and as such possess it, the rights to use that work in any way are retained by the original creator of the work unless those rights are explicitly granted to you in a written agreement.<h2>The Exceptions: Projects That Grant Commercial Rights</h2>A few NFT collections do give commercial rights to holders, these collections stand out because they are not the typical way to handle commercial rights. <a href="https://boredapeyachtclub.com/" rel="noopener noreferrer" target="_blank">The Bored Ape Yacht Club</a> holders have all commercial rights to their Bored Apes. You can do whatever you want with them. You can open a restaurant, start a clothing line, or create derivative works based off of them for example is the "Bored &amp; Hungry" Burger restaurant in California is inspired by the owner's Bored Ape and it's all good because the Terms of Service for the BAYC give you all of those rights. CryptoKitties takes a more middle ground approach, you can financially benefit up to $100,000/year from your CryptoKitty. If you make more than $100,000/year from your CryptoKitty, you have to have additional Licensing. You also can not change the artwork of Your CryptoKitty or use them to sell anyone else's products. Nouns and Moonbird are examples of projects that released their IP under Creative Commons. This means that they transferred all their rights to the public. The user is not required to obtain permission before using those images. This creates a more vibrant experience than previously, because the worth of these works is derived from the community and the past, rather than from scarcity. These projects are also different from all the other NFT projects, most NFT authors retain all of their copyright and provide the buyer with limited rights.<h2>Where the Legal Mess Gets Messy</h2>When creating something, there are many realities to deal with. NFT platforms can be in multiple locations with different laws regarding IP for example, a creator is in the US, their buyer is in Singapore and their art is being hosted in Germany. Which laws apply? Most smart contracts do not have any provable licensing terms however, some do have it. Even if you have a licensing term in your smart contract, it may not be enforceable according to the laws of your jurisdiction. Certain jurisdictions require a written contract to transfer IP. The language that is in your smart contract may not meet this requirement. There is also the issue of identifying a pseudonymous creator. If an NFT is created under a pseudonym and later it is discovered that the creator never had IP entitlement, who do you take legal action against? How can you locate them? You can confirm that the token exists via the Blockchain however, there is no information as to whether or not the minter had the legal right to create the token. <a href="https://www.copyright.gov/policy/nft-study/" rel="noopener noreferrer" target="_blank">A joint announcement</a> between the United States and the Copyright Office released in March 2024 supported prior joint assessments of how the current IP Laws are able to adapt to address NFT disputes. They indicated NFT disputes theoretically can fall under the current IP Laws. However, both agencies agree that there would be an incredibly difficult road to follow for effective enforcement of the IP laws because while the current laws function as intended based on precedent it will not work out like it was designed to work out in a practical manner.<h2>What This Means for People Who Want to Buy</h2>Take your time reading through the terms of service and the licensing agreement before purchasing an NFT (non-fungible token). Almost every project will have somewhere for you to find their terms like on their website, in their Discord, or inside the NFT's metadata. If you want to spend money on the NFT, then you should learn what rights you will own before you buy it. Look for an explicit statement that gives you the right to use it commercially. If the project says "full commercial rights," then you likely will be able to monetize your NFT. Your NFT cannot be used for commercial purposes if the project states "personal use only" or doesn't specify what rights you will have at all. When you purchase your NFT from a seller on OpenSea, you acquire all the rights that seller had when they bought it from the creator, but not every language in the licensing agreement between the creator and the seller is the same on every platform. It is possible that, even if you believe you purchased the NFT with full commercial rights, you did not read the license agreement carefully enough and there are restrictions in the license agreement that apply to the NFT. If you wish to use high-priced NFTs for commercial purposes like advertisements, we suggest seeking legal counsel to ensure your business does not infringe on copyright laws. Just because you bought an NFT for $50,000 does not mean you understand the IP rights associated with that NFT. If you infringe copyright laws with an NFT, you can be forced to pay as much as $150,000 for each piece you infringe, and legal fees as well.<h2>What This Means for Creators</h2>When you sell NFTs, be clear about the rights you are selling and don't assume that your buyer is aware that "no commercial rights" is the default position. Whether you want to sell commercial rights or not and what type of commercial rights and how to document them in the terms of service and smart contract metadata, as well as on the website. There are no right or wrong decisions regarding what commercial rights to grant however, it is important to document the decision clearly to avoid ambiguity. Determine whether or not your smart contract has the license terms that you want to provide. Some smart contracts have license terms that you can enforce, while some do not. If your smart contract does not, create a separate enforceable agreement documenting the license terms. Be aware that enforcing your rules regarding commercial rights will take time and resources to catch and stop individuals from violating the terms. As an artist, it is unlikely that you will have the support to enforce the rules regarding commercial rights. Be prepared to make plans to enforce the rules as best as you can.<h2>In Conclusion</h2>Most NFT licenses provide only limited rights, such as viewing the artwork or sharing it on social media, but commercial rights may be included, as well as full copyright ownership for certain types of NFTs. There is a significant amount of confusion regarding the different types of rights associated with purchasing an NFT, as well as what a buyer automatically assumes they have upon acquiring an NFT. Until NFT marketplaces create an easily understandable and standardized format to display NFT licensing conditions and rights associated with NFTs, the ongoing misunderstandings suffered by both buyers and creators of NFTs will continue to result in the loss of money for buyers who do not know the difference between an image file and copyright ownership. The technology to create, sell, and verify NFTs has been developed and is functioning successfully, but the legal frameworks exist to protect owners and ensure they know what they actually acquired, are still being created. Until the legal framework is established, there will continue to be a disparity between a buyer's perception of ownership and what the buyer actually owns, which will create a substantial financial burden on individuals attempting to educate themselves about copyright.

Buying an NFT doesn’t mean owning the art or its IP. Most NFTs only grant display and resale rights, leaving buyers surprised when commercial use is restricted by licensing terms.

The Legal Side of NFT Ownership: What You Really Get When You Buy an NFT 

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