Weekender: U.S. Copyright Office on NFTs: Never Mind
Plus, Congress moves fast and breaks things, and the EU AI Act is on the cusp
The U.S. Copyright Office and Patent & Trademark Office issued a report this week on the intellectual property aspects of NFTs, surprising many who didn’t realize NFTs were still a thing. The report had been requested by the chairman and ranking member of the Senate Judiciary Committee in June 2022. Since then, one of the two requesting senators, Patrick Leahy of Vermont, retired from public service and most of the world moved on from the brief and baffling investment frenzy over pixelated monkey pictures.
The report is nothing if not thorough, however. It runs to 112 heavily footnoted pages, including appendices, and covers all three flavors of federal intellectual property. For those who may have forgotten, NFTs are cryptographically unique tokens that live on a blockchain and can be used to represent or be cryptographically linked to some other digital asset, such as a cartoon monkey or digital phonograph, and can be traded and transferred independently from the asset itself.
NFT enthusiasts have also promoted them as a potential tool for managing and administering IP rights by leveraging the blockchain smart contract at their core.
As the report points out, however, and as most RightsTech readers likely know, NFTs are not effective vehicles for transacting in copyrights themselves. While an NFT can be made to reference one or more of the exclusive rights comprised by a copyright, they are distinct object from the copyrighted work represented — in effect, a copy of the work.
Although some NFT marketplaces may suggest that a token purchase signifies ownership of or a license to make use of a work, nothing about the token necessarily entails exclusivity over anything but the token itself. Even if the NFT metadata specifies ownership of a particular digital or physical copy of a work, ownership of that copy does not in itself confer ownership of copyright rights in the work.
Instead, a separate agreement is ordinarily needed to effectively transfer any copyright or other associated rights in conjunction with the NFT transaction. As noted above, smart contracts can be programmed to execute upon the transfer of the NFT, purportedly automating the transfer of some associated rights. It is, however, an open question whether smart contracts can affect a valid transfer of copyright.
The report acknowledges that the widely touted unique and exclusive qualities of NFTs are easily and often conflated with the exclusive rights of copyright, leading to “substantial confusion” among NFT buyers (and often sellers). But it views that confusion as a defect in the market for NFTs, not as something that directly implicates copyright law.
“Most stakeholders agreed at this point there does not appear to be any need to change copyright law to address NFTs,” the report concludes.
All of that is known to those who have followed the debate over NFTs and copyright closely. Somewhat more surprising was the Copyright Office’s rejection of any useful role for NFTs or their underlying blockchain technology in administering the system for registering works for copyright protection and documenting their provenance.
Several stakeholders proposed that NFTs and blockchain technology could be used to improve or enhance the Copyright Office’s registration of copyrighted works and recordation of documents pertaining to copyright.195 They offered few specifics but suggested that use of these technologies could expand access to services, reduce transaction costs, or provide additional security…
In the Offices’ view, and as several stakeholders acknowledged, there are a number of reasons why the use of current NFT technology would not improve the Copyright Office’s registration or recordation systems. First, unlike NFTs, registration practices provide strong disincentives against submitting inaccurate information, including that a registration may be cancelled by the Copyright Office or deemed invalid by a court, and criminal penalties can be assessed for knowingly making a false representation of material fact. No equivalent disincentives exist for including inaccurate information about copyrighted works in NFT metadata, though some commenters proposed requiring authentication and screening. Second, where information turns out to be inaccurate, the mutability of Office records is a feature, not a bug. The Office can correct records. But where NFTs are associated with inaccurate records, the technology is likely to simply perpetuate, rather than resolve, unreliability issues.
Record keeping, of course, is what a blockchain is purportedly best at. But where those records pertain to something in the real world, like a legally valid copyright, rather than mere algorithmic emanation, it may still not be ready for prime time.
ICYMI
Tik Tik Tik…
Who says Congress can’t get anything done? The House of Representatives moved with lightning speed (for them) to pass a bill that would force TikTok’s Chinese owner, ByteDance, to sell the app to a non-Chinese owner, or face a ban on the app in the U.S. The vote was 352-65 and came less than a week after the bill zipped through the Energy and Commerce Committee on a 50-0 vote. President Biden said he will sign it if it gets to his desk, although the bill faces tougher sledding in the Senate. Apart from the unaccustomed alacrity with which the measure moved through the House, there is an inherent absurdity to the who project. The Chinese Communist Party doesn’t need TikTok to collect data on Americans’ habits. It can call all the data it wants from any number of U.S.-based data brokers. And as David Sanger noted in the Times, TikTok’s secret sauce, what made it the envy of every other social media platform, is the witchcraft of its algorithm that keeps viewers glued to the app. But TikTok doesn’t own the algorithm, ByteDance does, and the CCP has made it very clear that’s not going anywhere, regardless of who might buy TikTok.
Even more baffling, though, are the politics. The app has a fiercely loyal following among a coveted voter demographic — everyone under 35 — and is found on 170 million Americans’ phones. The vote also coincided with the release of a report by Oxford Economics showing TikTok drove $14.7 billion in small-business owners’ revenue in 2023, contributed $24.2 billion to U.S. gross GDP and supports a least 224,000 jobs. Yet 82% of House members voted to ban it. Eight months before an election. Very strange.
EU AI Act Almost There
The European Parliament this week approved the AI Act by a vote of 523-46 with 49 abstentions, putting the world’s first effort at comprehensive regulation of the technology one small step away from becoming law. All that is left is approval by the individual member states in the EU Council, which is largely a formality. Rights owners cheered the bill’s passage, but urged lawmakers to ensure strong measures are put in place to enforce its provisions. “While these obligations provide a first step for rightsholders to enforce their rights, we call on the European Parliament to continue to support the development of responsible and sustainable AI by ensuring that these important rules are put into practice in a meaningful and effective way, aligned with the objectives of the regulation,” a group of rights organizations led by CISAC said in a statement.