ABSTRACT
Development of blockchain technology created controversy about legal regime to apply for NFTs (non-fungible tokens). NFTs are a type of data that is kept in a digital ledger (or digital wallet) known as the blockchain and function as non-fungible but transferable digital assets. Like a traditional piece of art, the NFT unit is created in such a way that a digital asset is unique and therefore not interchangeable. NFTs commonly have a content/appearance like an image, logo, picture etc. This raises the question whether an NFT created without the right holder’s permission violates the right holders’ intellectual or personality rights. Although there is not a specific regulation in our law on NFTs, as it is a new technology, the current regulations should be examined within the framework of NFTs to avoid possible violations arising from them. Indeed, it should be considered a breach of the rights of the copyright holders protected by our legislation when a work is made directly into an NFT or by altering it—which is typically done for financial advantage. Similarly creating an NFT based on a real person’s photograph or image, whether that person is famous or not, violates his/her rights arising from art. 84 of the CIAW and art. 24 of TCC.
NFTs are a type of data that is kept in a digital ledger (or digital wallet) known as the blockchain and function as non-fungible but transferable digital assets.
I . INTRODUCTION
One of the recent technological developments whose legal status is being debated is the NFT. NFTs have sales that reach over $2 billion, receive a lot of attention, and are widely used as of the first half of 20211. Owners of souvenir shops, musicians, artists and publishers use NFTs to commercialize their Works/ products and to take advantage of the new technology. The main function of a NFT is to represent digital artworks, music or digital collections of real assets of a similar nature. Uniquely designed NFTs are a digital and tokenized form of traditional securities, and because their worth is correlated with the value of the property, they are viewed as both pieces of art and investment tools2. In another saying NFTs are unique tokens created in blockchain technology3.
The fact that NFTs are both works of art and have an ever-expanding market in the field of trade has led to the emergence of legal disputes regarding NFTs. In other words, NFTs have become an issue of increasing importance and often the subject of legal study. In particular, issues such as right ownership, transfer, licensing and financial rights on NFTs are discussed in terms of copyright law. However, in addition to the rights and legal actions on NFTs, it is also possible to infringe the intellectual property rights or personal rights of third parties through NFTs. Due to the increase in the use of digital media and NFTs, it is ecessary to examine and evaluate the legal grounds and ways that people whose rights are violated can apply against violations through NFT.
The owner’s copyright infringement issues with NFT will essentially be discussed in this study. However, first the NFT technology will be examined briefly and its difference from other blockchain applications will be revealed in order to clarify the subject. Subsequently, copyright violations and personality rights violations through NFT will be separately valuated.
II . NFT TECHNOLOGY AND ITS DIFFERENCE FROM OTHER BLOCKCHAIN APPLICATIONS
NFT is an English abbreviation of the phrase “non-fungible token”. Turkish translation of the wording NFT differs. In some Turkish books, NFT is translated as “intangible digital tokens”4 or as “intangible cryptographic asset”5. However, it can be seen that the English abbreviation “NFT” is commonly used in Turkish without translation.
NFT; refers to non-fungible digital assets, such as a photo, song or video, whose ownership is verified and stored in a database called the blockchain, which can be collected, sold and legally processed on various online platforms6. Non-fungibility mentioned in the definition should not be understood in a way that NFTs are not subject to a legal transaction. What is eant by non-fungibility is being that they cannot be measured against each other over a certain value7.
NFTs can also be defined as a certificate of ownership of crypto assets or physical assets in a digital marketplace operated by blockchain technology8. More precisely, NFT is a unit of data stored in a digital ledger (or digital wallet) known as the blockchain9. According to Investopedia, NFT is a cryptographic asset consisting of unique identification codes and metadata on the blockchain that helps distinguish one from the other10.
NFTs strive to establish the ownership of a specific and unique digital product made by avoiding the limitless possibilities of production in the digital world because they are fundamentally non-interchangeable and cannot be exchanged for another identical creation. NFTs represent unique digital tokens that can be bought and sold between individuals on digital platforms. Unlike bitcoin, where one coin is the same as another, NFTs are unique and each has different characteristics. For example, an NFT representing Boardwalk ownership is quite different from an NFT representing Baltic Avenue11. According to Trautman; it is possible to think of NFT as a unique serial number that indicates the authenticity and ownership history of an object12.
The NFT can consist of physical or digital things13. Today, it is seen that NFTs are used in various ways. For example, NFTs are used to store agreements/ contracts and verification for advanced art and other computer- generated programs. Many artists in different countries prefer NFTs to sell their works of art while protecting the copyrights of their works. For this, a record is first made in the blockchain, which records the exchange of meta information. Meta-information is usually in the form of a URL that links to an enhanced resource, such as a computerized image or an enhanced video. Thus, when placed on an NFT blockchain, it records the terms and verification of the exchange identified by this computerized image14.
Like a traditional piece of art, the NFT unit indicates that a digital asset (an illustration, reproduction, or use of a person’s image) is unique and therefore not interchangeable, hence “non-fungible”15. The term “non-fungible” here emphasizes that NFT is not changeable for any other form of currency or token. Unlike other crypto assets, this feature of NFTs allow a greater possibility of applying property law for NFTs16. As a matter of fact Bilgili and Cengil are in opinion of that NFTs should be accepted as intangible asset17.
The value of NFT lies in its ability to “convert a continuously reproducible digital product into a one-of-a-kind asset.” When someone buys an NFT, what they actually get is the knowledge of owning an official version of a Pop-Tart bodied cat18. In addition, the uniqueness that NFT provides creates a serious attraction towards NFT. For example, a digital game that players own individually rather than licensing the items they earn while playing the game can demonstrate the increasing value of NFT19.
NFTs can be created in photographs, videos, audio files and other types of digital files and represent individual ownership20. In other words, NFTs reveal one’s ownership. Therefore, NFTs are also authentication devices. They are different from other assets that can be easily modified because NFTs have different properties such as not being easily modified or opied to another item21.In other words, each NFT is unique, no NFT is the same as another. In fact, it is not difficult to understand this feature of NFT within the framework of traditional art perception, because no matter how many copies are made, the original Mona Lisa painting is one and unique. It is also possible to evaluate NFTs in this way22.
Some NFTs contain moving or still images, while others may include the name, picture or likeness of a celebrity. There are also NFTs that include famous trademarks. There is a strong commercial motivation behind NFTs’ existence, given that they are creative usinesses that can be sold and then transferred to third parties for investment and other purposes. NFTs, on the other hand, are often strongly tied to a particular core product or service23. Therefore, intellectual property issues related to the creation and distribution of NFTs may arise.
III. VIOLATION OF COPYRIGHTS THROUGH NFTS
The intensive use of NFTs in recent years has brought with it the problem of infringing on people’s copyrights through NFTs. As explained above, if the audio, picture, video, etc. contents used in NFTs belong to third parties, the violation of intellectual property rights of these people may arise. In this context, the violation of the rights arising from the ownership of the work, which is regulated in the Code on Intellectual and Artistic Works No. 5846 (“CIAW”)24, and the violation of the person’ right on his/ her image, which is also regulated in Article 86 of the FSEK, will be evaluated.
First and foremost, a copyrighted work must exist in order to discuss a copyright nfringement. A work means “all kinds of intellectual and artistic products that have the characteristics of their owner and are considered as works of science and literature, music, fine arts or cinema” (CIAW article 1/B). Accordingly, if the NFT is created in the same or similar way as a work within the scope of the aforementioned article, permission must be obtained from the person who actually owns the right on the work, as the financial rights of the owner of the work are violated by a reproduction or processing of the original work25. In other words, since the person who owns the right on a work is considered to have the right to transform this work into an NFT format, it is accepted that the act of infringing on the financial and moral rights of the owner due to the NFT formats created without permission26.
Although there is no clear regulation on NFTs, it is clear that the rights of the owner can be violated through these units. Considering that the purpose of the law is basically to protect the owner; regardless of how much format and content changes are made, any use that goes beyond “inspiration” from the original work should be seen as an infringement of copyrights. The owner of the NFT who does not want to encounter this problem must have the right to use it under a license or permit27.
We can explain copyright infringement via NFT by an example. THY logo (Turkish Airlines trademark) can be protected under copyright law as it has a design accepted as a work. In case the NFT design of the THY logo is the same as this logo; it is possible for the design company to file a lawsuit on the grounds that the design is used in digital environment and for commercial purposes without permission28.
Another issue that may be violated through NFT is the regulation in article 86 of the CIAW. According to the aforementioned provision, “even if they are not in the nature of a work, pictures and portraits cannot be made publicly available without permission of the depicted person or without permission of those listed in the first paragraph of article 19 if the depicted person is dead unless 10 years have passed from the death of the depicted person.” Pursuant to the article, a person has a right to their own image and portrait under both the CIAW and Turkish Civil Code No. 4721 (“TCC”), even if it is not regarded as a “work” within the meaning of CIAW29. In case of violation of this right, it is possible to prevent and abolish the infringement and to demand material and moral compensation.
As it can be understood from the explanations made above regarding NFTs, it is possible for a picture or portrait to be released in NFT format. In that case, it is illegal to convert a person’s picture and portrait into NFT format without the consent of him/her or his/her heirs within the scope of CIAW article 86 and TCC article 24.
As a matter of fact, a dispute based on the allegation of infringing on a person’s right to an image and portrait through NFTs has also been reflected in Turkish courts. In what is known as the first dispute to be reflected in the Turkish judiciary, an interim injunction was given by the local court in the lawsuit filed by Cem Karaca’s son upon the sale of an NFT inspired by Cem Karaca’s portrait30. Although the trial continues, it is seen that the publication of the portrait of the person contrary to the provisions of CIAW article 86 and TCC article 24 is precautionary prevented.
The most fundamental issue here is the issue of preventing the use and transfer of an NFT that constitutes a violation of rights, because the place where the NFT transfer is made is not a Turkey-based website, the site cannot be interfered with, but it is possible to prevent access to the site in question from Turkey. This shows that, in fact, full protection cannot be provided, as in violations carried out through other digital tools, because it is possible to reach the NFT from abroad, and the sale and transfer of the NFT abroad can be in question. However, at least the establishment of a blocking order within the jurisdiction of Turkish courts should be considered an important step in the situation where NFTs are not yet regulated. In addition, the active complaint facility provided on some of the NFT sales platforms will enable people whose intellectual and personal rights are violated to apply to these platforms and to remove the NFT31. However, in this case, the protection remains at the discretion of the platform in question.
In addition to the NFT producer, the NFT buyer should act carefully and investigate whether the NFT he took over violates the rights of third parties.
IV. RESPONSIBLE PEOPLE FOR VIOLATIONS THROUGH NFT
It was explained above that when a right is violated through an NFT, protection can be requested by applying to the general regulations within the scope of CIAW and TCC. However, another question on the subject is to whom the case will be directed. In other words, who violates the rights through NFT and should be accepted as responsible? As it is known, NFT is created as a unique digital certificate created based on an original work. However, it is possible to transfer the NFT to a third party later on. In this case, it is necessary to identify the person or persons responsible for the violation of rights.
As mentioned above, the expression “non-fungible” in NFT refers to an asset that cannot be copied and reproduced. Since the unchangeablity of the source does not allow the NFT to be reproduced, the NFT receiver will only have certain and limited rights over the NFT. The most basic right is to transfer the NFT to another person. Whereas NFT’s producer has the privilege to reproduce, store and publish copies of the submitted work. In other words, although the producer of the NFT produced the first work, the NFT buyer only received one copy of this work. In that case, the intellectual right owner and the property right owner on NFT may be different persons32. NFT producer continues to own the copyrights in NFT even if it transfers NFT to a third party. In this case, the NFT producer must be considered responsible for copyright and personality rights violations that occur through NFT during the creation of the NFT33.
However, in addition to the NFT producer, the NFT buyer should act carefully and investigate whether the NFT he took over violates the rights of third parties. It should be accepted that buyers who acquire NFTs due to their commercial value and actually as an investment tool will have legal responsibilities due to the NFTs they own.
Here, holding the NFT buyer responsible for the infringement in the first place can be seen as problematic from the perspective of traditional copyright protection. For example, as a rule, it is not possible within the framework of CIAW to hold the person who buys a copy of a musical work that constitutes copyright infringement responsible for the violation. However, there is no doubt that NFTs need a different regime since they are non-reproducible, used as an investment tool and as a rule “inexhaustible”. In this case, at least until a separate regulation is brought, it should be accepted that the provisions of CIAW can be applied to the extent that it complies with the nature of the NFTs that have the quality of “works” within the framework of CIAW. In this context, even if NFT is transferred to third parties or created by the artist himself/herself on behalf of third parties, it should be possible for those whose rights are violated to sue this violation. So the person who takes over the NFT will also have to face these sanctions34.
V. CONCLUSION
Although the legislation, especially the intellectual property legislation, has undergone certain changes by following the technological developments (for example, the inclusion of computer programs in the scope of CIAW, inclusion of sharing over the internet within the scope of financial rights), it cannot offer a solution to the rapidly developing crypto technology35. This is true not only for Turkish law, but also for the laws of other countries36. NFTs are a new addition to the cryptocurrency universe and an issue that attract serious attention over the past few years. However, considering that a significant amount of investment was made in a short time and some NFTs were sold for millions of dollars, there is no doubt that this issue should be examined from a legal perspective. In particular, until a concrete regulation regarding NFTs is made, it is compulsory that violations committed through NFT can be prevented as much as possible within the framework of the current regulations.
Although the studies mostly focus on the copyrights on NFT, it is possible to violate the copyrights of the authors or the picture/ portrait rights of the people by using the NFT format. As a matter of fact, disputes related to this have started to come before the courts. It should be noted that although it is not expressly stated in the legislation, the conversion of a work to NFT format is also a right of the owner, and NFT formats created without permission/license constitute a violation of the financial rights of the owner. In addition, transferring pictures and portraits of people to NFT format is considered as a violation of rights under article 86 of the CIAW and article 24 of the TCC.
It is also an important issue who will be responsible in case of violation of rights through NFT. Due to the general nature of NFT and the fact that it is mostly used as an investment tool, it should be accepted that the NFT buyer as well as the NFT producer is responsible for the infringement. Although it is not possible to prevent the transfer of NFT or prevent its access from abroad in terms of Turkish law; at the very least, it is possible to prevent access from Turkey and to demand material and moral compensation against violators.
BIBLIOGRAPHY
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FOOTNOTE
1 K. Parikshith Arvindan, “Non-Fungible Tokens - An Overlap between Blockchain Technology and Intellectual Property Rights”, Jus Corpus Law Journal, Vol. 1, Is. 4, June-August 2021, p. 357.
2 Kim Soyeon, “Fractional Ownership, Democratization, and Bubble Formation – The Impact of Blockchain Enabled Asset Tokenization”, Americas Conference on Information Systems, 2020, p. 2.
3 Arvindan, p. 357; Mete Tevetoğlu, Hukuki Yönleriyle Kripto Varlıklar ve Kripto Varlıkların İlk Arzı (Initial Coin Offering), İstanbul 2021, p. 73.
4 Semih Sırrı Özdemir, “Sanat Eserlerinin Menkul Kıymetleştirilmesinde Bir Araç Olarak Gayri Misli Sanal Jetonlar (NFT) ve Sahiplerine Sağladıkları Fikri Hakların Değerlendirilmesi”, Banka ve Ticaret Hukuku Dergisi, Vol. 37, Is. 3, 2021, p. 61
5 Tevetoğlu, p. 73.
6 Mark Cuban, “Non-fungible Token”, https://www.britannica.com/topic/non-fungible-token (Access date, 25.10.2022).
7 Fatih Bilgili/ M. Fatih Cengil, Blockchain ve Kripto Para Hukuku, Bursa 2022, p. 287.
8 Yashika Nagpal, “Non-Fungible Tokens (NFTs): The Future of Digital Collectibles”, International Journal of Law Management & Humanities, Is. 4, 2021, p. 759.
9 Mark Conrad, “Non-Fungible Tokens, Sports, and Intellectual Property Law Issues: A Case Study Applying Copyright, Trademark, and Right of Publicity Law to a Non-Traditional Ownership Vehicle”, Journal of Legal Aspects of Sport, Is. 32, 2022, p. 134.
10 https://www.investopedia.com/non-fungible-tokens-nft-5115211 (Access date, 25.10.2022).
11 Joshua A. T. Fairfield, “Tokenized: The Law of Non-Fungible Tokens and Unique Digital Property”, Indiana Law Journal, Vol. 97, Is. 4, Spring 2022, p. 1263.
12 Lawrence J. Trautman, “Virtual Art and Non-Fungible Tokens”, Hofstra Law Review, Vol. 50, Is. 2, Winter 2022, p. 407.
13 Bilgili/ Cengil, p. 289.
14 Priyal Chandrakar, “Non-Fungible Tokens (NFT): Legal Provisions”, International Journal of Law Management & Humanities, Is. 5, 2022, p. 445.
15 Conrad, p. 134.
16 Roee Sarel, “Property Rights in Cryptocurrencies: A Law and Economics Perspective”, North Carolina Journal of Law & Technology, Vol. 22, Is. 3, April 2021, p. 440.
17 Bilgili/ Cengil, p. 199.
18 Trautman, p. 407.
19 Fairfield, p. 1265.
20 Bilgili/ Cengil, p. 298.
21 Conrad, p. 136.
22 Tevetoğlu, p. 74.
23 Sarel, p. 397.
24 The Official Gazette (OG) dated 13.12.1951 and numbered 7981.
25 Conrad, p. 137.
26 Canan Küçükali, “Telif Koruması Anlamında (Takas Edilemez Jeton) NFT’ler”, Uluslararası Bilişim ve Teknoloji Hukuku Sempozyumu Tebliğler Kitabı, ed. Şerafettin Ekici/ Ekrem Solak/ Muhammed Emre Avşar,Ankara 2022, p. 577.
27 Conrad, p. 140; Bilgili/ Cengil, p. 301.
28 Conrad, p. 141.
29 The OG dated 08.12.2001 and numbered 24607.
30 https://www.gazeteduvar.com.tr/cem-karacanin-nft-portresinin-satisi-engellendi-haber-1570780 (Access date, 26.10.2022).
31 Bilgili/ Cengil, p. 300.
32 Bilgili/ Cengil, p. 299; Canan Küçükali, p. 572.
33 Chandrakar, p. 446-447.
34 Indeed the rights of recourse arising from the provisions of the contract between the parties (transfer or work) and the general provisions in the legislation are reserved.
35 Tevetoğlu, p. 321.
36 Fairfield, p. 1267.
