IP rights in NFT Sports collectibles: a changing landscape

The growing popularity of the blockchain technology and digital assets has disrupted many industries, and the sporting industry is no exception to this. In the last couple years, digital assets in the form of NFTs have become artistic, collectible, and investment vehicles in the sporting industry, and act as methods of crypto monetisation.[1] This is the result of the drastic shift from tangible sports memorabilia and collectibles, to intangible digital collectibles, in the hyper-digital world. NFTs are units of data that are stored and recorded on a decentralised digital ledger, referred to as the blockchain, and each NFT represents a unique asset, making it “non-fungible”.[2] This ledger tracks the ownership of the NFTs based on the transactions recorded on it. NFTs contain digital certificates of ownership, thereby providing proof of ownership to the holder of the NFT.



Cause for Popularity in Sports


NFTs have gained traction in the sporting industry due to the fact that they maintain exclusivity, scarcity and value - attributes very important to sports fans, as well as investors, with regard to collectibles. This can be evidenced by the success of NBA Top Shots, an NFT marketplace for NBA highlight reels, and the numerous deals like the Cypto.com - Formula One sponsorship agreement. Crypto.com has entered into agreements with various sporting teams, including the NBA basketball team, LA Lakers and the Premier League football club, Paris Saint Germain, and offers collectibles of these teams on its exchange platform. Therefore, NFTs may be issued by both individuals, as well as sporting organisations, to benefit from players’ Name, Image and Likeness (NIL), and the IP created through various sporting events, respectively.


Exclusivity and scarcity act as key factors in appreciating the value of NFT collectibles. An example of this is the segregation of moments in NBA Top Shots into categories of differing value based on the number of copies of the given moment. Moments which have only one copy fall in the Genesis Tier Moments and are of the highest value.[3] The exclusivity and scarcity of assets represented by NFTs are the reasons why critical issues of ownership and IP rights are raised in such sports NFTs.


Intellectual Property rights and NFTs


IP rights may create certain specific rights over the intellectual property of assets represented by NFTs. For instance, a copyright registered regarding an artwork would include the right to control the making copies of the original work, the right to sell, licence or transfer the copyright, and the right to make derivative works of the original artwork. Therefore, it is important to understand whether transfer of ownership over the NFT effectuates transfer of IP rights over the asset represented by the NFT.


The simple answer is no. In buying an NFT, one may only buy the metadata associated with the NFT, and not the physical asset represented through the NFT or IP rights over it.[4] Therefore, understanding the transfer of rights in such transactions may prove to be tricky. In light of this, it is worth discussing the roles of smart contracts and licence agreements in such transfers. A smart contract carries out a transaction involving an NFT, and stipulates the rights transferred from the seller to the buyer through the transaction.[5] Therefore, during the transfer of the NFT, the smart contract should record whether there is a mere transfer of ownership of the NFT, or of the IP rights vested in the asset as well.


If IP rights are transferred, the licence agreement should explicitly state, and be limited to, the specific IP rights that are being transferred/ licensed to the buyer.[6] This may mean that by way of such a transaction, the seller may transfer ownership over the NFT, without transferring copyright over it. In such cases, the buyer, while holding ownership of the NFT, would be unable to make copies, sell, licence or transfer, or enjoy any other rights vested by way of a copyright.


Conclusion


In order to maintain the value of NFTs, and to benefit from such NFTs in the long run, sellers may not transfer IP rights over the NFT to the buyer. Moreover, sellers may sell such IP rights for greater consideration, or for a share of profits accrued by the buyer by using the IP. Recording the rights transferred, and those that are not, is of paramount importance in order to ensure that there is no ambiguity regarding the rights of the parties involved, and to dodge any conflicts that may arise.

Article written by Ria Mishra.

[1] 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” 32 Journal of Legal Aspects of Sport, 2022, 132–152. [2] Ghaith Mahmood, Jordan Naftalis, and Veronica Ye, “Creative Crypto: IP Implications of Selling Creative Works Tied to Non-Fungible Tokens” Global Fintech & Digital Assets Blog, Latham & Watkins LLP (March 15, 2021). [3] Marvellous Iheukwumere, “Legal Implications of NFTs in Sports” Harvard Journal of Sports and Entertainment Law (April 19, 2021). [4] Andres Guadamuz, “Non-fungible tokens (NFTs) and copyright” WIPO Magazine (December 2021) available at https://www.wipo.int/wipo_magazine/en/2021/04/article_0007.html [5] Shaan Ray, “NFTs and Smart Contracts” The Medium (May 18, 2021) available at https://medium.com/lansaar/nfts-and-smart-contracts-6c4c5516d5a0 [6] James Grimmelmann, Yan Ji, and Tyler Kell, “The Tangled Truth about NFTs and Copyright” The Verge (June 8, 2022) available at https://www.theverge.com/23139793/nft-crypto-copyright-ownership-primer-cornell-ic3