Non-Fungible Tokens or NFTs, as they are more commonly known now, are a set of tokens represented by digitized code. These codes often represent real-world objects such as pictures of people, images, or artwork made specifically for the purpose of sale. With the recent cryptocurrency gold rush, NFTs, like any other blockchain-driven technology, is the tokenization of a piece of real-world art, image, or sound that can be commercialized through the assigning of a unique identification number. The principles of blockchain and blockchain-related identification apply to NFTs as well.
They are further integrated into the blockchain system through their sale almost exclusively being through the trading of cryptocurrencies such as Ethereum for an NFT. With blockchain and cryptocurrencies being made legal in more countries, NFTs have become a legitimate way of investing in the cryptocurrency market, and individuals with good investments have already made millions of dollars from the purchase and sale of NFTs globally.
How to buy an NFT?
NFTs are commonly traded on markets and platforms that allow for the trading of cryptocurrencies such as Ethereum and Bitcoin. Ethereum remains the most popular currency for the purchase and sale of NFTs both in India and globally. With the recent budget in India introducing a 30% tax made on any profits in the crypto market, the purchase and sale of an NFT will once again be altered.
The current means to buy an NFT require the creation of a cryptocurrency wallet, one that allows trading in fungible cryptocurrencies and linking of that wallet and the existing currency to a marketplace where NFTs such as Opensea.io were these NFTs are commonly traded. This method is often considered cumbersome and time-consuming due to the various procedures involved in buying an NFT only with crypto, but it is the only way that is verifiable via blockchain. In addition to the fees to be paid for to purchase crypto, users also need to pay overhead fees when they purchase an NFT called ‘Gas fees’.
What does buying an NFT mean?
As a token, an NFT is merely a collection of numbers associated with a form of digitized collectible. It exists as a string of unique numbers that have relevance only to the creator of the artwork and the buyer of the NFT. In the sale of an NFT, the work that is being actioned/sold is protected under the copyright laws of the land, in this case, the Indian Copyright Act, 1957. Under Section 14 of this Act, the creator of the artwork/token is the only person who can legally produce reproductions or carry out modifications of the artwork/token.
Further, Section 19 of the Act states that any interest in the artwork/token remains vested with the owner unless there is an express and explicit contract with detailed terms (capable of being made certain) that transfers all ownership of the NFT to the buyer. The creator must be a signatory to this contract for it to be enforceable in a court of law.
In effect, unless there exist terms and conditions governing the transfer of ownership, and NFT remains a meaningless number that is relevant only to the owner of the NFT. The artist/creator is free to make further changes, modifications, or reproduce the same NFT as they so desire under Section 14 of the Indian Copyright Act, 1957.
The NFT becomes the property of the buyer only in cases of very specific contracts where there is a detailed list of terms and conditions, and the seller of the NFT is required to hand over ownership of the NFT to the buyer. In these cases, any action will lie under both the Indian Copyright Act, 1957, and the Indian Contract Act, 1872.
How does Copyright Affect the Purchase and Sale of an NFT?
If the person reselling or selling an NFT is the legal owner of the copyright of that NFT as per the laws of the land, there exists no copyright infringement through the sale or purchase of the NFT. The infringement of copyright exists only when a copy or modification is made to an NFT without the express and prior approval of the creator/legal owner of the NFT. It is often seen in NFT sales that the buyer of the artwork is only allowed a non-commercial license to collect, display and in some cases sell the NFT within the terms of the license.
In cases the buyer of the NFT violates the terms of the agreement, they are liable to be held under the various laws that govern copyrights and contracts of the country. Should there be a violation of the terms and conditions previously agreed upon by both parties, then it will constitute a violation of the copyright surrounding the subject of the NFT and will be open to action under Section 55 and Section 63 of the Indian Copyright Act.
What other Guidelines govern NFTs in India?
Apart from the guidelines under various sections of the Indian Contract Act 1872 and the Indian Copyright Act 1957, laws and regulations passed under the Information and Technology Act, 2000 and all SEBI (Securities and Exchange Bureau of India) mandates and recommendations apply. Since NFTs hold monetary value and can be exchanged for other cryptocurrencies, it is considered moveable property under not only SEBI laws but also the GST Act, 2017.
Additionally, other financial laws in India, such as the Finance Act, 2020 and the Foreign Exchange Management Act, 1999 will also apply to any transactions taking place on NFTs where one of the parties is a resident of India. Any lapses in complying with the above laws will also hold the marketplace where the NFT was traded liable as an accomplice to the crime committed and will be liable to be sued under all the provisions made under the laws of India for the same.
Is it right to be worried about Copyright Infringement on NFTs?
The answer to this question is not as simple as a yes or no. On the one hand, if a buyer wishes to purchase an NFT and does so in good faith and refrains from violating the terms and agreements of the traded NFT, then no. The buyer does not need to worry about copyright infringements. If the buyer does breach the terms and conditions of the license conferred to them through the sale of the NFT, they are then liable to be sued in India under all the aforementioned laws in addition to the laws they may have breached in the commission of any crime.
New NFT Tax?
Under the newly released Financial Budget for the year 2022-23, Cryptocurrencies and consequently NFTs will be taxed at a 30% charge on the profits made. Additionally, the losses incurred while investing in any form of cryptocurrency cannot be written off. While the repercussions of this are not fully known yet, it is likely that this will lead to a significant reduction in the number of investors investing in the crypto and NFT markets due to the imposed regulations and new taxation policy.
While this taxation policy is beneficial to the fight against black money, it places unnecessary stress on investors that may have invested significant amounts into the crypto markets in hopes of gaining significantly from the fluctuations of the market.
The newly emerging cryptocurrency and NFT market in India have not gone unnoticed by the government or people alike. It is the subject of many debates both at the government and in the living rooms of houses. In the midst of this uncertainty, NFTs have been adopted as a way for artists to monetize their works by tokenizing them and selling them in a regulated marketplace for cryptocurrency. While the sale of these tokenized forms of art should be encouraged, the issue of copyrights and intellectual property remains unaddressed.
Since crypto is not yet recognized by law in India, creators, buyers, and marketplaces need to account for local copyright and other laws when NFTs are traded. This makes copyright claims in India time-consuming and confusing. Further, the openness of the internet means it is nearly impossible for creators to effectively detect and report all copyright infringements making the issue far deeper than the superficial way in which they have thus far been addressed in laws surrounding copyrights in India. It is the responsibility of all parties to an NFT trade to make sure all terms and conditions of the sale have been complied with, and no breaches occur