Canada’s Intellectual Property Law Firm

This is part 4 of our IP Update series exploring the evolving landscape for Internet, Digital Media and e-Commerce.

Overview

Non-Fungible Tokens (NFTs) continue to generate significant commercial value for brands through the licensing or transfer of intellectual property and commercial rights. The market demand for NFTs is creating new opportunities and an increase in the use of automated methods for generating underlying artworks. In this article, we examine the IP impacts of this trend and look at whether copyright may subsist in generative art NFT collections in Canada.

The IP Issue with generative art NFT collections

Recently, the NFT field experienced one of its first major mergers, with the company behind the Bored Ape Yacht Club1 (BAYC) NFT collection acquiring Cryptopunks2, another prominent NFT collection. The purchase included the intellectual property rights underlying Cryptopunks, with the goal of providing owners of a Cryptopunk NFT with the same comprehensive intellectual property rights as those provided to owners of a Bored Ape3.

A basic principle4 of property rights is that no one can give what they do not own. It follows that to validly purchase, license, or transfer intellectual property rights, the rights must exist. Since certain NFT art collections such as BAYC and Cryptopunks rely heavily on automated methods of generating the artworks, some US IP practitioners have questioned whether these NFTs possess any underlying intellectual property rights5.

Classifying the artworks underlying generative art NFT collections

Generative art NFT collections are made up of a set of unique digital artworks released by an artist or group of artists, with each collection consisting of a limited number of “minted” NFTs. The NFT collections are then sold on an open marketplace with accompanying agreements that cover intellectual property and commercial rights, some of which we previously highlighted in “Commercializing NFTs – generating value from digital assets and intellectual property rights.”

Some NFT collections consist of thousands of unique NFTs minted by computer software. The artwork underlying each NFT can be generated algorithmically by combining a set of randomly selected images created by the artists with the assistance of a computer, resulting in a set of “Computer-Assisted Works(CAWs). The artwork can also be wholly generated using artificial intelligence with minimal intervention from an artist, resulting in a set of “Computer-Generated Works(CGWs).

Copyright protection for Computer-Assisted vs. Computer-Generated works

Whether the underlying artworks of an NFT collection are afforded copyright protection depends on whether they meet the criteria set out in Canada’s Copyright Act [the Act], which provides copyright protection for every “original” artistic work. The Supreme Court of Canada has established that for a particular work to be considered original, it must be the result of an exercise of skill and judgement6, which depends on factors such as whether creating the work involved the use of the creator’s knowledge or ability, or whether different possible options were evaluated in producing the work.

A further issue is identifying the copyright owner of the artwork underlying an NFT collection. Generally, the first owner of the copyright subsisting in a work is the author of the work. The Act does not define the term “author”, but other provisions within the Act imply a requirement that an author is a natural person, i.e. a human7. This requirement may limit the scope of copyright ownership for authors of CGWs, as there is minimal human intervention at the time of the creation of the work8. On the other hand, it is well-settled that authors of CAWs own the copyright within the work9.

Owning NFT collections of Computer-Assisted works

The artwork underlying many generative art NFT collections, such as Scrappy Squirrels10, are likely to be considered CAWs. In the case of Scrappy Squirrels, a computer algorithm generates an individual artwork by combining a base frame with a limited set of traits (such as a “body”, “hands”, and “shirt”), which are created by an artist11. To generate the entire NFT collection an image from each set of traits is randomly selected and stacked on top of the base frame, which is usually done autonomously and iteratively with simple software, i.e. with the assistance of a computer. Whether copyright protection is afforded to the artwork underlying these collections depends on the extent to which the artist exercised their skill and judgement in creating the base frame and/or traits, and the resulting copyright would presumptively be owned by the artist(s).

Owning Computer-Generated NFT collections

In contrast, the artworks underlying generative art NFT collections that rely wholly on artificial intelligence to generate the artworks would most likely be considered CGWs. For example, the Eponym project12 allows an individual to generate unique digital artwork simply based on a word, sentence, or short text. This enables the creation of entire NFT collections without an artist having to create any artworks themselves, i.e. a computer is not merely assisting an individual in creating a work but rather generating the work itself autonomously. Arguably, creating an NFT collection by the mere selection of a word or phrase, which itself may not possess any originality, would not involve the minimum level of skill or judgment required for copyright to subsist in the computer-generated collection of works. However, if a person used their skill and judgement in selecting the most aesthetically pleasing or interesting computer-generated works to include in the collection, then it is conceivable that such a curated NFT collection would involve a sufficient level of skill and judgement to give rise to copyright. Accordingly, even in the case of CGWs there may be circumstances where some works in NFT collections or the collections themselves enjoy copyright protection in Canada.

Conclusion

Given the uncertainty around whether a particular generative art NFT collection is afforded copyright protection in Canada, purchasers should determine how the NFT artworks are created and the extent of any skill or judgment exercised. Further, if copyright protection exists, then it is important to carefully examine the terms and conditions, licenses, and the Smart Contracts governing the NFT collection to ensure that a valid transfer of copyright occurs from the legal author(s) of the artworks underlying the NFT collection.

Brand owners and companies involved in generative art NFT projects should carefully consider the copyright issues at play and consult with experienced IP counsel for guidance.

For more information, contact a member of our Digital and Copyright practice group.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.

Reference

1.  The Bored Ape Yacht Club

4. This principle is often referred to by the Latin maxim, “Nemo dat quod habet”

6. CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 SCC 13 at para 16

7. For example, the general term of copyright protection is “the life of the author" plus a certain timeframe

9. John S McKeown, Fox on Canadian Law of Copyright and Industrial Designs, 4th ed, (Toronto: Thomson Reuters Canada, 2003, loose-leaf), at § 17:5