Richmond Journal of Law and Technology

By Grayson Walloga

 

Virtual actors are fully reconstructed digital copies of actors.[1] This technology is not at all new, as many films in the past used computer-generated imagery (CGI) as makeup or to create extras for background shots.[2] Virtual actors are becoming more prominently used in Hollywood blockbusters. All of the major films in the last decade have made extensive use of CGI, be it for huge action set pieces or on actors’ physical appearances.[3] Movies today rely more on CGI for the appearances of characters instead of only using practical effects. Of course, prosthetics still have a role in current films, but are generally combined with CGI.[4] More recently, CGI has been effectively utilized to de-age actors for specific roles or scenes including Robert Downey Jr., Johnny Depp, and Michael Douglas.[5]

While those special effects may cost a pretty penny, it should be noted that some of the biggest movies of the 2010s have been ones that employed both fully CGI characters and de-aging technology.[6] Avengers: Infinity War and Avengers: Endgame (two of the top three grossing films of the 2010s) both featured a litany of digitally created characters including Thanos, Rocket Raccoon, the many aliens of the Black Order, and many more.[7] Chris Evans’s Steve Rogers would also be digitally aged up to look how one would have expected an aged Chris Evans to look like.[8] Aging up an actor is a far more complicated process than de-aging due to the lack of reference material.[9] Full prosthetics were considered but ultimately rejected because of how favorable the digital compositing turned out.[10] Prosthetics were only used specifically for the neck region because they outshined the digital effects.[11]

A modern Hollywood blockbuster puts hundreds of millions of dollars into special effects alone.[12] Movies like Avengers: Endgame or Avatar owed their success in large part to their enormous special effects budgets.[13] Sticking with the Marvel movies, the CGI effects used in Avengers: Endgame cost around the $350 million mark.[14] The investment paid off as the film would gross $2.18 billion worldwide. This might trick movie studios into believing that copious amounts of CGI are needed to make a movie successful, however, the CGI-less Gone with the Wind still remains the highest gross film when adjusted for inflation at an astounding $3.7 billion.[15]

It was not the CGI alone that made the Marvel movies successful. Disney understood that the actors who stayed with the franchise from its humble beginnings were critical to this cinematic universe’s success which is evidenced by how much they paid the most popular characters.[16] Chris Hemsworth got $15 million for his role as Thor in the most recent Avengers movie, a colossal increase from the 150K he received for his first appearance as the character in 2011.[17] Robert Downey Jr., by far the most paid actor in any of the Marvel movies, received $75 million for his Iron man performance in Avengers: Endgame.[18] And for his first appearance as the character? Only $2.5 million.[19] Did Disney really expect to have to see such a drastic pay change for its main actors? It is certainly expected that as a character gets more popular, the actor who portrays him would become more valuable. The studio needs the character to be popular otherwise the films will not be as financially profitable. This creates a sort of adverse relationship between the studio and the actor over the character. They can both succeed and make decent money by working together, but that does not mean alternatives should be cast aside.

Digital actors allow movie studios to cut out some of the cost that would go into paying a popular and demanding actor. There would be a substantial cost upfront, and as discussed above those effects are not cheap, but in the long run studios would see a lucrative payoff if they were interested in creating a cinematic universe like the Marvel Cinematic Universe. New talent is hard to discover, so why not just create the new talent yourself? Or in the case of tragedy, such as the untimely death of Paul Walker, a digital actor can be used to substitute for the real deal.[20] Concerned your outspoken actor is going to say the wrong thing and need to be replaced? Should have digitally created the character instead. Obviously, there would be major legal problems for the studio if it simply made a copy of someone and did as it pleased. However, even if the studio claimed to have created a character from scratch, that digital actor may still look similar enough to an actual person to raise questions about its origins.[21]

20 years ago, Square Pictures made a little movie from 2001 called Final Fantasy: The Spirits Within. It was an entirely CGI film, stylized to be photo-realistic, and pushed the boundaries of digital effects for the time.[22] The film stared a digitally created Aki Ross who was planned to appear in other CGI films by Square Pictures.[23] Director Hironobu Sakaguchi had this to say about the film: “The vision I have is to take the characters that we have in this movie and basically help them be viewed as real actors and actresses. And so, we sort of become a talent agency.” The film would ultimately be remembered as a commercial disappointment and the plans to have these digital actors appear in other movies was never pursued.[24] Technology has improved greatly in the past 20 years. Maybe it is still too early for Sakauchi’s vision to be realized. Maybe it is just around the corner.

 

[1] Ricky Miller, THE VIRTUAL ACTOR: HOLLYWOOD’S NEW LEADING MAN, Control Forever (Dec. 14, 2017), https://controlforever.com/read/rise-of-virtual-actors/.

[2] Id.

[3] See Computer-Generated Imagery, ScienceDaily, https://www.sciencedaily.com/terms/computer-generated_imagery.htm (last visited Nov. 11, 2021).

[4] A GUIDE TO PROSTHETICS IN FILM, Iver Make-Up Academy (May 12, 2018), https://www.iveracademy.co.uk/blog/2018/a-guide-to-prosthetics-in-film/.

[5] Brian Welk, 22 Actors Digitally De-Aged on Film, From Brad Pitt to Robert De Niro (Photos), The Wrap (Oct. 8, 2019), https://www.thewrap.com/actors-who-have-been-de-aged-on-film-from-brad-pitt-to-robert-de-niro-photos/.

[6] See generally pattap-21567, The 50 Highest Grossing Movies of the 2010s (Worldwide), IMDb (Apr. 11, 2018), https://www.imdb.com/list/ls026040906/ (last updated June 2021).

[7] Avengers: Infinity War (2018) Full Cast & Crew, IMDb, https://www.imdb.com/title/tt4154756/fullcredits/?ref_=tt_ql_cl (last visited Nov. 11, 2021); see also Avengers: Endgame (2019) Full Cast and Crew, IMDb, https://www.imdb.com/title/tt4154796/fullcredits/?ref_=tt_ql_cl (last visited Nov. 11, 2021).

[8] Daniel, HOW LOLA VFX TURNED CHRIS EVANS INTO A 119-YEAR-OLD CAPTAIN AMERICA, Bold Entrance (Sept. 9, 2019), https://boldentrance.com/lola-vfx-chris-evans-old-captain-america/.

[9] Id.

[10] Id.

[11] Id.

[12] How much are visual effects for Hollywood movies (and why)?, Nuts Computer Graphics (Jan. 24, 2019), https://www.nutscomputergraphics.com/en/how-much-are-visual-effects-for-hollywood-movies-and-why/.

[13] Id.

[14] Tina Lee, Breakthrough (and Expensive!) CGI Scenes in MCU Movies, Academy of Animated Art, https://academyofanimatedart.com/breakthrough-and-expensive-cgi-scenes-in-mcu-movies/ (last updated May, 8 2021).

[15] Jake Lucas, The Top 20 Box Office Earners Ever: Adjusted for Inflation, SELFi (May 7, 2021), https://selfi.com/the-top-20-box-office-earners-ever-adjusted-for-inflation/.

[16] Jason Guerrasio, How Much Disney Paid Scarlett Johansson Black Widow Other Marvel Stars, Insider (Aug 1, 2021), https://www.insider.com/how-much-disney-paid-scarlett-johansson-black-widow-other-marvel-stars#-1.

[17] Id.

[18] Id.

[19] Id.

[20] Double the Fun: How Digital Actors Are Changing Entertainment Industry, IPQuorum (Jan. 20, 2020), https://ipquorum.ru/en/ip-blog-en/double-the-fun-how-digital-actors-are-changing-entertainment-industry/.

[21] See generally Steinberg v. Columbia Pictures Industries, Inc. 663 F. Supp. 706 (S.D.N.Y. 1987).

[22] John Edgar Park, Behind the Scenes on ‘Final Fantasy: The Spirits Within’, Animation World Network (Sept. 10, 2001), https://www.awn.com/animationworld/behind-scenes-final-fantasy-spirits-within.

[23] Rick Lyman, Movie Stars Fear Inroads By Upstart Digital Actors, N.Y. Times (July 8, 2001), https://www.nytimes.com/2001/07/08/us/movie-stars-fear-inroads-by-upstart-digital-actors.html.

[24] Volodymyr Bilyk, Tragedy of “Final Fantasy: The Spirits Within”, Medium (Oct. 4, 2017), https://volodymyrbilyk.medium.com/tragedy-of-final-fantasy-the-spirits-within-cfe92b6a7903.

Image Source: https://www.wired.com/2013/03/luxion-keyshot

By Sebastian Estrada

 

For years, many aspects of our society, economy, and legal industries have been in limbo. A limbo driven by an exodus from our antiquated ways of buying, learning, working, and interacting. Prior to the “lockdown,” many aspects of outdated industry were dying but not yet dead. One need only think about in-person retail shopping as an example: prior to COVID, the in-store and in-person retail experience was undoubtedly waning. Major retail stores such as Macy’s were experiencing the wrath of competitive online consumerism. The effects from COVID lockdowns may have been the final crippling blow to such traditional norms. But this shift has been felt across the board in other fundamentally important industries. The realm of finance and investment is no exception. COVID induced changes were felt from the “average Joe” retail investor, all the way to the regulatory entities of the economy.

At the retail investor level, an unprecedent number of investors joined the market during the pandemic.[1] Charles Schwab, a major investment platform, reported that 15% of its current investors entered the market in 2020 alone.[2] Pandemic related ripples similarly echoed through the industry and reached the Financial Industry Regulatory Authority (“FINRA”). FINRA is the largest self-regulatory organization for securities firms doing business in the US.[3] Its rules govern over 3,700 brokerage firms and almost 630,000 registered securities representatives.[4] Significantly, Section 15A of the Securities Exchange Act of 1934 gave FINRA the authority to discipline its firm members and certain individuals for violations of securities laws and rules administered by FINRA.[5] In other words, FINRA’s creation and enforcement of rules and regulations are backed by federal law.[6]

While COVID triggered tectonic-like shifts throughout the financial world, the regulatory mechanisms that oversaw it were likewise forced to change. According to FINRA’s webpage, “[i]n response to the coronavirus pandemic, member firms have made unprecedented changes to their business operations in order to prioritize the health and safety of firm personnel and investors, while maintaining the public’s access to capital markets.”[7] As a result, FINRA modified various traditional regulations, to account for the new virtual / at-home lifestyle.[8] Regulatory Notice 20-16, for instance, implemented monitoring practices for firms to incorporate into the remote work environment.[9] The notice focused on confidentiality and cybersecurity in order to increase fraud-prevention measures.[10] Relatedly, FINRA filed a proposed rule change with the SEC to adopt remote inspections.[11] It effectuated remote supervisions and internal inspections of firms, and eliminated on-site visits to offices or locations.[12]

Do these rule changes signify a needed update to the execution of financial regulation and enforcement? The answer is still to be determined. However, it undisputed that much of the regulatory and supervisory mechanisms used in our economy have necessarily increased their cybersecurity protection measures. In today’s world, where news of a massive hack is a normalcy, maybe such changes were past due. If our country has finally taken on the challenge of updating laws and regulations to align with our technologically focused society, the real question should be how to continue this modernization.

 

[1] Maggie Fitzgerald, A large chunk of the retail investing crowd started during the pandemic, Schwab survey shows, CNBC, https://www.cnbc.com/2021/04/08/a-large-chunk-of-the-retail-investing-crowd-got-their-start-during-the-pandemic-schwab-survey-shows.html (last updated Aug. 17, 2021).

[2] Id.

[3] Troy Segal, FINRA vs. the SEC: What’s the Difference?, Investopedia, https://www.investopedia.com/ask/answers/how-does-finra-differ-sec/ (last updated May 6, 2020).

[4] Id.

[5] Id.

[6] Id.

[7] FINRA Seeks Comment on Lessons From the COVID-19 Pandemic, FINRA, https://www.finra.org/rules-guidance/notices/20-42.

[8] Id.

[9] FNRA Shares Practices Implemented by Firms to Transition to, and Supervise in, a Remote Work Environment During the COVID-19 Pandemic, FINRA, https://www.finra.org/rules-guidance/notices/20-16.

[10] Id.

[11] Proposed Rule Change to Adopt Temporary Supplementary Material .17 (Temporary Relief to Allow Remote Inspections for Calendar Year 2020 and Calendar Year 2021) under FINRA Rule 3110 (Supervision), FINRA, https://www.finra.org/rules-guidance/rule-filings/sr-finra-2020-040.

[12] Id.

By Michaela Fuller

 

The company formerly known as Facebook announced last month that it has rebranded as “Meta”—a shorthand representative of the company’s venture into the still-developing virtual reality world called the Metaverse.[1] The company isn’t the first big brand to dip their toes into the VR game, but Facebook’s switch to Meta signifies to many that a big change in our digital society is approaching quicker than once thought, leaving other companies rushing to get an early in.[2]

Put simply, Metaverse is a term that describes “the concept of a future iteration of the internet, made up of shared, 3D virtual spaces linked into a perceived virtual universe.”[3] Described as the “ultimate culmination of virtual reality and augmented reality,”[4] the Metaverse is our society’s actual advancement toward science fiction worlds like those from Ready Player One, Tron, or even The Matrix.[5]

Meta pronounced its vision for the Metaverse as “a hybrid of today’s online social experiences, sometimes expanded into three dimensions or projected into the physical world.”[6] The company claims its mission is “to bring the metaverse to life and help people connect, find communities and grow businesses.”[7] Yet however simple the goal may be, the legal implications embedded in the journey to the Metaverse are as enumerable as they are complex.

To many, one of the most glaring issues presented by the creation of Meta as a company is a question of antitrust policy. First Facebook acquires Instagram, WhatsApp, and several other smaller companies, and now Facebook establishes itself as a subsidiary of the new company Meta. Such “company-shopping” has been warned against by the Federal Trade Commission, [8] yet the creation of the entirely new digital world that is the Metaverse will likely open the doors for other companies to follow in Meta’s footsteps in order to get a piece of the (what predicts to be a very profitable[9]) pie.

Of course, topics like data protection and user privacy are key issues to be discussed and regulated with the creation of any new technology, and the Metaverse is certainly no exception.[10] Such an unprecedented development is “practically begging to become a staging ground for data privacy attacks” that companies like Meta will have to be able to protect its users against before expecting a successful launch.[11]

The individualized structure of the Metaverse itself will eventually bring its own set of legal challenges, now likely excited by the creation of Meta. These issues include the “collaboration and interoperability among different metaverse creators,” and technology usage rights and agreements between companies in the Metaverse.[12] Of course, these issues will depend on how companies like Meta will choose to develop the virtual world and its accompanying real-world devices.

The shift to the Metaverse will also bring a slew of intellectual property challenges like “monitoring use of a brand’s trademarks, misappropriation of goods or services, price erosion, and counterfeit goods,” to name a few.[13] The question of authorship with respect to copyright ownership may be also challenged in the Metaverse with the possibility of AI and entirely virtual creators.[14] Issues of brand protection and ownership interests in an entirely virtual world are novel ideas under our current IP regime and are likely going to have to be subject to equally new regulation.

Though the journey to the Metaverse is coming to head quicker than one might have imagined, we still have a way to go (five to ten years, accordingly to Meta CEO Mark Zuckerberg[15]) before reaching a Ready Player One-style society. In the meantime, lawyers in the areas of antitrust, data protection, technology, and intellectual property—just to name a few—likely have a busy few years ahead.

 

[1]Introducing Meta: A Social Technology Company, Meta (Oct. 28, 2021), https://about.fb.com/news/2021/10/facebook-company-is-now-meta/.

[2] Michael J. Harris et al., The Move to the Metaverse and Beyond Series: Basic Trademark and Branding Considerations, JD Supra (Nov. 2, 2021), https://www.jdsupra.com/legalnews/the-move-to-the-metaverse-and-beyond-7306577/.

[3] Rahul Kapoor & Shokoh Yaghoubi, A Brief Overview Of The Metaverse And The Legal Challenges It Will Represent, Mondaq (Nov. 3, 2021), https://www.mondaq.com/unitedstates/fin-tech/1127424/a-brief-overview-of-the-metaverse-and-the-legal-challenges-it-will-present-.

[4] Id.

[5] Doug Antin, 10 Sci-Fi Stories That Inspire Pioneers of the Metaverse, Medium (June 19, 2020), https://medium.com/predict/10-sci-fi-stories-that-inspire-pioneers-of-the-metaverse-66fd811be218.

[6] Introducing Meta, supra note 1.

[7] Id.

[8] Hugo Guzman, Silicon Legal: Facebook’s Plunge Into ‘Metaverse’ Fuels Legal Questions, Legal Tech News (Nov. 2, 2021, 10:00 AM), https://www.law.com/legaltechnews/2021/11/02/silicon-legal-facebooks-plunge-into-metaverse-fuels-legal-questions/.

[9] See, e.g., Aaron Levitt, 10 Metaverse Stocks for the Future of Technology, Kiplinger (Nov. 8, 2021), https://www.kiplinger.com/investing/stocks/603552/7-metaverse-stocks-for-the-future-of-technology.

[10] Id.

[11] Id.

[12] Kapoor & Yaghoubi, supra note 3.

[13] Harris et al., supra note 2.

[14] Kapoor & Yaghoubi, supra note 3.

[15] See Veronica Combs, Meta CEO Zuckerberg Predicts the Metaverse Will Be Mainstream in 5-10 Years, TechRepublic (Oct. 28, 2021, 2:00 PM), https://www.techrepublic.com/article/meta-ceo-zuckerberg-predicts-the-metaverse-will-be-mainstream-in-5-10-years/.

Image Source: https://subspace.com/resources/nft-key-metaverse

By Ben L. Culpepper

 

As our society becomes more intimate with our cell phones, the law is beginning to extend certain privacies to the cell phone that are analogous to the home.[1] Riley v. California explores this idea in detail where the Supreme Court held that our phones are almost an extension of our modern human anatomy.[2] Big tech companies, such as YouTube, Facebook, and Google who accumulate personal and private information from their users’ cell phones are feeling a tension with new privacy norms and emerging laws surrounding information stored on our phones.[3]

California has enacted a sweeping privacy law, California’s Consumer Privacy Act, which allows for users to opt out of and completely delete the personal data big tech companies store and sell to third parties.[4] Furthermore, along the same vein of supporting user privacy, California has included a private cause of action for users against tech companies who breach users’ rights.[5] Big tech, which lobbied aggressively against the legislation, is trying to make it more difficult for users to so easily delete the accumulated personal data.[6] For example: although people may have access to a portal where they can delete the accumulated data, tech companies are making it difficult to find the portal by burying it underneath mountains of information.[7]

In an effort to prevent the spread of California’s user-friendly privacy laws, big tech has responded by lobbying in other states for far more relaxed privacy laws.[8] Many states’ efforts to enact their own user-friendly privacy laws have been defeated by big tech lobbying.[9] States consider two types of privacy laws generally: an opt-in approach and an opt-out approach.[10] The opt-in approach is user friendly as it would create a default setting where big tech cannot sell users’ information, unless users opt in and allow big tech to sell such private information.[11] The opt-out approach is the converse of this. The default setting is that big tech has the right to collect and sell users’ information, unless the user opts out.[12] A private right of action in the courts may follow a breach by big tech in either model, but it does not necessarily follow.

At least two states, Connecticut and Oklahoma, have attempted to enact legislation following the opt-in approach which also provides a private cause of action.[13] These user-friendly bills are examples of legislation that faced immense pushback from big tech lobbying and ultimately failed.[14] Instead of adopting a user-friendly bill, Connecticut’s second attempt at a privacy bill followed the Virginia model, which is the friendliest to big tech.[15] Big tech is sending lobbyists to the states and pushing for the Virginia model in place of these user-friendly attempts at protecting user privacy.[16]

The Virginia model, a business-first idea, follows a complicated opt-out approach and does not provide a private cause of action if big tech breaches privacy agreements.[17] Furthermore, Virginians can only access their collected information via a portal, and then they can decide to alter or delete any accumulated information.[18] The bill was hailed a success by big tech spokespersons from Microsoft and Amazon.[19] Virginia’s bill stands in direct contrast to California’s bill.

Faced with this dichotomy, states across the U.S. are continuously facing their own challenges in enacting privacy bills. A user-friendly approach, an opt-in model, is sure to face criticism and backlash from big tech lobbyists. Perhaps the federal government will pass its own sweeping legislature; whatever the outcome may be, in the meantime, big tech is sure to have its footprint on any final product coming from the legislatures.

 

[1] See Riley v. California, 573 U.S. 373, 386-387 (2014) (discussing how a warrantless search of an arrestee’s home is unlawful in the same way a warrantless search of an arrestee’s phone is unlawful).

[2] Id. at 385 (“modern cell phones, which are now such a pervasive and insistent part of daily life that the proverbial visitor from Mars might conclude they were an important feature of human anatomy.”).

[3] Sara Fischer, Big Tech at War Over Privacy, Axios (Jan. 28, 2021), https://www.axios.com/big-tech-at-war-over-privacy-cb9bc9a4-ca65-420c-b0ad-d307f341e7ad.html.

[4] Todd Feathers, Big Tech is Pushing States to Pass Privacy Laws, and Yes, You Should be Suspicious, The Markup (Apr. 15, 2021), https://themarkup.org/privacy/2021/04/15/big-tech-is-pushing-states-to-pass-privacy-laws-and-yes-you-should-be-suspicious.

[5] Id.

[6] Zack Whittaker, Here’s Where California Residents Can Stop Companies Selling Their Data, TechCrunch (Jan. 2, 2020), https://techcrunch.com/2020/01/02/california-privacy-opt-out-data/.

[7] Id.

[8] Feathers, supra note 4.

[9] See, e.g., Feathers, supra note 4 (“During the [Connecticut] bill’s public hearing last February, Duff said he looked out on a room ‘literally filled with every single lobbyist I’ve ever known in Hartford, hired by companies to defeat the bill.’ The legislation failed.”).

[10] Feathers, supra note 4.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Graham Moomaw, Virginia’s New Big Tech-Backed Data Privacy Law is the Nation’s Second. Critics Say it Doesn’t Go Far Enough, Va. Mercury (Mar. 30, 2021), https://www.virginiamercury.com/2021/03/30/virginias-new-big-tech-backed-data-privacy-law-is-the-nations-second-critics-say-it-doesnt-go-far-enough/.

[18] Id.

[19] Id. (reporting the approval comments from Microsoft and Amazon, both who lobbied intensely for this bill).

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By Walker Upchurch

 

Recently the issue of disinformation has plagued the United States as questions relating to voting technology have been unfairly raised. This has led to a suit from the voting machine company Smartmatic against both Newsmax and the One America News Network on the grounds that Smartmatic had been defamed.[1] Likewise, Smartmatic has also sued Fox News to the tune of $2.7 billion due to the promotion of a false narrative in the 2020 election regarding their products.[2] Within the lawsuit against Fox News, three news anchors, Rudy Giuliani, and Sidney Powell have also been sued.[3] The complaint asserts that Giuliani and Powell both created a story about Smartmatic and that Fox News joined the conspiracy to defame and disparage Smartmatic, it’s election technology, and software.[4] The Smartmatic machines were made the media center of disinformation that stated rigged voting machines were the root cause of President Trump losing the election. [5]While there was never any actual proof of voting fraud the news companies continued to carry out their attack on the voting machine company.

According to Politico, Within the other Lawsuit One America News network has been accused of libel and slander of Smartmatic in connection with the coverage of the presidential election results.[6] The case has been filed in the U.S. District Court in Washington, and states that OANN repeatedly aired false claims, including that votes cast for trump were dishonorably switched to Biden, in the months following the actual election.[7] When asked the attorneys for Smartmatic wrote in their complaint” it could have reported the truth. Instead, OANN chose to do the wrong thing every time. It reported a lie.”[8]

Similarly, Dominion has also filed lawsuits against some of the same groups, including OANN, and both voting technology companies are seeking billions of dollars in damages to their business because of liable.[9] This past August, a federal judge has declined to throw out the defamation lawsuits.[10]

It will be fascinating to see how this lawsuit materially affects politics and news as we know it. Indeed, within the news, puffery is allowed. However, if these news companies are held to task for spreading disinformation, it could perhaps leave a long-lasting positive impact. While long protected by the 1st amendment regarding the freedom of the press, it could be beneficial for all media if precedent doesn’t allow for strategic disinformation. As seen by the awful incidents on January 6th, 2021, The United States profoundly cares about its politics and spreading disinformation in an attempt not to concede power can lead to catastrophe. The good news is that the United States can hope to remedy some of the damage done to its reputation with stronger laws and precedent that do not allow powerful news corporations to be untruthful. In comparison, puffery should indeed be permitted; however, direct attacks on the companies that help with the elections by spreading disinformation that materially impacts individuals’ views regarding the trustworthiness of elections should not be permitted.

As famed President Ronald Reagan stated on the importance of order in the transition of power: “The orderly transfer of authority as called for in the Constitution routinely takes place, as it has for almost two centuries, and few of us stop to think how unique we are. In the eyes of many in this world, this every-four-year ceremony we accept as normal is nothing less than a miracle.”[11] To continue our miraculous tradition of an orderly transition of power, we must not let this go unpunished, and set a strict legal precedent against disinformation.

 

[1] Jonah E. Browich & Michael M. Grynbaum, Smartmatic Sues Newsmax and One America News Network, Claiming Defamation, N.Y. Times, (Nov. 3, 2021), https://www.nytimes.com/2021/11/03/business/media/smartmatic-newsmax-oan.html.

[2] Ben Smith, Fox News Is Sued by Election Technology Company for Over $2.7 Billion, N.Y. Times, (Feb. 4, 2021), https://www.nytimes.com/2021/02/04/business/media/smartmatic-fox-news-lawsuit.html.

[3] Id.

[4] Id.

[5] Id.

[6] Nick Niedzwiadek, Smartmatic sues One America News over 2020 election claims, Politico, (Nov. 3, 2021), https://www.politico.com/news/2021/11/03/smartmatic-sue-one-america-news-election-519077.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Ronald Reagan, First Inaugural Address of Ronald Reagan, (Jan 20, 1981), https://avalon.law.yale.edu/20th_century/reagan1.asp.

Image Source: https://www.freeimages.com/premium/electronic-voting-thumbs-up-dem-2106550

By Nick Corn IV

 

As technology has advanced, law enforcement has adapted the use of new tools to attempt to reduce response times and keep emergencies from slipping through the cracks. ShotSpotter produces one such tool. ShotSpotter bills itself as a “precision policing platform [which] helps local, state and federal law enforcement respond to, investigate and deter crime.”[1] ShotSpotter uses a network of microphones strategically placed across the patrolled area to listen for loud bangs. [2] Once a bang is detected, a computer algorithm makes a determination on whether that bang was a gunshot or not.[3] A human analyst then reviews that algorithm’s determination and decides if it is appropriate to dispatch police.[4]

ShotSpotter claims that its system has resulted in an increase in reporting gunshots from an estimated 12% of the time before the use of their technology to 90% of the time after.[5] However, ShotSpotter can prove to be quite expensive, costing between $65,000-$95,000 per square mile every year.[6] In an effort to get the most out of their money, police departments have taken to strategically placing the microphones in densely populated inner-city areas, which often happen to be communities of color.[7] So, what happens when the new tools used to detect gunshots can prove to be unreliable?

ShotSpotter claims that their technology has a 97% aggregate accuracy rate with a false positive rate of less than half of one percent.[8] However, ShotSpotter has never been peer-reviewed by academics or experts.[9] That said, a report done by the Office of the Inspector General for the City of Chicago found that between January 1, 2020, and May 31, 2021, that of the 41,830 dispositions of police to a scene as a result of ShotSpotter indicating a gunshot, only 4,556 resulted in evidence of a gun-related offense being found.[10] Even presuming that some evidence of gun crimes may be removed or concealed prior to law enforcement arriving on the scene, this number still suggests that the accuracy rate purported by ShotSpotter may be far too optimistic in their own capabilities. Similar studies done by cities on false alerts, such as Charlotte, North Carolina, and San Antonio, Texas, have led them to end their contracts with ShotSpotter.[11] However, this technology is still being used in 117 cities in 34 states and U.S. territories.[12]

ShotSpotter data can present difficult evidentiary situations as well. While the algorithmic data can be used to corroborate evidence found at a crime scene to boost accuracy, some courts filed charges against Defendants in the absence of any physical evidence, such as a gun, based on ShotSpotter data. [13] One such instance is Michael Williams, a 65-year-old Chicago man who was charged with the first-degree murder.[14] Williams was accused of shooting and killing a 25-year-old man who Williams says he picked up on the way back from making a cigarette run.[15] Williams claims that a car pulled up beside him at an intersection and shot into his car, killing his passenger, while prosecutors claimed Williams shot his passenger from inside the car.[16] Williams was charged despite nothing in the police report citing any motive, a total lack of eye-witnesses, and no gun found at the scene.[17] Williams was charged mostly due to the data collected by ShotSpotter, despite the fact that it originally identified the sound as a firecracker, with 98% confidence, at a location about a mile away from where Williams and his passenger were at the time before the data was re-labeled by ShotSpotter employees.[18] The charges against Williams were eventually dropped at the request of prosecutors when they determined “the totality of the evidence was insufficient to meet [their] burden of proof.”[19]

Williams surely isn’t the only person who has faced this exact scenario. Tania Brief is an attorney at The Innocence Project, a legal non-profit who seeks exonerate innocent people who are incarcerated for crimes they did not commit.[20] Brief stated that “[t]he concern about ShotSpotter being used as direct evidence is that there are simply no studies out there to establish the validity or the reliability of the technology. Nothing.”[21] Understandably, organizations like The Innocence Project would be wary of technology that they believe could contribute to more innocent people being incarcerated due to unreliable direct evidence. ShotSpotter surely has advantages, such as a decreased dispatch time of less than 60 seconds as compared to an average of 4.5 minutes and a decrease in the transport time of gunshot victims to hospital from 10.3 minutes to 6.8 minutes.[22] However, at this point in time, this new tool of law enforcement may prove to be unprepared for reliability in the courtroom.

 

[1] See Gunshot Detection, ShotSpotter (Nov. 5, 2021), https://www.shotspotter.com/law-enforcement/gunshot-detection/.

[2] See James Clayton, Inside the Controversial US Gunshot-Detection Firm, BBC (Oct. 29, 2021), https://www.bbc.com/news/technology-59072745.

[3] See id.

[4] See id.

[5] See Gunshot Detection, supra note 1.

[6] See ShotSpotter, ShotSpotter Fact Sheet 1 (2016), https://www.shotspotter.com/system/content-uploads/ShotSpotter_Fact_Sheet_-_final_draft_12.13.pdf.

[7] See Clayton, supra note 2.

[8] See ShotSpotter, ShotSpotter Respond Q&A 2 (2020), https://www.shotspotter.com/wp-content/uploads/2020/12/ShotSpotter-Respond-FAQ-Dec-2020.pdf.

[9] See Burke et al., How AI-Powered Tech Landed Man in Jail with Scant Evidence, AP News (Aug. 20, 2021), https://apnews.com/article/artificial-intelligence-algorithm-technology-police-crime-7e3345485aa668c97606d4b54f9b6220.

[10] See Furgeson & Witzburg, The Chicago Police Department’s Use of ShotSpotter Technology 14 (2021), https://igchicago.org/wp-content/uploads/2021/08/Chicago-Police-Departments-Use-of-ShotSpotter-Technology.pdf.

[11] See Burke et al., supra note 9.

[12] See Cities, ShotSpotter (Nov. 5, 2021), https://www.shotspotter.com/cities/.

[13] See Burke et al., supra note 9.

[14] See id.

[15] See id.

[16] See id.

[17] See id.

[18] See id.

[19] See id.

[20] See About, The Innocence Project (Nov. 5, 2021), https://innocenceproject.org/about/.

[21] See Burke et al., supra note 9.

[22] See Gunshot Detection, supra note 1.

Image Source: https://www.voiceofsandiego.org/topics/public-safety/shotspotter-sensors-send-sdpd-officers-to-false-alarms-more-often-than-advertised

By Adarsh Vijayakumaran[1]

 

Non-Fungible Tokens (“NFTs”) represents assets that are either digital or real property which are encoded in a blockchain.[2] Unlike Fungible Tokens such as Bitcoin, Ethereum, etc. that can be replaced for one another, each NFTs represents a unique non-interchangeable unit of data whose value depends on the end buyer. The idea behind NFTs is that, while anyone can read the article or view the tweet, NFTs would give the owner a representation of “ownership” through that particular NFT.[3]

With increased popularity and evolved use cases for NFTs developing every day, the question of applicability of securities laws to NFTs becomes important. While the general notion is that since buying of most of the NFTs does not qualify as an investment contract under the Howey’s Test,[4] the securities laws do not apply to them.[5] The present article attempts to analyze the latest developments happening in the NFT-verse to re-evaluate if the above notion still holds true.

You selling me memes?

The reason why the applicability of securities laws to NFTs is mostly overseen is because the NFTs that are typically available in the marketplace today are art-based. For example, almost all the NFT platforms known to users sell digital collectibles like minted Jpgs, trading cards, crypto—kitties, monkeys and bears. This being the case, why would anyone even close to assume applicability of securities laws to random pictures of monkeys and kitties that are floating in some NFT website?

The applicability of securities laws to NFTs is not something that has not been pondered before. The common misconception regarding NFTs is that since NFTs derives its value from the underlying instrument (that could be off-chain or on-chain), they can be regarded as a derivative under the securities law.[6] But the problem with this concept is that derivatives by nature are contract for differences.[7] While certain marketplaces like NFT20 allows speculative trading for NFTs,[8] this may not be true for the vast majority of NFTs available. Furthermore, unlike exchange-traded derivatives like futures and options where securities law applies, the NFT derivative contracts are neither standardized nor liquid. This means, even with sufficient contractual freedom an NFT derivative could mean nothing more than a “forward type contract” representing a unique token that are traded over the counter and are not regulated under the securities law.[9] So, when does securities law come into play?

Split It!

The NFTs in the normal scenarios does not come under the securities law framework. But between May 2014, when the first one-off NFT avant la lettre was minted and March 2021,[10] when the Everydays: The First 5000 Days, created by @Beeple was sold for a whopping $69.3 million—[11] a lot of things about NFTs have changed.

The large-scale acceptance of NFTs today have attracted more users to enter into the NFT market places to mint as well as buy and sell NFTs. But the problem is that with the massive flooding of NFT marketplaces with millions of NFTs, not all tokens are well received. Even if a person burns away, let’s say 120 gwei in gas fees in minting an NFT,[12] it is very rare that his NFT is going to have buyers after listing it in the marketplace unless the person has some fame in either the real or virtual world.[13] Because of this, most buyers prefer NFTs that have already got some reputation in the metaverse. However, all the NFTs that have already got some repute in the virtual space are exorbitantly high in price thus discouraging new market participants.

It is in this above background that the concept of fractionalization of NFTs and the introduction of DAO vehicles to buy and sell, and fund NFTs came in.

Fractionalization of NFTs

The fractionalization of NFTs refers to splitting up of ownership in an NFT so that many people can part-own a single NFT.[14] While different blockchain players provide various ways to split ownership in an otherwise unique token, the crux of the process is locking the particular NFT into a vault and issuing fungible tokens on its behalf.[15] Each of these fungible tokens will represent a fractional ownership and has a uniform democratized value just like a price feed for each BTC or any other fungible token.[16]  These fungible tokens can be later listed in a crypto-exchange and traded like listed crypto-currencies or just sold via private placements.[17] The sum total value of these tokens will determine the average price of the original NFT.

But the problem with the fractionalization of NFTs is that it is not always necessary that the fractional NFTs (“F-NFTs”) are diluted at a truly democratic level. With the earlier full owners acting as “promoters” (or managing the vault) for the original NFT or advertising the fraction as a speculative investment, accompanied by the suggestion that the original NFT or the F-NFT will increase in value (view to profit) as a result of the actions of the issuer or the promoter, the F-NFTs might as we be treated as units of a collective investment scheme as defined under section 11AA of the SEBI Act or as an “investment contract” under the Howey’s test.[18]

Nevertheless, the using of ERC20 standards to dictate a number of rules and actions that a token or a smart contract must follow and steps to be able to implement it, for e.g. set parameters for opening the vault; and having reserve prices for deciding buy-outs; and availability of different product builders for fractionalization that uses a variety of methods to split ownership for e.g. “smart contracts that split the original NFT itself”[19] could all significantly mitigate the potential exposure of F-NFTs to securities regulations.

NFT DAOs

Just like how F-NFTs make it possible to distribute ownership, the Decentralised Autonomous Organisations (“DAOs”) in NFTs also came in with a view to democratize buying and selling heavy priced NFTs. However, unlike F-NFTs that are made by fractionalizing a vaulted NFT that was brought by the token issuer, the DAOs in NFTs work a bit differently. In DAOs, the funds are pooled in first and tokens are issued based on the fund contribution, and using the proceeds of the pooling, NFTs are bought and sold.[20]

What makes DAOs better than F-NFTs is that DAOs are what really makes democracy in the metaverse truly possible. In structure, a DAO is like a public limited company but instead of having Articles of Association, a DAO has a self-executing code to govern it.[21] And like the word decentralized indicates, decisions in DAOs are not made by a board of directors but voted by the token holders directly.[22]

However, even though DAOs gives the token holders a better say in the affairs of the organization, DAOs are something that came under the securities law framework as early as in the year 2017 itself with the Securities Exchange Commission (SEC) of United States (US) releasing an investigative report on the offering of tokens by a group known as “the DAO” and concluding that securities law requirements will apply “regardless of whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.”[23]

Moreover, very recently, the US state of Wyoming passed a law that recognizes DAO as a limited liability company.[24] This means, the law in Wyoming has now clearly recognized a DAO as a legal person, and token holders are protected under the corporate veil as long as the situation doesn’t demand lifting that veil.

The Indian Picture

In terms of global cryptocurrency ownership, India stands at 5th spot with 7.30% of the total population of showing an exponential increase in interest in cryptocurrencies ever since the Reserve Bank of India lifted its ban in March 2020 with Indian exchanges clocking impressive user additions and a sustained surge in daily trading volumes.[25] But unlike the crypto craze that has been happening since last year back, the NFT bandwagon came to India only in 2021 with leading Indian celebrities from the world of Bollywood and cricket launching digital memorabilia through NFTs.[26] While it is true that India still has a long way to go in terms of blockchain-based asset adoption, the massive surge in interest in NFTs since this year and the launching of more and more NFT marketplaces in India hints that NFTs are going to be in India for a very long time.

However, unlike the US, the Indian securities market is yet to see NFT based securities disputes to score regulations. While the concept of fractionalization and DAO-lization has caught Indian media’s attention, India has so far not witnessed actual use cases of these democratizing mediums. It is also very unclear as to how Indian regulators will deal with matters connecting F-NFTs and DAO. For one thing, all the unregulated deposit schemes are required by law under the Unregulated Deposit Schemes Act, 2019 to be banned.[27] Secondly, Indian law does not recognize the unregistered association of persons as a separate “legal entity”.[28] This means, liability in case of any violations knowingly or unknowingly committed under the garb of F-NFTs and DAOs could shift to individual token holders. Moreover, the concept of “Law of Code”[29] is still foreign to India.

Conclusion

The coming of F-NFTs and DAOs in NFT-verse has enabled all the market participants who were otherwise discouraged from buying and selling NFTs to now part-own some of the heavy-priced NFTs. While the legal treatment of each of these new mediums of asset democratization has left regulators perplexed, there is no single formula to decide how to go about any of these instruments. The law should decide matters based on the facts and circumstances of each case. On appearance, it may appear that Indian securities law is not matured to deal with these novel instruments, but with the presence of sandbox schemes that provide certain regulatory exemptions in a controlled environment for most of the new products and businesses, and having perceptive lawmakers who are ambitious to prepare India for the 4th industrial revolution indicates that there is always a space in India for innovation. Moreover, the Securities Exchange Board of India’s recent circular barring registered investment advisors from advising on unregulated financial instruments indicates that the regulators are conscious of the latest developments happening and want the investors to be cautious before they pour their hard-earned money anywhere.[30] Nevertheless, despite whatsoever happens in the short term it’ll be interesting to see how different stakeholders, regulators, lawmakers, and different market participants will come together in taking these crypto-revolutions to the next level.

 

[1] The author is a B.A.LLB (Hons.) Student at the National University of Advanced Legal Studies, India.

[2] See Robyn Conti & John Schmidt, What You Need To Know About Non-Fungible Tokens (NFTs), Forbes (May 14, 2021), https://www.forbes.com/advisor/investing/nft-non-fungible-token.

[3] The empirical constraint of owning an NFT is different from the traditional ownership of assets. This is because owning an NFT by itself doesn’t grant the right to print or distribute the work. The rights that a person will behest as part of owning an NFT would depend on a combination of on-chain contracts and off-chain contracts relating to the particular token. For more information. See Adarsh Vijayakumaran, NFTs & Copyright Quandary, Journal of Intellectual Property, Information Technology, and E-Commerce Law (pending publication).

[4] See generally S.E.C. v. Howey Co., 328 U.S. 293 (1946).

[5] See Media, Entertainment and Technology Litigation Update – Non-Fungible Tokens (NFTs), Gibson Dunn (Apr. 19, 2021), https://www.gibsondunn.com/media-entertainment-and-technology-litigation-update-april-2021.

[6] See, e.g., Abhinav Kaul & Neil Borate, Non-fungible tokens are now in India, but mind the legal pitfalls, Live Mint (Apr. 8, 2021), https://www.livemint.com/money/personal-finance/nonfungible-tokens-are-now-in-india-but-mind-the-legal-pitfalls-11617557315927.html.

[7] Financial Derivatives, SBSC, https://www.sbsc.in/pdf/resources/1587985025_FINANCIAL_DERIVATIVES.pdf (last visited Oct. 20, 2021).

[8] See NFT Liquidity Protocol, NFT20, https://nft20.io (last visited Oct. 25, 2021).

[9] Forward contract vs Futures contract: What’s the difference?, Times of India (Jan. 25, 2019), http://timesofindia.indiatimes.com/articleshow/60461912.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.

[10] Bo Franklin, Did an avant-garde French artist sell the first NFT?, Economist (Apr. 29, 2021), https://www.economist.com/1843/2021/04/29/did-an-avant-garde-french-artist-sell-the-first-nft.

[11] A digital artist just sold a jpg file for $69 million, Live Mint (Mar. 12, 2021), https://www.livemint.com/news/world/this-digital-collage-of-5-000-individual-images-fetches-rs-500-crore-11615516650126.html.

[12] See Samantha Ayson, What is Gas?, Help Foundation, https://help.foundation.app/en/articles/4743017-what-is-gas (last accessed Oct. 2, 2021) (“‘Gas’ refers to the fee required to successfully conduct a transaction on Ethereum. This fee goes directly to Ethereum miners who provide the computer power that’s necessary to verify transactions and keep the network running; Foundation does not receive a percentage.”).

[13] See What are NFTs and why are some worth millions?, BBC News (Sept. 23, 2021), https://www.bbc.com/news/technology-56371912.

[14] See Mehab Qureshi, Fractionalised NFTs: Know Your NFTs? You Can Own One Too! At Least a Part of It, The Quint (Sept. 21, 2021), https://www.thequint.com/explainers/what-are-fractionalized-nfts-how-do-they-work-who-can-benefit#:~:text=Chandra%20explained%20that%20the%20process,type%20are%20called%20fungible%20tokens.

[15] See id.

[16] See id.

[17] See Prabhjote Gill, Fractionalisation of NFTs — the newest crypto craze explained, Business Insider (Sept. 9, 2021), https://www.businessinsider.in/investment/news/fractionalised-non-fungible-tokens-are-the-newest-craze-of-the-crypto-art-world/articleshow/86062930.cms.

[18] F-NFTs in normal scenarios ticks all the requirements to be classified as a collective investment scheme under §11AA of Securities and Exchange Board of India Act, 1992. See §11AA, Securities and Exchange Board of India Act, 1992, https://www.sebi.gov.in/legal/acts/jan-1992/securities-and-exchange-board-of-india-act-1992-as-amended-by-the-finance-act-2021-13-of-2021-w-e-f-april-1-2021-_3.html (last accessed Oct. 2, 2021); see also Framework for “Investment Contract” Analysis of Digital Assets, SEC, https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets (last accessed Oct. 3, 2021).

[19] See, e.g., Edward Wilson, What are fractionalized NFTs?, Argent (Sept. 3, 2021), https://www.argent.xyz/learn/fractionalized-nfts/#:~:text=Fractionalized%20NFTs%20are%20NFTs%20split,locked%20into%20a%20smart%20contract.

[20] The reverse could also be possible, where tokens are made for a previously bought NFT similar to the fractionalization process. However, with increased use cases for a DAO in comparison to the limited purpose of the normal fractionalization process, the established practice proceeds with pooling of funds first as it allows the DAO to be used for broad purposes not limiting to just fractionalization. See Kam (Exhuman), The Emergence of NFT DAOs – Overview, Niftex (June 9, 2021), https://blog.niftex.com/nft-dao.

[21] Samer Hassan & Primavera De Filippi, Decentralized Autonomous Organization, Policy Review (Apr. 20, 2021), https://policyreview.info/glossary/DAO.

[22] See id.

[23] Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (Release No. 81207), SEC (July 25, 2017), https://www.sec.gov/litigation/investreport/34-81207.pdf.

[24] SF0038 – Decentralized autonomous organizations, https://www.wyoleg.gov/Legislation/2021/SF0038 (last accessed Oct. 2, 2021).

[25] See India has highest number of crypto owners in the world, Live Mint (Oct. 13, 2021), https://www.livemint.com/market/cryptocurrency/india-has-highest-number-of-crypto-owners-in-the-world-at-10-07-crore-report-11634110396397.html.

[26] See Prasid Banerjee, NFTs, the new craze in cricket and Bollywood, Live Mint (Sept. 23, 2021), https://www.livemint.com/technology/tech-news/film-stars-cricketers-join-nft-bandwagon-11632333214229.html.

[27] The Banning of Unregulated Deposit Schemes Act, 2019, https://egazette.nic.in/WriteReadData/2019/209476.pdf (last accessed Oct. 1, 2021).

[28] See Gorakh Hilal Patil v. Parit Samaj Seva, Civil Revision Application No. 202 Of 2007, High Court of Bombay (India).

[29] Lines of programming codes are to the virtual-world what the laws of physics are to the Real-world; they determine what is possible and, in turn, what can be regulated. See, e.g., Programming Language Converts Laws Into ‘Provably Correct’ Computer Code, Discover Magazine (Mar. 23, 2021), https://www.discovermagazine.com/technology/programming-language-converts-laws-into-provably-correct-computer-code; William Li et al., Law Is Code: A Software Engineering Approach to Analyzing the United States Code, 10 J. Bus. & Tech. L. 297 (2015); Dr. Michael Jünemann & Dr. Udo Milkau, Can Code Be Law?, Bird & Bird (Aug. 2021), https://www.twobirds.com/en/news/articles/2021/germany/can-code-be-law.

[30] See Dealing in unregulated products by SEBI registered Investment Advisers, SEBI (Oct. 21, 2021), https://www.sebi.gov.in/media/press-releases/oct-2021/dealing-in-unregulated-products-by-sebi-registered-investment-advisers_53370.html.

Image Source: https://decrypt.co/66046/the-next-big-thing-in-nfts-breaking-them-apart

By Sophie Thornton

 

With the rise of NFTs, art collectors around the world purchase their own one-of-a-kind piece of artwork without ever having to leave the comfort of their home. Pictured above is an image of artwork created by Beeple which was purchased as an NFT for over $69 million. Anyone can google search this art, download it, view it, and personally use Beeple’s artwork in a seemingly equal way to the purchaser but at no cost. So, what makes this art worth buying?

An NFT is a non-fungible token.[1] A fungible asset is one that is interchangeable without losing any value.[2] For example, a dollar bill can be interchanged with any other dollar bill and the value remains the same. [3] A non-fungible asset has unique qualities that make it impossible to interchange.[4]

NFTs are based on blockchain that is made of software code in the form of “smart contracts.”[5] “Smart contracts are open-sourced blockchain protocols that control the transfer of digital currency under certain terms and conditions.”[6] Once the smart contract is finalized, it is “minted” onto the token on the corresponding blockchain.[7] This is permanent and cannot be modified later.[8] Additionally, the records cannot be forged because the information is stored on thousands of computers internationally.[9]

Many people are concerned that NFTs are the next big bubble, just waiting to burst and hurt people who have spent upwards of millions of dollars on this type of investment.[10] This concern seems to stem from the lack of tangible ownership. A former Christie’s auctioneer stated that the idea of buying something “which isn’t there is just strange.”[11] However, some of the property rights gained upon purchase of an NFT are quite similar to those gained upon purchase of a painting or any other tangible item.

Upon purchase of an NFT, the buyer gains only personal use rights associated with the copyright.[12] The creator retains copyright in the underlying work and the buyer does not gain any rights to the intellectual property associated with the image itself and would have to acquire a specific license to gain those rights.[13] In short, the buyer gains “a non-exclusive license to the underlying intellectual property rights of an asset and only for non-commercial purposes.”[14] This is no different than if someone were to purchase an original Picasso painting. By purchasing the painting, the buyer did not gain the rights to make and sell prints of it. Similarly, the purchaser of an NFT does not possess the rights to reproduce the code associated with the token.[15] These regulations theoretically keep NFTs as exclusive as tangible artwork because they ensure that only one purchaser can have the original.

There are some notable differences, however, between a tangible purchase and an NFT and the regulations that can be placed upon an NFTs use by the purchaser. Smart contracts in the blockchain of the NFT determine the rights that accompany purchase.[16] These smart contracts may limit what type of content your NFT can be displayed adjacent to or may stop you from altering any of the content in the NFT itself.[17] There may also be smart contracts embedded in the block chain of the NFT which contain clauses allowing for the original artist of the NFT to be paid royalties upon each resale of the token.[18] Conversely, the purchaser of an original Picasso retains all proceeds upon sale or may never sell it and instead paint over it (absent outside contract considerations). Smart contracts, which are standard in the world of NFTs, can severely limit ownership rights of the buyer in a non-traditional way.

Copyright infringement issues are some of the biggest legal concerns present with NFTs. There have already been issues of counterfeiting and “individuals fraudulently offering the artists’ works as NFTs without the artist’s permission.”[19] This means that NFT copyright owners have to spend more time and resources policing an ever-growing list of platforms for potentially infringing copies or derivate works. [20] Additionally, many people who are buying NFTs are not familiar with copyright law and more easily risk infringement liability.[21]

NFTs are a burgeoning form of technology. Many people view them as investments and collectors’ items in much the same way that tangible art is viewed. But the law has yet to tackle NFTs and bolster the supposed rights of purchasers or creators. Buyers and creators can assume that traditional copyright law will rule future disputes over NFTs, but they cannot be sure.[22]

Whether NFTs are worth buying depends on one’s perspective. Anyone can have a print of a Picasso painting but only one person can have the original. Someone who values having the original or thinks it has independent value may feel the same about NFTs or they may believe that physicality holds more worth than block chain. Conversely, a vast majority of the world may not care about the original at all and may be contented to have a print or a digital download. The risks and rewards of purchasing NFTs have yet to be seen and will probably inform the public on if they believe NFTs to be worth the investment.

 

[1] E.g., What are NFTs and why are some worth millions?, BBC News (Sept. 23, 2021), https://www.bbc.com/news/technology-56371912 [https://perma.cc/5QQS-5UHH].

[2]  Id.

[3] See Julian Pipolo, NFTs And The Law: What Do I Actually Own?, Law Technology Today (June 21, 2021), https://www.lawtechnologytoday.org/2021/06/nfts-and-the-law-what-do-i-actually-own/ [https://perma.cc/SQ9B-VJTP].

[4] E.g., BBC News, supra note 1.

[5] Pipolo, supra note 3.

[6] Id.

[7] Id.

[8] Id.

[9] See BBC News, supra note 1.

[10] See id.

[11] Id.

[12] See Pratin Vallabhaneni, The Rise of NFTs – Opportunities and Legal Issues, White & Case (Apr. 20, 2021), https://www.whitecase.com/publications/alert/rise-nfts-opportunities-and-legal-issues [https://perma.cc/2NZQ-TGYM].

[13] See Jon Moorhouse, Who owns the intellectual property rights of NFTs?, Lexology (July 12, 2021), https://www.lexology.com/library/detail.aspx?g=c301b33a-9974-4901-a0d8-6936a5b10423 [https://perma.cc/QVA3-UCRY].

[14]  Pipolo, supra note 3.

[15] Moorhouse, supra note 13.

[16] NFTs: Key U.S. Legal Considerations for an Emerging Asset Class, Jones Day (Apr. 2021), https://www.jonesday.com/en/insights/2021/04/nfts-key-us-legal-considerations-for-an-emerging-asset-class [https://perma.cc/34YZ-XYFZ].

[17] See Moorhouse, supra note 13.

[18] Vallabhaneni, supra note 12.

[19] Gregory J. Chinlund & Kelley S. Gordon, What are the copyright implications of NFTs?, Reuters (Oct. 29, 2021), https://www.reuters.com/legal/transactional/what-are-copyright-implications-nfts-2021-10-29/ [https://perma.cc/K93U-XWRG].

[20] Id.

[21] See Vallabhaneni, supra note 12.

[22] See Chinlund et al., supra note 19.

Image source: https://www.theverge.com/2021/3/11/22325054/beeple-christies-nft-sale-cost-everydays-69-million