In 1996, Jay-Z had released an album, ‘Reasonable Doubt’ – which is considered as one of the greatest rap album to achieve both critical and commercial success. It is also the album that launched Jay-Z on the highway to hip hop superstardom.
Damon Dash was Jay-Z’s business partner on his music enterprise ‘Roc-a-fella Inc.’ He claimed to have an ownership in Jay-Z’s first hip hop album called, ‘Reasonable Doubt’ by virtue of being a co-founder with Jay-Z and possession of 1/3 equity interest in Roc-a-fella Inc.
Damon Dash tried to sell his (alleged) interest in the album via auctioning an NFT on an NFT platform named, ‘Superfarm’. Damon perhaps received wrong legal advice or acted upon ignorance of law, because one cannot have an ownership over company’s assets by virtue of having any interest in the company’s ownership. In other words, a corporation is a legal person having an existence separate from its constituent shareholders.
Also, in Superfarm’s auction announcement, which seemed to have not been properly advised by an attorney learned in crypto-copyright law, it was claimed that the NFT’s auction will sell Damon Dash’ ownership of the copyright in Jay-Z’s album. Superfarm also claimed that the newly minted NFT will prove ownership of the album’s copyright as well as the right to revenues generated from its exploitation.
However, Jay-Z and his attorneys got wind of the sale, after which they first sent a legal notice, and thereafter proceeded to the court to prohibit the NFT auction from taking place.
Throughout the chain of events, including in the Judge’s declaration, one is able to observe that there was no reference to violation of Jay-Z’s copyright in the album because of Damon Dash’ actions.
It is also pertinent to note that the Judge used the term, “reflecting rights to the album” while directing Damon Dash to return NFT back to Roc-a-Fella Inc. Had it been a case of a copyright infringement, the Judge would have directed Damon Dash to return the ‘copyright works/protected assets’ to Roc-a-Fella Inc.
By any means, the Judge would have used something that would have indicated that the obligation to return is because copyright law bars anyone other than the owner from creating or producing copies or derivative works or works of adaptation from the copyright work. Instead, the Judge's direction to Damon Dash rested on the premise that Damon could not have sold something over which he does not have good title.
This is not to say that NFTs are used only for auctioning off rights or ownership interests in the underlying asset. NFTs could be used for selling copies as well like how someone can sell DVDs without selling the film.
As NFTs do not cause the creation of a different form of existence of an existing underlying work, it is quite clear that NFTs do not fall under the definition of works of ‘adaptation’. Minting an NFT cannot be considered as ‘a work of adaptation’, thus denying statutory reliefs available to copyright owners. (This is true for Indian law atleast)
This means that when you create an NFT of an underlying copyright work, you have a property interest, but it may not be recognized under copyright law. It implies that if somebody violates your property interest in an NFT, it won’t be treated as a copyright infringement with respect to the NFT per se.
This means that you can’t take advantage of provisions under copyright law which include the ability to prevent use, disclose accounts and seek compensation, and also bring about prison term for repeat violators.
Instead, you would have to establish paternity of the property interest and seek injunctive orders against conversion of your property interest in or via the NFT. Further, if your copyright asset is not already registered, establishing proof of ownership against a hostile conversion through minting of an NFT is going to result in a long drawn judicial process and extended costs of obtaining desirable remedy.
Clearly, Jay-Z’s lawyers also understood that their claims could not have been based on copyright infringement. This is because when an NFT is created, it does not create a copy of the underlying work. Even an image that is minted into an NFT, does not get duplicated to be stored as a copy on the blockchain. What gets stored is only a record in the database maintained by the network of computers supporting the blockchain.
By attempting to auction the NFT, it is also moot that Damon Dash was not exploiting any of the statutorily granted right to copy or distribute a work of copyright. Instead, Damon Dash was trying to sell part of his copyright ownership in the album. If Damon Dash was legally permitted to do so then that would have resulted in transfer of copyright ownership from him to his buyer. But that didn’t happen as the judge held in Jay-Z’s favour ultimately.
Important Disclaimer: The information provided herein this article is our interpretation and understanding of the law. The legal analysis presented hereinabove is not given for application to any specific set of facts or circumstances peculiar to you or your organization. You may rely on the write-up for your peculiar facts or circumstances at your sole risk (or benefit) only. We will not be liable, answerable or responsible to you under any client-attorney relationship.