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NFT Litigation Raises Novel Copyright Questions

Sept. 27, 2022, 8:00 AM

Artists make thousands and sometimes millions of dollars selling non-fungible tokens, some of which feature celebrities or others. The artist may have protectable rights under the Copyright Act for their original work, but the celebrity portrayed in the NFT has competing publicity rights to control their name, image, and likeness. Whose rights prevail?

First, some background. The Copyright Act affords copyright owners “exclusive rights” to display, perform, reproduce, or distribute copies of a copyrighted work, and to prepare derivative works based upon the copyrighted work.

Thus, when a self-employed artist takes a photograph of a celebrity, the Copyright Act gives the artist the exclusive right to make and sell copies of that photograph. But what about the celebrity portrayed in the photograph? Do they have a competing right to control how their name, image, or likeness is used? Most states say yes.

California, for example, has long recognized a common law right of privacy for the protection of a person’s name and likeness against appropriation by others for their advantage, commercially or otherwise, such as in Stewart v. Rolling Stone LLC.

California also provides a statutory right of publicity that bars the knowing use of another’s “name, voice, signature, photograph, or likeness” for “purposes of advertising or selling” without “such person’s prior consent.”

How are courts to reconcile the artist’s copyright rights with the celebrity’s competing rights of privacy and publicity?

The answer lies in part in Section 301 of the Copyright Act, which seeks “to preempt and abolish any rights under the common law or statutes of a State that are equivalent to copyright and that extend to works within the scope of the Federal copyright law.”

Two-Part Test

Courts use a two-part test to determine whether a state law claim is preempted by the Copyright Act. As articulated by the Ninth Circuit, a court must first determine whether the “subject matter” of the state law claim falls within the subject matter of copyright.

If it does, the court must then determine whether the rights asserted under state law are equivalent to the exclusive rights granted to copyright owners under the Copyright Act.

Whether a publicity-right claim based on a copyrighted photograph falls within the subject matter of copyright may turn on whether the photograph is used for commercial purposes. For example, the Ninth Circuit has held that “a publicity-right claim may proceed when a likeness is used non-consensually on merchandise or in advertising.”

But where a likeness has been captured in a copyrighted artistic visual work—such as a photograph—and the work itself is being distributed for personal use, “a publicity-right claim is little more than a thinly disguised copyright claim” and is preempted.

Under this approach, if an artist uses a celebrity’s image non-consensually on merchandise, the celebrity’s right of publicity claim will not be preempted by the artist’s copyright rights. But if the artist makes a photograph of the celebrity available for download for non-commercial, artistic use, the right of publicity claim will be preempted because it challenges the control of the artistic work itself and falls within the subject matter of copyright.

What About NFTs?

Where do NFTs featuring the image and likeness of a celebrity fall within this spectrum? If NFTs are mere reproductions of photographs, then the display and distribution of NFTs arguably fall within the subject matter of the Copyright Act, and the celebrity’s right of publicity claim would be preempted.

But if NFTs are distinct from the underlying copyrighted photograph, then they are no different than any other item of merchandise, and the celebrity’s publicity rights should not be preempted. In a recent decision, a federal court “assumed that NFTs fall within the subject matter of the Copyright Act” based on its understanding that NFTs are “a ‘digital representation’ of the underlying asset, i.e., the photographs at issue.”

An argument can be made to the contrary. As another federal court recently observed, NFTs are “units of data stored on a blockchain that are created to transfer ownership of physical objects or digital media.”

In other words, NFTs have value and exist independently from the underlying photographs they represent, and a right of publicity claim directed toward an NFT should arguably be treated for preemption purposes the same as one directed toward merchandise, such as skateboards and shower curtains.

In the coming months and years, courts will need to resolve the collision between a celebrity or other’s right of publicity and an artist’s copyright rights, specifically as they relate to NFTs. In the interim, the issue will continue to significantly impact celebrities and artists alike. As this issue is still being decided, risk-avoidance practices still dictate obtaining the consent of the copyright holder and the publicity rights holder.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Erica J. Van Loon is an intellectual property partner at Nixon Peabody. As an experienced IP trial lawyer, she has a winning track record litigating copyright, trademark, patent, rights of publicity, trade secrets, invasion of privacy, defamation, business interference, and other media and entertainment claims.

Joshua J. Pollack, an intellectual property counsel at Nixon Peabody, is a trial attorney with more than 26 years of experience successfully representing clients in high-stakes litigation in federal and state courts across the country that extends across a wide range of businesses and industries.