On July 12^th, the French Superior Council of Intellectual Property (the Conseil supérieur de la propriété littéraire et artistique “CSPLA”), an advisory body to the Ministry of Culture, unveiled its mission report on NFTs, presenting its risks and opportunities analysis and proposing 20 recommendations concerning, in particular, the legal issues related to counterfeiting, platform liability or taxation. This short paper briefly presents a selection of some of the main findings of the CSPLA mission report. The full report is available here.

HOW DO COPYRIGHT RULES APPLY TO NFTS ?

• Without much surprise, CSPLA states NFTs are not works of art since their creation is the result of a constrained and automated computer coding process. However, the file NFTs point to can be a work of art and copyright is applicable as soon as the smart contract that registers the NFT in the blockchain integrates a link to a unique digital file.

• Copyright fully applies not to the code of the smart contract, nor to the hyperlink, but on the unique digital file associated to the NFT. The transfer of NFTs may be the vehicle for the transfer of copyright, but it is not necessarily the case: it is up to a contract to specify it.

• NFTs are not subject to exhaustion of rights since according to the mission report, a NFT is a coded element that is neither the protected work, nor the material embodiment of the digital file, nor does it constitute its material and tangible support. The mission thus considers that the provision of a digital file via a NFT can fall under the “communication to the public” right provided for by Directive 2001/29, which is not subject to exhaustion of rights.

• Resale right (droit de suite) pursuant to Directive 2001/84 could apply to the resale of NFTs,even though the mission acknowledges it is not obvious that NFT platforms should be considered as “art market professionals” which is one of the prerequisite for the resale right to apply. 

• NFTs carry risks of counterfeiting and art forgery with usual sanctions. The production, issuance and circulation of NFTs associated with copyrighted works are fully subject to intellectual property laws and exposes to the usual sanctions of copyright infringement. According to the mission “burning” a NFT could be considered as a measure to stop the acts of infringement ordered by a judge. The mission also highlights that files associated with NFTs could be considered as false works, their creation is thus subject to the usual sanctions applicable to art forgeries.

• CSPLA recommendations: (N°1) disseminate pedagogical documentation on the copyrights involved with NFTs and their technical functioning, to inform purchasers, platforms, and right holders; (N°5) support and initiate a reflection on technical solutions to ensure the effectiveness of judicial decisions in the fight against counterfeiting, and (N°11) in the long term, depending on the persistence of the market and cultural uses, establish a legal definition, including in the French intellectual property code.

NFT PLATFORMS LIABILITY

• NFT platforms are online content-sharing service provider. While the mission admits that the question of the qualification of NFT platforms is open to debate, it takes the position that the activity of these platforms could fall within the scope of Article 17 of Directive 2019/790/EU, which sets out a specific copyright liability regime for content-sharing service providers.
  
  CSPLA recommendations: (N°2) draw up a “charter of good practices“ elaborated with platforms, industry representatives and collective management organizations and (N°3) a European charter to make platforms aware of their copyright obligations; (N°4) initiate a reflection on the implementation of third-party verifiers of the content associated with NFTs.

Tax wise, ARE NFTs digital assets?

• Ordinary legal taxation regime for capital gains on the sale of digital assets should be applied to NFTs according to the mission since, pending a possible normative definition of NFTs, their unique nature and their characteristics of a collector’s item do not justify departing from this regime. According to the mission, NFTs also raise several questions on the taxation of the art market and the taxation applicable to digital art.
  
  CSPLA recommendations: (N°8) clarify the applicability to NFTs of the tax regime for digital assets; (N°9) initiate a reflection on the implementation of a tax system adapted to digital art; (N°10) include NFTs in the European framework for the fight against money laundering and terrorist financing and (N°12) develop indicators to allow greater transparency on the market.