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6 CLIFFORD CHANCE NON-FUNGIBLE TOKENS: THE GLOBAL LEGAL IMPACT traded through the same platform it was issued on. Selecting the right platform is therefore a key commercial decision for the issuer to ensure it can enforce its royalties, together with inclusion of appropriate restrictions around resale. Similarly, analysis of the legal recognition and enforceability of smart contracts in each relevant jurisdiction is a crucial step. What is the ownership status? The purchaser of an NFT owns the token itself, which is a record of ownership of the unique digital version of the underlying work, so that when the NFT is transferred to someone else, the underlying digital version of the work is transferred with it. An NFT does not (unless stated otherwise) represent copyright ownership of the underlying asset. Copyright to the underlying work, or property rights in respect of a physical underlying asset, would only be transferred where specifically agreed (and validly assigned). In most of the NFT issuances to date, there has been a clear intention not to create ownership interests in the underlying asset. In this respect, purchasing an NFT is the same as purchasing a physical work of art, which rarely involves an assignment of copyright in the artwork. By virtue of retaining the copyright in an underlying work, the original creator of an NFT retains the exclusive right to do certain acts in relation to the underlying work which are restricted by copyright, namely the right to make additional copies, distribute, display or sell the work to someone else. The purchaser of the NFT receives the token and, typically, the rights to use the unique digital version of the work for personal use and resell that copy of the work. The scope of a purchaser's usage rights with respect to an NFT are determined by the conditions or licence terms attached to the acquisition of the applicable NFT, which will vary from token to token. The creator of the NFT or marketplace where it is acquired could therefore implement more permissive licence terms enabling the buyer of an NFT broader rights to exploit the unique digital version of the work acquired in connection with the respective NFT. Equally, creators should be mindful of the licence terms that any marketplace or platform offers to ensure that the creator is not ceding more rights to purchasers than expected. While certain cryptoassets have been recognised as qualifying as "property" (rights "in rem") in some jurisdictions, the question of whether an NFT would be recognised by the courts as proof of legal title to a digital version of the asset to which it is linked remains open. Technically, the holder of an NFT simply has a unique set of numbers which amount to a token in their wallet, thereby granting the holder the ability to decide where or to whom the NFT should be transferred. Arguably, this creates factual control of the linked asset in a way akin to property rights. The logic is that when something like a picture, sound or text is attached to the NFT, the token proves that the digital copy of the underlying work is an authentic copy of the original work. However, as discussed above, the NFT does not necessarily transfer copyright and therefore the scope of an NFT buyer's enforcement rights is unclear. This poses the question of whether the NFT owner can require the original creator to take steps against someone who has created unauthorised versions of the underlying content, and, if that counterfeiter in turn created a counterfeit NFT, who would or could take action. It also raises the question of what action can be taken by the purchaser of an NFT where the creator subsequently issues more versions of the NFT, thus increasing the availability of the asset (and therefore, in principle, reducing its market value). Are there anti-money laundering (AML) concerns? Physical artwork has been used as a tool for money laundering, given the potential for anonymous purchases of high value artworks to be made. However, its effectiveness is limited as physical art can be hard and expensive to transport and store. To the extent that NFTs are developed that provide an actual ownership interest in artwork, they would offer the benefits of purchasing physical art while resolving the problems of physical transportation and storage and therefore could represent serious AML concerns. The Nyan Cat meme The minting of an NFT linked to the Nyan Cat meme provides an example of a content producer commercialising their work via an NFT drop (the act of offering the NFT for purchase). The author of the original Nyan Cat meme minted a single NFT of a remastered version of the Nyan Cat meme. This NFT was purchased for around US$590,000 following a bidding war on the crypto art platform, Foundation. The purchaser of the NFT acquired the token, which is a record of ownership of the unique digital version of the meme. However, the copyright in the original meme was retained by its creator.PDF Image | NON-FUNGIBLE TOKENS GLOBAL LEGAL IMPACT
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