By Avik Gopal and Zahra
Introduction
The virtual world is an upcoming concept that has taken over the current generation by storm. It has a huge scope in terms of its applicability. It has created a parallel world that is extremely similar to the actual world. For instance, currencies, artworks, music, films and various products have been recreated in the virtual world that are identical to the ideal world. The two broad terms for these recreations are Crypto Currency and Non Fungible Tokens (NFTs). Both of these terms are based on the block-chain technology which was introduced in 2008. Though being based on the same technology, they are quite different form each other, the prime difference being that Crypto Currency can be exchanged for one another but NFTs cannot be exchanged as they are unique in nature.
This article discusses the growth of NFTs and change in laws that come with its growth.
Definition of Non Fungible Token
Non-fungible tokens are tokens that represent ownership of a digital asset. The token certifies that the person who holds the NFT is the true owner of the underlying asset that is assigned to it. They can include rare digital assets like photos, videos, audio files etc. Due to block-chain technology, every NFT contains a digital signature which makes it unique and helps it distinguish from one another.
Block-Chain Technology
A Block-chain is a shared, unchangeable database that records transactions and tracking assets in a network. The data is consistent as it cannot deleted or modified. As a result, an unalterable database is created.
Trading NFTs
NFTs are traded in specific online marketplaces like other crypto currencies as they are based on same technology. The real value of an NFT is due to its non-replicable nature. Due to their exclusivity, they get treated as collectibles and makes their trading highly speculative as there is no way to predict or assess how they may be valued in future.
Growth of NFTs
According to the report released by the consulting and global research firm VMR (Verified Market Research), the overall value of the NFT market is expected to rise to $231 billion by 2030.[1] The main factors for the growth of NFTs are-
- Security- The use of Block-chain technology makes NFTs secure. Once the database stores a record of a transaction, the record is there permanently. It proves that the purchaser is the only owner of the digital asset.
- Limited Supply- As each NFT is unique, and there’s only one of each available. This makes them scarce, thereby increasing their value per unit of demand as per the law of demand and supply in economics.
- Huge Profit Potential- Due to the high demand and limited supply law the initial price of the NFT is low but as the knowledge of the NFT spreads it increases its value so the owner can sell it at a huge profit as the people demanding the NFT are ready to pay exorbitant amount of prices.
- Celebrity Involvement- Famous celebrities like Eminem, Shawn Mendes, Ellen DeGeneres, Snoop Dogg, Lindsay Lohan have sold, purchased and helped create NFTs that have been bought by their fans at exorbitant prices.
Use of Augmented Reality and Virtual Reality in NFT Development
- Gaming– NFTs create games that empowers players to hold assets that they can obtain while playing games and carry them into real life.
- E-commerce- Emerging brands are including AR at every step of their customer’s buying process as it gives a better idea and experience of the items bring purchased. So the virtual goods that are present online are all created NFTs.
- Art- NFT artists can develop more realistic and contextual pieces of art with sound, visual, or other virtual effects.
Current Indian Law on NFTs
Cryptocurrency has been present in India for the last ten years, the primary debate on its legality began in June 2018, when the Reserve Bank of India (RBI) issued a circular advising banks not to deal in crypto-currencies[2]. However, the Supreme Court struck down this order in Internet and Mobile Association of India vs Reserve Bank of India[3] stating the right to trade is a fundamental right under Article 19(1) (g) of the Indian Constitution.
India has not yet passed any law regulating the NFTs. However the government has recognized it via modification of certain laws that may help them in its governance-
- Copyright Regulations- An owner does not get the copyright to the registered piece of NFT at that very instant. According to Section 19 of the Copyright Act of 1957, to transfer copyright and be regarded as an owner, a written sale contract declaring explicit assignment of copyright must be present. Thus the buyer cannot establish ownership over the object unless the owner specifically transfers their rights. However, the buyer’s digital item will have protection under the Copyright Act from illegal copying or disseminating.
- FEMA Regulations- NFTs may be categorized as intangible assets and governed under the software and intellectual property part of the FEMA regulations. The classification of the underlying asset being transferred via the NFT, would decide their treatment under the Foreign Exchange Management Act, 2000.
- Tax Regulations- The 2022-2023 Budget clearly mentioned that it would levy 30% tax plus cess and surcharges on transactions dealing with all virtual digital assets, including NFTs.
Recent Judgments
India has not had a dispute regarding NFTs, however America and Europe have witnessed some cases that depict modification and inculcation of laws to include NFTs. Most of the cases are based on copyright and trademark infringement.
- Juventus FC v Blockeras, in 2022. Italian football club Juventus filed against NFT creator Blockeras for selling NFTs depicting football players, including former star Christian Vieri, wearing Juventus shirts that prominently featured the club’s trademark. The former star had contractually licensed his image to the company, however, Juventus had not authorized the use of its trademarks. The Court ruled in favor of Juventus, restraining Blockeras from dealing in the NFTs.
- Nike v StockXis an ongoing case, filed by Nike in New York against online marketplace StockX for trademark infringement, counterfeiting and false advertising in launching an NFT collection tied to actual Nike sneakers without authorization. The shoemaker claimed that StockX sold NFTs at heavily inflated prices, while StockX refuted the claims, arguing its NFTs are merely digital receipts used to track ownership of the specific physical Nike product that StockX has authenticated. Therefore, they were covered by the doctrine of first sale, which allows the resale of products without the owner’s permission, as long as the person lawfully owns the product.
- Hermès International v Mason Rothschildis one of the first cases to address the new art world of NFTs. The artist Mason Rothschild’s unauthorized versions of Hermès’s iconic Birkin bags, which the artist covered in fur, featured in an image collection he dubbed “MetaBirkins”, was sold for USD 1 million. Hermes sued the artist for trademark infringement. Rothschild argued that his fanciful depictions of the bags and name are artistically relevant and do not mislead as to their source. The New York Jury held that the art was likely to confuse consumers and awarded Hermès $133,000 in damages for trademark infringement.
- Miramax v Quentin Tarantino, was one of the first intellectual-property disputes over the popular digital assets known as NFTs. Miramax, which distributed the landmark 1994 film ‘Pulp Fiction’, sued Quentin Tarantino in November 2021 after block-chain provider Secret Network announced it would be selling several tokens of uncut scenes. Miramax said they owned all rights to the movie except specific ones reserved. The studio asked the court to block the sale. Tarantino said that the case should be thrown out because the NFTs are based on the screenplay, which is covered by a separate copyright. Recently, both the parties decided to settle the suit.
Conclusion
Recently, in Anil Kapoor vs. Simply Life India and Ors.[4] the Hon’ble Delhi High Court undertook an expansive approach and restrained the defendants from “utilising his name, image, voice, likeliness or personality to make any merchandise, ringtones, or in any manner misuse the plaintiff’s name, voice and other elements by using technological tools such as artificial intelligence, face morphing, GIFs, either for monetary gains or for creating any videos for commercial purpose so as to result in violation of plaintiff’s rights.”
The Anil Kapoor case conclusively identifies protection to the personality rights in the technological space of virtual reality. This is a watershed moment, and in alignment to the requirement to pace up protection of IP rights with the evolution of technology such as Artificial Intelligence and Machine Learning and Virtual Reality.
Though NFTs are not legally valid in India, at present, but soon we might have laws and regulations regarding NFTs. It will encourage enthusiasts to actively trade in NFTs as they have a great future in India with the developing laws and regulations. NFTs are getting popular among common people and celebrities like Amitabh Bachchan, Salman Khan, Rajnikanth. Famous entities have been launching their own NFT collections in recent times. These significant impacts mean that we can soon start trading through NFTs and get more valuable insights.
Thus, NFTs will gain speedy momentum once the Indian government formulates specific laws and regulations for its validity as the NFT market is getting wider, and the digital economy will be boosted by the new entrants in the market for NFT and other digital assets.
[2] https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=30247
[3] (2020) 10 SCC 274
[4]CS(COMM) 652 / 2023