USPTO and Copyright Office Weigh in on Use of NFTs to Obtain Artist Resale Rights

On March 12, 2024 the U.S. Patent and Trademark Office and the U.S. Copyright Office delivered to Congress their highly anticipated report on Non-Fungible Tokens and Intellectual Property (the “Report”). The Report examines current and future uses of non-fungible tokens (“NFTs”) to secure and manage intellectual property rights.

Among the applications of NFTs considered are their use to obtain royalty payments to artists on downstream sales of their works and to incorporate various licensing terms. (Report, 39-42) As we have previously discussed, in the U.S. repeated legislative efforts to provide resale royalties to artists, such as exist in European countries under a “droit de suite,” have been unsuccessful, and the “smart contracts” associated with NFTs have been viewed as a potential avenue to secure this income stream. Such contracts provide that a transfer of the NFT triggers the automatic payment of a percentage of the profit as a royalty to the artist. The Report also notes the potential use of NFTs to trigger royalty rights in the music context and even to allow for royalty splits among various collaborators. However, the Report points out, the enforcement of smart contracts is problematic as it depends on the specific marketplace involved. In fact, there is a trend away from mandatory resale rights in some NFT marketplaces, such as OpenSea.