Bengü Bellek

Managing Attorney

06.09.2022

Metaverse, NFT And Intellectual Property

The form of virtual reality called the metaverse which we have been hearing a lot lately was first used in 1992 in Neal Stephenson's "Snow Crash" novel. The word Metaverse refers to virtual reality and augmented reality technologies. According to this concept, metadata will become a big part of both digital and real life in the near future as a new version of the mobile Internet. Recently, the metaverse concept has started to attract interest as major technology companies such as Facebook and Microsoft have announced plans to develop metaverse platforms for both entertainment and work purposes. However, it can be said that we have not yet fully witnessed the products and services that will be necessary for ordinary users to truly understand this technology. If we look at a close example, during the peak of the Covid-19 pandemic, musicians gave concerts in virtual environments and gave us a little glimpse of what the metaverse might be like. Although the idea that involves real life in such a way sounds exciting, it is inevitable that this concept, which is quickly becoming a part of our lives, will bring legal problems with it. In that context, this article will examine the legal problems that may be reflected in our lives together with the metaverse concept and  focus on the concept of property in the metaverse world.

In China in 2005, Qiu Chengwei lent a character he had created on a computer game to a friend and later found out that his friend had sold the character for money. He killed his friend who sold the game character after the police did not take action since it was a virtual property. The fact that such an event occurred even in 2005, when technology was far behind today, shows that virtual data is actually not so “virtual”. The universe of metaverse, which includes computer games, business areas, events, healthcare, virtual real estate and digital values foresees an unlimited market. The most important problem that metadata owners may face is undoubtedly the security and confidentiality of the digital data they have shared. This already valuable data will become more valuable as the interest in the virtual world increases, and the rights that must be protected under this data will put pressure on legislators to bring current laws in line with the advancing technology.

Metadata is usually cashed out using cryptocurrency or NFTs (unchanging tokens). An NFT can be an image, a piece of music, a video, a three-dimensional object, or any other kind of creative work. Individuals can use this data to hold meetings, learn, play games, engage in social interactions, and much more.  Last April, the Presidential Digital Transformation Office, together with the Turkish Language Society, proposed the phrase “Qualified Intellectual Property” as the Turkish equivalent of the NFT. NFTs are distinguished from cryptoassets due to the fact that they are original data. So is this data legally a property? In the Continental European legal order, which is also valid in Turkey, goods are divided into movable and immovable property. However, since this distinction is not in the metaverse universe and ownership is based on a material asset, it is not possible to put metadata in this category. Property right is a right that gives the owner the broadest authority over the immovable property. In the virtual world, what the scope and limits of this right will be still needs to be elaborated. Because there is no physical existence in the metaverse. Therefore, it would be more correct to consider NFTs as an intellectual property. 

When any intellectual property is purchased in the real world, according to property law, ownership can be considered bilateral. Because first, the intellectual property is under the patronage of the person who physically buys it. Depending on the conditions of the sale, the buyer may also own the intellectual property right of this product. However, when it comes to digital products, it is unclear how the concept of ownership will be evaluated. According to some lawyers, the ownership valid in the metadata database consists of a form of licensing or provision of services, and the actual ownership still belongs to the actual owner of the product. In this case, whoever buys the product will not be able to sell the product without obtaining permission from the actual owner of it.

The concept of intellectual property, which is a fairly broad concept, refers to works that are products of intellect in a general sense. In this sense, the scope of the "product" includes content such as written or spoken words, movies, characters, songs, graphics and more. Content owners have the right to do what they want, including making money from the content they have produced. A violation takes place if it is used by someone else without the permission of the content owner. Additionally, the development of the virtual world raises a number of issues that need to be addressed related to cross-licensing, advertising, copyrights, trademarks, copyrights and patents. However, as it is still a new application, it is not yet clear how to implement it. Directive 2019/790, published by the European Union in 2019 on copyright and similar rights in the digital market, is a guide in this regard. 

According to the directive, copyright holders who have a work in the meta-world can retrieve the rights of their work if the work's financial value increases after they have transferred the copyright or the right to use it to another user. As a justification for this, the Directive shows that the owners of artworks are in a more disadvantageous position when it comes to transferring copyrights. Thus, the owners of the work will be able to earn income from it if the work raises in value after transferring rights. This is also possible through smart contracts. Smart contracts are, in short, a self-executing contract in which the terms of the contract between the buyer and the seller are written directly in Code. The code and the agreements it contains are located on a distributed, decentralized blockchain network. Due to the scope of this article, smart contracts will not be further explained.

Although the meta-world offers endless opportunities for copyright holders, the question of whether the works that appear in this world actually exist also risks the violation of intellectual property. The possession of copyright also entails the right to impose sanctions on the violator of this right. According to the EU directive briefly mentioned above, service providers who offer online content should buy a license from the right holders of the works they share. If this is not authorized, they should take appropriate measures to prevent the works from being illegally obtained. This special regime applies to online content providers with an annual revenue of less than 10 million Euros and a monthly number of visitors within the EU that does not exceed 5 million. According to the Directive, it should not affect the availability of solutions under Union and national law. Accordingly, the steps taken by such service providers should not affect users who use online content sharing services to legally upload and access information about such services. Although the Directive aims to protect service providers who provide metadata and data to the public in an inclusive manner, even a legal regulation inspired by the EU Directive will not be sufficient. Especially given the slowness of legal processes in Turkey and given the fact that there are few experts in this field. 

NFTs, which are also called modern works of art today, are subject to the same protection regime, although they differ from other works of art. Intellectual works are protected in Turkey by the Law No. 5846 on Intellectual and Artistic Works (LIAW). In article 1/B, which regulates the definitions of the aforementioned law, an artwork is described as “All kinds of ideas and art products that have the property of the owner and are considered works of science, literature, music, fine arts or cinema”. While an owner of an artwork is described as “the person who created the artwork". When the definitions in the Law are examined, it will not be wrong to say that NFTs may also be included in this category. However, a product being accepted as an artwork depends on some conditions. Accordingly, the artwork must contain the characteristics of the person who created it. Even if the products which have not yet been put forward (and are still in gestation) meet all the conditions, they cannot be called artworks within the scope of the aforementioned law. In this context, disputes related to NFTs (which are be qualified as artworks according to the LIAW) should also be detailed within the scope of the provisions of the aforementioned law. 

The owner of a virtual artwork stored in a blockchain can be easily identified thanks to this technology. The fact that the owner of the work can be determined using the blockchain makes it difficult to illegally copy the work. Since applications designed to convert a physical work into an NFT are used, the material existence of the product in a virtual environment is established. An NFT is a document proving this. As we mentioned above, products that do not have the characteristics of its owner are not called artworks in the LIAW. However, the fact that NFTs can be specific to their owners shows that they have the qualifications of an artwork. 

The owner of the work, -considering he moral rights on the work belong to them- can transfer their right to process, reproduce, distribute and represent the work ,temporarily or indefinitely. However, the sale of the work does not mean that the copyrights will also be transferred to the purchaser. If the owner of the work does not transfer the use of their rights by a license agreement, the purchaser will only have purchased the NFT-certified work itself. Since this situation can be confusing for the person who buys an NFT, it is important that they understand what they are actually obtaining. An artwork put up for sale as an NFT may be eligible for copyright protection if it meets certain conditions, such as originality and creativity. If the buyer acquires ownership over a metadata containing the work and copyright, the copyright will also be transferred from the seller to the buyer. However, when this person buys the software code instead of the work itself, they will not own the work, but will have obtained only a copy with a certain financial value. An example of this is the purchase of a signed copy of a book or an original edition.

As such, it is not possible to say that there has been a copyright transfer. However, the parties can perform this transfer with a licensing agreement that they can include in the smart contract. With this licensing agreement, the ownership does not pass to the buyer, but the owner of the work gives them a license to use or reproduce the digital asset of the work. But there is no transfer of ownership over the artistic product.

There have not yet been any cases in Turkey related to metaverse and NFTs, but last year in the United States, the production company Miramax sued director Quentin Tarantino for auctioning some scenes from his movie in the NFT format. According to the director, he has many rights on the movie, including the script and its audio and electronic formats. For this reason, he thought that the "printed publication" clause in the contract with the company allowed him to scan and produce NFTs from his own script. The case has not yet been concluded, but there is no doubt that the court's decision will be of a guiding nature in relation to this matter. 

In another case involving NFTs and copyright infringement in China, the plaintiff owner has created an NFT consisting of a digital artwork licensed to the defendant's NFT platform. A similar NFT was created by another user of the platform and was commercialized. In the first decision on this issue in China, the court ruled that the transfer or license of a digital artwork does not imply the transfer of intellectual property, unless provided for in the contract. According to the court, NFT platforms have an obligation to develop mechanisms to control the copyright of NFTs uploaded to the platform.  

To summarize, it is inevitable that there will be legal disputes as metaverse and NFTs enter into our lives since they are new fields of law in both Turkey and in the world. Therefore, the near future cases related to this issue will be guiding for the distant future. A legal regulation on these products, which are ultimately artworks with material value, does not exist yet. But in any case, it is essential to make specific legal regulations for this area. Since the field is new, there are no means to fully protect intellectual property in the Metaverse. For this reason, we are waiting for the possible legal arrangements to be made and the case law to be developed.