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NFT Bragging Rights & IP Ownership – Ep. 33[Podcast]
Table of Contents
NFT Bragging Rights & IP Ownership – Ep. 33[Podcast]
Summary:
In this episode of Stuff You Should Know About IP, Thomas Colson and Raymond Guarnieri discuss non-fungible tokens, or NFTs. Jack Dorsey sold his first tweet as an NFT for more than $2.5 million. If an inventor invents an invention but does not want to patent it, the inventor can publish the invention so that nobody else can patent it. Electronic records can have digital fingerprints, which are random sets of numbers, letters, and characters; blockchain is like a more advanced version of that idea. Digital artists can struggle to make money because it is so easy for an audience to digitally copy their work. Through NFTs, digital artists can monetize their work because they can sell a one-of-a-kind original for a large sum of money. Ownership of an NTF, much like ownership of an original painting, can be motivated by a desire for bragging rights. When an artist sells a painting or an NFT, the artist no longer has possession of the painting or the NFT, but the artist retains ownership of the copyrights to the painting or NFT. So, buying a non-fungible token by itself will not allow the buyer to, for example, distribute copies of that NFT or make derivative works from that NFT. Tom McDonald bought a beat by Eminem as an NFT. Someone can make a derivative work from a copyrighted work, and that someone would own the copyright to their derivative work, but making or selling the derivative work would infringe the copyright associated with the original work. Anything that is digital can be made into an NFT. Scammers who sell phony NFTs could emerge as a significant problem in the future.
Sources:
https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
https://www.theverge.com/2021/3/5/22316320/jack-dorsey-original-tweet-nft-cent-valuables
https://www.theverge.com/2021/3/11/22325054/beeple-christies-nft-sale-cost-everydays-69-million
https://bluepnume.medium.com/big-questions-i-have-about-nfts-a3dfc73709a3
https://www.npr.org/2021/03/12/976513031/the-69-million-jpeg
https://niftygateway.com/itemdetail/secondary/0x12f28e2106ce8fd8464885b80ea865e98b465149/100010001
https://niftygateway.com/itemdetail/primary/0x948b3515d81034a3c16d5393c6c155946c93c103/1
https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain
https://www.copyright.gov/title17/92chap1.html#106
https://www.theverge.com/2021/2/18/22287956/nyan-cat-crypto-art-foundation-nft-sale-chris-torres
https://www.theverge.com/2021/3/1/22308075/grimes-nft-6-million-sales-nifty-gateway-warnymph
https://www.theverge.com/2021/3/5/22316320/jack-dorsey-original-tweet-nft-cent-valuables
https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
https://www.youtube.com/watch?v=CIV_spaVDrs
https://www.businessinsider.com/most-expensive-nft-list-top-selling-nfts-crypto-art-sales-2021-3
https://www.youtube.com/watch?v=ToDSA4SWqGo
https://www.coindesk.com/stop-tokenizing-art-you-dont-own
https://www.forbes.com/advisor/investing/nft-non-fungible-token/
Transcript:
Raymond Guarnieri:
Jack Dorsey sells his first tweet for over $2.5 million as a non fungible token or NFT. How important are NFT’s becoming to digital artists? And what does this mean in the world of copyrights? This is Stuff You Should Know About IP.
Raymond Guarnieri:
Today’s episode of Stuff You Should Know About IP is brought to you by the Patent Lawyer Magazine. To stay up to date on global news related to IP and patents, go to www.patentlawyermagazine.com. Each edition is free to read for weeks after release, and don’t forget to sign up for the newsletter as well, at www.patentlawyermagazine.com. Stuff You Should Know About IP is brought to you by the Colson Law Group. If you need unflappable lawyers who can help you navigate the sometimes treacherous waters of intellectual property, go to www.colsonlawgroup.com. All right, Tom, please explain to me and NFTs, because I’m a little bit lost when we start talking about blockchain and cryptocurrency, my eyes roll into the back of my head.
Thomas Colson:
Yeah. You’re not alone, right?
Raymond Guarnieri:
Yeah.
Thomas Colson:
Well heres, first [crosstalk 00:01:26] What I want to know, how is it possible that Jack Dorsey, who is one of the founders of Twitter, super rich already, he can sell a tweet at about a hundred thousand dollars per character?
Raymond Guarnieri:
That’s insane.
Thomas Colson:
How is that possible? His tweet, which was, let’s see, “Just setting up my Twitter.” He didn’t even spell out Twitter, he just put T-W-T-T-R.
Raymond Guarnieri:
Just got rid of all the vowels for some reason.
Thomas Colson:
That’s right. So that’s 25 characters and he sold it for like $2.9 million that’s pretty good.
Raymond Guarnieri:
Insane.
Thomas Colson:
Well, the question is also, how do you sell something that’s already out there that everybody’s been looking at for more than a decade, right?
Raymond Guarnieri:
Right.
Thomas Colson:
So let’s talk about non fungible tokens or NFTs. So before we get to NFTs, let’s talk a little tiny bit about blockchain and believe me, I’m not a blockchain expert, but let’s go back in time. When I started a company called ip.com, we had a problem we were trying to overcome, which is this. Ip.com was in the business of prior art management, essentially.
Raymond Guarnieri:
Yeah.
Thomas Colson:
And it was a service called defensive publishing where Ray has an invention. You don’t want to patent it, but you want to make sure no one else can patent it, right? So you take your disclosure of your invention and you want to publish it someplace, because once an innovation is published within a certain period of time, like a year in the US, different places, it’s immediate. But once it’s published, no one can get a patent on it. So you might say to yourself, I don’t have the money, I don’t have the time, I don’t have the interest in getting a patent on this innovation that I came up with.
Raymond Guarnieri:
Right.
Thomas Colson:
But I want to make sure no one else gets a patent on it, and they’ll be able to block me from using it. So, I publish it as a defensive measure to ensure that no one else could get a patent, right?
Raymond Guarnieri:
Right.
Thomas Colson:
So historically, for the last X number of decades, people have been publishing innovation in magazines and journals and stuff like that. But it’s difficult for patent examiners to find those publications when they’re analyzing competitive patent applications, right? So the internet emerged, right? Mid nineties, the internet comes about people are like, “Oh yes, this is a great way that we could create kind of a database where patent examiners can search to find non patent prior art references.”
Raymond Guarnieri:
Right.
Thomas Colson:
So we came up with ip.com, a database where people could affirmatively publish their inventions, that they don’t want to get patented, and they don’t want anyone else to get patented.
Raymond Guarnieri:
Right.
Thomas Colson:
But the problem is, with the internet, especially in the early days, like the mid nineties, 1997, it was the wild west. So back then you publish it, 10 years later, any 10 year old kid with a computer can publish another document and make it look like it was published back in 1997, change the properties and stuff like that.
Thomas Colson:
So we had to come up with a way to make it so that it was irrefutable. It was published on this date and it’s never been altered, essentially an authentication tool, right? Now, luckily we didn’t have to invent that because there’s all these things out there at the time, which are essentially called digital fingerprints. You take a document, an electronic record, it could be a video, it could be a graphic, it could be a word file. And you use an algorithm to create a digital hash, right? And this is this multi character set of numbers, letters, characters, and there might be 25 or 30 or 40 characters that define that document. So if you calculated the fingerprint of that document again, in years in the future, as long as there’s been no changes, that long string, that hash would not change.
Thomas Colson:
And then you can prove with certainty that the document has never been altered since it was originally created. We used to call those digital fingerprints or hash marks, right? So that was our way of ensuring that if documents were published our database and we had this whole thing, we calculate the fingerprints, then we’d put them with all the other fingerprints, we’d calculate those, then we’d publish those in a journal on paper. It was very cumbersome. 20 years later, we have blockchain, which is way more advanced than what we were doing, right?
Raymond Guarnieri:
Right, okay.
Thomas Colson:
But it’s essentially the same kind of thing, right? I found this quote which is, “Blockchain is a system of recording information in a way that makes it difficult or impossible to change, pack or cheat the system.”
Raymond Guarnieri:
Okay.
Thomas Colson:
And that’s kind of what we’re doing, right? Now, blockchain has become popular with cryptocurrencies. We’re not going to get into cryptocurrencies today.
Raymond Guarnieri:
That’s really what I typically would associate it with.
Thomas Colson:
Exactly. Right, yeah. Most of these cryptocurrencies, all of them are on a blockchain platform like Ethereum.
Raymond Guarnieri:
But they’re separate things, really, right? Cryptocurrency and blockchain. Cryptocurrency uses blockchain technology.
Thomas Colson:
Yes, but blockchain could be applied to many things. When you think about it, anything you need to verify the authenticity of electronic record, whatever that record is, you can use blockchain.
Raymond Guarnieri:
Just so happens to work really well for currency because this dollar is this dollar, and that means that there’s no other dollar like it, right?
Thomas Colson:
I’m not going to respond to that because I don’t want to get into that in the short period of time we have.
Raymond Guarnieri:
Okay yeah, we’re getting off subject.
Thomas Colson:
So let’s focus on another application for blockchain, which solves another problem. And here’s the problem. Graphic artists are creating all this really cool stuff, right? And they’re not making any money. Why aren’t they making money? Because it’s so easy to replicate it. Go to YouTube, go anywhere, and you can find almost anything and download it for free, right? So these digital artists are creating stuff that’s really valuable, but they can’t figure out a way to monetize it, enter blockchain and enter NFTs, non fungible tokens. So non fungible tokens are essentially saying they’re one of a kind. So we leverage blockchain or just so it’s simple in your brain, digital fingerprints, if you will, right? And we can show that there is certainty that this digital thing, this digital file of video, an audio, a graphic image is this on a particular day, and it’s never been altered in the future. So you can go back 10, 20, 30, 40 years, and you can prove when this thing was created, okay? So digital artists are like, “Okay, how does that help?”
Thomas Colson:
Well, just like a painter can sign their work, they paint this thing, they sign their work and they sell it for maybe millions of dollars. We could do the same thing with digital art, if you will, with non fungible tokens or NFTs, because we’re going to let artists create one work which is going to be their original, right? It’s going to be their signed work. It’s going to be ownership of that video that they created or that graphic image that they created, and they can sell that. Now, yes, there are thousands, maybe millions of exact copies out there, but the same goes with artwork, right? A famous artist paints something, there’s a zillion prints of it, right? You might pay $50 million and my mother to Michael’s and pays $2 or $10 and $20, and for most people it looks exactly the same.
Raymond Guarnieri:
Right.
Thomas Colson:
You go into her house, there’s a Dali up on the wall. In fact, my mother has a Dali up on the wall. She always refers to it as her Dali, right? And I’m looking at one day.
Raymond Guarnieri:
I’m thinking like a doll, but the art, the melting clock.
Thomas Colson:
Salvador Dali. Yeah, in fact, it’s the melting clock. That is the one she has on her wall. She always talks about her Dali, and she’s been talking about it since I was a kid. But the thing about her Dali is, it’s not an original.
Raymond Guarnieri:
It’s a print.
Thomas Colson:
It’s a print.
Raymond Guarnieri:
Is it a print?
Thomas Colson:
It’s a print, it’s worth something.
Raymond Guarnieri:
Or a recreation where there’s actually, someone painted it or is it just a print?
Thomas Colson:
It’s a print, but it’s worth something because it’s a numbered print.
Raymond Guarnieri:
I see, okay.
Thomas Colson:
So you have an original, which is worth this much. Then you have numbered prints, which are worth this much.
Raymond Guarnieri:
Oh, official print.
Thomas Colson:
Then you have stuff you find on the internet, like pictures of the prints, that’s worth nothing.
Raymond Guarnieri:
I downloaded the image from Google and printed it out on computer paper and framed it.
Thomas Colson:
Exactly. If you downloaded it and printed it and put it on a frame. It’s illegal, it’s copyright infringement, but if you did it, you might be able to sell it to your friends and neighbors because at least you did that, it’s worth 20 bucks, right? But my mother’s Dali is probably worth a few hundred dollars.
Raymond Guarnieri:
Sure.
Thomas Colson:
The actual image, the actual painting is probably worth millions, right? Right. So now let’s go to NFTs, non fungible tokens. So you create a video, you have a video, you have a movie Ray, it’s called Buffalo Boys, right? You created your own movie and there are copies on Amazon. In fact, I bought a copy. I watched it and I paid like, $3.99 or $5.99?
Raymond Guarnieri:
Something like that.
Thomas Colson:
You could take your movie and upload it to one of these platforms, one of these blockchain platforms like Ethereum, and you can create essentially an original a signed Ray Guarnieri, Buffalo Boys, and then you can post it for sale. And even though anyone can download your video from Amazon for $4.99, you could sell this for a million bucks.
Raymond Guarnieri:
Interesting.
Thomas Colson:
10 million bucks.
Raymond Guarnieri:
I’ll have to do that when I get famous.
Thomas Colson:
Exactly.
Raymond Guarnieri:
Still waiting for that call, it should come in any minute.
Thomas Colson:
That’s right. But essentially, so these NFTs, so now imagine this, if Ray can do that with his movie, anybody could do it with any electronic record. So, let’s flash back to the seventies and eighties, people used to love actors and famous people paraphernalia, right? A shirt from Elvis Presley is worth a lot of money, right? It’s just a shirt, but it’s a one of a kind thing.
Raymond Guarnieri:
Didn’t they sell his guitar or something like that?
Thomas Colson:
Exactly. Whatever his guitar is, there’s probably a zillion of those guitars, but they weren’t Elvis’s guitar with maybe his signature on it. Some certification that shows it’s it, then people buy it, they hang it up on the wall. 99.9% of the population would walk in and say, “Oh, that’s just some knockoff guitar. Oh, it says Elvis, but it’s not real.” But then he’s got a certification that you might put up with it, right? What are you really buying? You’re buying bragging rights. You’re buying the right to say that you have the one of a kind version of whatever this is, right?
Thomas Colson:
Now, let’s go to these NFTs again, non fungible tokens and Jack Dorsey. So Jack Dorsey sells his 25 character tweet, which is, “Just setting up by Twitter.” for $2.9 million. Even though I have it on my computer right now, and you have it too, anybody that’s watching could download it and see that tweet. But they don’t have the certificate of authentication, that it is the one sold by Jack Dorsey to this person.
Raymond Guarnieri:
Yeah. I have several questions. So, you’re not really buying anything, except it’s the certificate you’re paying for, not the creation itself, the song, the video, the tweet.
Thomas Colson:
Sort of, so let’s compare it to a painting again. Let’s compare it to a famous painting by Dali. You buy the painting, you’re getting a painting. You put that painting on your wall, every time your friends come over, they’re like, “Oh, do you get that as a print?” No, no, no, it’s the legitimate one, I got the thing, I paid $2 million. So you’re bragging about the fact that you bought your original. No one can tell that it’s original.
Raymond Guarnieri:
But if you were in Bill Gates’ house, you would assume it’s the original.
Thomas Colson:
Even if it wasn’t, for Bill Gates or Jack Dorsey, even if they’re not the originals, you assume they are because they’re rich, right? So now let’s flash over to a graphic image, right? Or a video, a video is a good example. Let’s talk about something real. Let’s talk about a guy whose name is, let me just remember what his name is here, let’s see, not his fake name, but his real name.
Raymond Guarnieri:
Mike Winkelmann?
Thomas Colson:
Mike Winkelmann, Exactly.
Raymond Guarnieri:
Otherwise known as Beeple.
Thomas Colson:
Beeple, you got it. Mike Winkelmann, the artist currently known as Beeple, right? Or Beeple Crap, I’ve saw that as well.
Raymond Guarnieri:
Okay.
Thomas Colson:
Mike Winkelmann, as of October 2020, had never made more than a hundred dollars for anything. And by the way, his stuff is really creative, it’s really interesting to watch. Whether you like it or not, you got to say, “Wow, this guy’s got talent.” Right? And I’ve looked at a bunch of his stuff. So he’s never made some more than a hundred bucks, because how could he, what does he sell? It’s free on the internet, right? Then he discovers and FTEs. So he ends up selling in March of 2021 an NFT of his work, which is entitled Everydays: the First 5,000 Days for $69 million. It’s at Christie’s auction, it’s the first time they’ve ever auctioned something that isn’t really real. It’s not really anything, right? What is it? So anyway, he sells it for $69 million. What does the buyer get exactly? I downloaded that image for free. And I have in fact, Winkelmann at the end of 2019 sells this thing he calls Crossroads. It’s basically a video of people walking by what looks like a bloated and dead version of Donald Trump covered in all kinds of nasty graffiti and a bird lands on him, right?
Raymond Guarnieri:
Yeah.
Thomas Colson:
Sells it for $6.6 million, okay?
Raymond Guarnieri:
That’s insane.
Thomas Colson:
I downloaded it for free. And I got every bit of value or lack of value, depending on your position in the world, from watching it as the owner guy, because it’s the exact same video. Now let’s let me compare it to a painting again. In 2014, there was a Claude Monet painting, which was called Nympheas. And it’s basically waterlilies painting, $54 million at Sotheby’s, okay? $54 million. So that thing, the Sotheby’s painting, is a little bit different than a print because it’s actual paint, right? Now, Tom and Ray may or may not, I don’t know if we could tell the difference, but experts certainly can, and maybe anybody can, maybe you could feel the texture and it’s like, “Wow, that’s paint. That’s really paint.” Well, maybe there’s also a way to do print versions that feel like paint as well, but they’re different.
Thomas Colson:
The thing about Crossroads or Everyday, they’re exactly the same. There’s no difference between what I downloaded and what the guy paid $69 million for, the other person paid 6.9 million. Yeah, that’s weird. But anyway, it’s the same exact thing, but what you get is the certificate. You get the token that it’s yours, it’s Ray bought it. So how is that different than the Claude Monet painting? Not that much different. So let’s imagine what you do. You get a monitor, you put it up on your wall, you put up the framed certificate up on the wall that says you bought this for $69 million or $6.6 million or whatever. When people come into the house, they see this 11 second video playing, or this image up on your wall.
Thomas Colson:
And they say, “Oh, that’s pretty cool.” And then they look above it and they say, paid $69 million for it. First, they think you’re insane. But then they think you must be really rich.
Raymond Guarnieri:
If they’re in my house, they probably already know I’m insane.
Thomas Colson:
That’s right, exactly. But then what they say is, “Wow, that’s pretty cool that you own, that you must be something special.” It’s bragging rights. So do you actually own the video? Just like the painting with Monet, you own that painting. You don’t own the copyrights to that painting. They don’t own the copyrights to the Everydays image or to the Crossroads video. They own that actual video. Now with Monet, it’s easier because it’s physical, it’s tangible. This is a little harder to conceptually.
Raymond Guarnieri:
Yeah. Well that’s my next question is. Okay so, I saw this video, it’s a music video by a rapper named Tom McDonald. And I guess he was a fan of Eminem.
Thomas Colson:
Who isn’t?
Raymond Guarnieri:
Right, exactly. And Eminem sold a track, a beat, via an NFT, okay? And Tom bought it. They’re not friends or collaborators, Eminem might not even know Tom McDonald exists because he’s up here and this guy makes videos on YouTube, he’s talented and all, but, and so Tom McDonald wrote lyrics and put a song on top of that beat. And the thing that really interested me about it was that in all of the marketing that he did around this new song, the beat that he bought from Eminem, it says produced by Eminem. And what you’re saying, kind of sounds like that beat that he bought, he bought that copy, not the copyrights to that creation. How does that work?
Thomas Colson:
That’s a good question. Again, we’re talking about something that’s conceptually difficult. Let’s say that that beat that he bought were somehow physical, right? And he handed it to him. Well, he would own that thing, right? But he wouldn’t own the copyrights to it. So he could sell that thing, he could throw it in the garbage, he could put it up on his wall, but he doesn’t own the copyrights. So now let’s flash over to the digital world.
Raymond Guarnieri:
So he couldn’t copy it and give those copies to other people?
Thomas Colson:
No, and that’s the copyright issue right there. He kind of owns the certificate of ownership, he owns the NFT, the non fungible token, which is really just a certificate of ownership and authentication, right?
Raymond Guarnieri:
Right.
Thomas Colson:
So it’s authentic that you are the one of the entire world, you own this beat. In fact, Eminem doesn’t even own that beat anymore, but he owns the copyright to it. Claude Monet doesn’t own the painting that he sells, but he owns the copyright. So what does copyrights give you the right to? Depending upon where you are in the world, let’s say the US because we’re in the US, right? Copyrights give you a number of rights, and I’m going to read a few of them. Number one, you have the exclusive right to reproduce the copyrighted work, right? In copies, right? Number two, to prepare derivative works based upon a copyrighted work, okay? To distribute copies of a copyrighted work. So in this case, Tom McDonald gets this thing, which is a beat that he bought, but it’s kind of like a Monet painting. He owns the painting, but he doesn’t own the copyrights to it. He can’t copy it and sell it.
Thomas Colson:
He can sell the actual certificate, he can sell the NFT. Maybe it goes way up in value when he sells that, and then someone else owns the certificate, just like someone else owns the Monet painting itself, but he can’t make copies of it and sell those, or even distribute those. Because it’s an exclusive right of the copyright holder and he can’t make derivative works. So what you’re describing, he took that beat and he changed it and mixed it with something else, that is a derivative work. A derivative work is when you make something new that is derived from the copyrighted work. The copyright owner has the exclusive rights to do that, which means Tom McDonald can’t do that unless there’s an agreement, and there might be an agreement, we don’t know.
Raymond Guarnieri:
You could theoretically, if you created an NFT, let’s say we did one for this podcast.
Thomas Colson:
Which we could.
Raymond Guarnieri:
But we could also associate the rights to make derivative works with that NFT and sell that.
Thomas Colson:
Absolutely, you could do that.
Raymond Guarnieri:
So maybe Eminem did that.
Thomas Colson:
And maybe they did.
Raymond Guarnieri:
I don’t know why he would sell a beat and not expect someone to do something with it because that’s what you’re supposed to do with those.
Thomas Colson:
Exactly. So now Eminem has a lot of smart lawyers I’m sure, because he’s a rich guy. They probably sold the NFT and they included with the NFT, a license to make derivative works. [crosstalk 00:22:20]
Raymond Guarnieri:
I would imagine.
Thomas Colson:
He probably also, a license to use his brand.
Raymond Guarnieri:
If not, Eminem could sue Tom McDonald.
Thomas Colson:
Yes. Yes, wouldn’t that be funny?
Raymond Guarnieri:
It would be ironic because the song is an ode to Eminem, it’s almost like a compliment.
Thomas Colson:
Oh it is? Okay.
Raymond Guarnieri:
I think it would be bad press for Eminem, but who knows?
Thomas Colson:
Right, right. But so imagine this, Tom McDonald buys it, what did he pay? Like a hundred grand or something?
Raymond Guarnieri:
A hundred grand, yeah.
Thomas Colson:
Okay, a hundred grand. Then he makes a derivative work, then Eminem sues him for copyright infringement, because one of the exclusive rights of owning a copyright is the exclusive right to create derivative works. So that’s why it’s fuzzy, right? But like you said, why would he buy it if he’s also a rapper? Because he’s also a rapper, right? Tom McDonald.
Raymond Guarnieri:
Yeah.
Thomas Colson:
Why would he buy it if he wasn’t intending to do something with it, right? Now, some people might just want to buy it, to hang the certificate up on the wall and say, “I own Eminem’s beat.”
Raymond Guarnieri:
Right.
Thomas Colson:
That’s pretty cool, right?
Raymond Guarnieri:
Okay. So here’s another perhaps messy question. Can Tom McDonald now make an NFT of the new video, the song is called Dear Slim.
Thomas Colson:
That’s a derivative work.
Raymond Guarnieri:
That’s the derivative work. Can he make an NFT of that?
Thomas Colson:
Yes.
Raymond Guarnieri:
And then sell that?
Thomas Colson:
Yes, because here’s the thing. And by the way, you can do that. Okay, there’s two different questions there. Can he make a NFT of it? And can sell it? Because you make a derivative work. Let’s say that I buy a Claude Monet. Let’s think of something that’s more realistic, something to who’s alive. I doubt Monet is alive, but let’s say Tom and Ray, we create this podcast. We own the copyrights, which means we own the exclusive rights to create a derivative work. Somebody else comes along and puts music to it, a bunch of things popping up and graphics. They have created a derivative work, they own the derivative work. They own it, we don’t own it, we cannot take that derivative work and start copying it or displaying it. We can’t do that. Even though we own the underlying copyright, we cannot take that person’s derivative work, because that person owns that derivative work.
Raymond Guarnieri:
Make a new derivative work or whatever.
Thomas Colson:
But that person can’t even sell his or her derivative work because they’re infringing our copyright by doing so. You’ve made a derivative work, you’re committing copyright.
Raymond Guarnieri:
So, Eminem would have had to have, in that example, given the rights to create a derivative work and to sell it, for Tom McDonald to be able to legally sell it.
Thomas Colson:
Yeah. And then he creates an NFT of his own, and now he can go to market with his NFT.
Raymond Guarnieri:
But the rights are separate. The right to create a derivative work is one thing and the right to sell it?
Thomas Colson:
Yeah. Because keep in mind and look at what these three rights are, I’m just reading off the copyright statute. One, you have the exclusive right to reproduce the copyrighted work in copies. That’s a right, okay? That’s a right in and of itself. Number two, to prepare derivative works based upon the copyrighted work. That’s a second right, right? And then three, to distribute copies. That’s a third right, right?
Raymond Guarnieri:
Right. Of the derivative work? Is number three related or both?
Thomas Colson:
That’s a good question. You can’t create a derivative work and you can’t copy and distribute the work. So that’s a good question.
Raymond Guarnieri:
So right number one actually.
Thomas Colson:
Well you can’t do it anyway, because it contained the copywriting work.
Raymond Guarnieri:
Right. So they’re kind of intertwined a bit.
Thomas Colson:
So you can’t sell copies, you can’t reproduce it in copies and you can’t produce a derivative work. You need the rights to do all three of those. To do what you’re saying. But having said that, yes, you committed copyright infringement by creating a derivative work. You still own the derivative work. You’re the copyright owner of the derivative work. You can’t do anything with it and you might be sued for even creating it, but you own it.
Raymond Guarnieri:
Right.
Thomas Colson:
So now go to the NFT world. Yes, anybody can create an NFT on anything. Then the question is, are you infringing copyrights? And that’s the confusing thing about NFTs, what are you actually buying? And I think the only thing you’re buying when it comes to NFTs, as opposed to paintings, is bragging rights. That’s what you’re buying. You’re buying the right to display a certificate that says you own Pulp Fiction, great movie, right? Everybody wants to watch Pulp Fiction, and everybody can, I have a DVD of Pulp Fiction, you have a DVD of Pulp Fiction, but Quentin Tarantino or whoever it is that owns it right now can create an NFT, a non fungible token of Pulp Fiction and sell it for probably $10 million.
Thomas Colson:
And I’ll bet you that’s going to start happening. There’s going to be a wave of it. I read one thing that LeBron James, there’s a video clip of him doing a slam dunk or something, and that was created into an NFT and sold. Any digital thing can be turned into an NFT and sold and I’ll bet you there is going to be a massive way of selling NFTs to all movies. Somebody owns them, right?
Raymond Guarnieri:
Yeah.
Thomas Colson:
And by the way, just because you sell an NFT, it doesn’t mean the movies aren’t still out there, right? You could sell it with the built-in royalty.
Raymond Guarnieri:
Are these assets, are these, assets, question mark? That’s the question right there.
Thomas Colson:
That’s a god question.
Raymond Guarnieri:
My question was going to be, will they appreciate, but are they even assets? Because a painting, that Monet in another hundred years, who knows how much it will be worth? Probably more than it is today.
Thomas Colson:
Okay. But where’s the value in that Claude Monet painting? I just turned my computer around before we started this podcast and I said, “This thing, Nympheas, which is waterlilies, Do you like it?” And I’m looking at it and thinking, “I wouldn’t even put that in my house. It’s ugly. It doesn’t even look like it’s well done. Right. It looks like it’s a child did that piece of art, to me.”
Raymond Guarnieri:
Right. I like it.
Thomas Colson:
But you said, “I like it. Depends upon my color scheme of the room.”
Raymond Guarnieri:
Yeah. You can’t put a Monet and in a dark room, or something like that.
Thomas Colson:
Well, because it’s a Monet. But if you ignore them who the author was and just looked at that Nympheas thing. I’ll bet you, 90% of the population wouldn’t even like it, they’d be like, “That’s okay.”
Raymond Guarnieri:
Probably.
Thomas Colson:
But once it becomes a Monet, now it’s worth $54 million at Sotheby’s. So flash forward a hundred years, is that Monet still worth a lot of money?
Raymond Guarnieri:
It depends on if they’re still teaching early modern art.
Thomas Colson:
Yes, exactly. If Monet is still popular. Right? So what about this guy, Beeple, right? Is his stuff still worth something? Is that thing of the Donald Trump character laying face down bloated and dead, is that still worth something? All depends on what people think of, what was his name again? Waterman?
Raymond Guarnieri:
Winklevoss?
Thomas Colson:
No, no, that’s the social media movie.
Raymond Guarnieri:
Winklemann.
Thomas Colson:
Mike Winkelmann. If he, like Monet, is still famous, people still value that. They still think, “Well, if I buy this, I get bragging rights. That’s cool. And it might go up in value.” If people think it’s cool to own a Winkelmann or a Beeple, then it will be worth something, that certificate will be worth something. By the way I go to friends’ houses all the time, and I see stuff like a football signed by all the Buffalo Bills, right? I look at it, I’m like, “Why would anyone want that? Much less, why would they put it up in their house?” But because I don’t value that, but they do. And a lot of people do. Why is that worth anything? It’s just a football, but it’s got all these signatures on it. What does that give them? A story to tell when people walk in the house, “I got this one day after football practice, I was at Fredonia watching practice, and I somehow got every player on the Buffalo Bills to sign this thing.” And they’re like, “Isn’t that cool?” And they feel good about themselves. And people are like, “Wow, that’s a really cool story.” So that’s what they paid for, right? They paid for a football that they could tell a story around it, they have bragging rights.
Thomas Colson:
And I think that’s the same thing with these NFTs. It’s a cool story, it makes you look cool, it makes you look big. It gives you some kind of pride that you own it. Pride of ownership. Maybe that’s what you’re buying.
Raymond Guarnieri:
Yeah. It certainly doesn’t exist in the material realm.
Thomas Colson:
But it does because you have a certificate.
Raymond Guarnieri:
Technically it does. But you know what I mean?
Thomas Colson:
I do, I know what you mean.
Raymond Guarnieri:
It’s a bit, a lot of it is in here.
Thomas Colson:
And here are a couple of fuzzy things, okay? The NFT that’s on the blockchain does not have the video and it does not have the image. It doesn’t have the thing, the work. It just has a link to it. It refers you to a website. Now what if that website goes down,
Raymond Guarnieri:
Are you redirected to something else?
Thomas Colson:
If you can redirect it. But if it goes down and I’m not even saying there’s a systemic crash in the internet worldwide and we’re back to the stone age. I’m saying that site, it’s a startup company, Winkelmann spends all his money on, who is that one expression? That baseball player, somebody who’s going to know this. He was asked, “What will you do with all your money?” And he said, “Well, I’ll probably spend 90% on booze and women. And the other 10%, I’ll probably just waste.”
Raymond Guarnieri:
Who said that?
Thomas Colson:
I don’t know, it’s a famous baseball player, but anyway, I don’t know his name, but anyway, Winkelmann blows all his money, right? He’s worth nothing, and he can’t even afford to keep his website up that was hosting that image, right? Now, here’s what you could do though. So here’s what I’d do, I would download it myself, put it up on my wall on a monitor, so it’s playing, I paid $69 million for it, so I want people to see it and then I’d frame my certificate and put it over it. And now it’s kind of like any other piece of art, right? It’s a cool piece of art, but you get the bragging rights that everybody’s going to know that you had the Winkelmann, or the Beeple. Here’s what I think is the thing that’s going to become rampant, and that is scam artists, because you go back in history, I’m sure that people are copying artist’s things and calling them originals, but they’re not. Did you ever see the movie or read the book The Mormon murders?
Raymond Guarnieri:
The Mormon murders, no.
Thomas Colson:
It’s a book The Mormon Murders, they just did a thing on Netflix, which is kind of a mini series on it. But this guy, I think his name is Mark Harmon or something Harmon. He was this great forging artist, and he was forging all these documents and he was selling them as collectibles to people, but they weren’t real.
Raymond Guarnieri:
Oh, I did hear about that. Yeah.
Thomas Colson:
Finally, he killed some people to hide his secret that he was doing this, but he was creating forgeries of expensive collectibles and making a fortune off it, right? Now, let’s look at Claude Monet. Ray goes out, “I want to buy a Claude Monet”, well if it’s not sold at Sotheby’s and has their seal of approval, you might get duped, right? Because you don’t know.
Raymond Guarnieri:
I see what your point is. I certainly would not be able to tell one NFT from the other, because I don’t even understand how the technology works.
Thomas Colson:
I know. So now, don’t you think there’s a zillion fraudsters because it’s even worse than that. Ray has Buffalo Boys, that’s your movie, right?
Raymond Guarnieri:
Yeah.
Thomas Colson:
You don’t make an NFT, right? You don’t make one.
Raymond Guarnieri:
Right. I don’t own a distribution company.
Thomas Colson:
But let’s say some other person downloads Buffalo Boys, they make an NFT on Ethereum.
Raymond Guarnieri:
Can they do that?
Thomas Colson:
Yeah, anybody could do it because a lot of these sites, they don’t really verify ownership that much. And it’s probably easy to trick them. I read this article in Forbes, 20 minutes before we started this podcast and basically it showed all these different sites, and it said there’s varying levels of verification on these sites of creating. And I listened to a YouTube video this morning, that guy, Beeple, Mike Winkelmann and he said, “It’s surprisingly easy to create NFTs. It’s simple to create NFTs.” So I’ll bet you there’ll be people downloading highlights from football games and soccer games, whatever, Ray’s Buffalo Boys.
Raymond Guarnieri:
You know what we got to do? Let’s make an NFT of this podcast episode and we’ll put it for auction.
Thomas Colson:
There you go. Yes.
Raymond Guarnieri:
We’ll donate the money to charity.
Thomas Colson:
There you go. And we can do that, right? Because any artist can create an NFT.
Raymond Guarnieri:
If someone doesn’t beat us to it. We better get on it.
Thomas Colson:
But that’s what I think is going to be a big problem in the future or even now probably, are scammers. Not only selling fake NFTs, imagine Crossroads sold for $6.6 billion, and someone downloads Crossroads, creates an NFT, prints up a certificate and then goes out and sells it to someone who’s unknowingly says, “Oh, I saw it was sold for 6.6 million. You want to sell it for 2 billion? Oh hell yes. I’ll buy it”. They give you 2 billion, but it’s not real. This is the wild west right now. NFTs, I think they’ve been around since 2014, but they’ve only gained popularity in the past, I don’t know, 12 months or so. So it’s really the wild west, and there’s going to be a lot of scamming going on associated with these NFTs.
Raymond Guarnieri:
Well, I certainly, I’m not going to say I think that it’s silly. I’m just going to say, I’m probably going to invest my money elsewhere.
Thomas Colson:
Maybe, yes.
Raymond Guarnieri:
I don’t know if I’m going to buy any NFTs. Just the same as I’m not buying any Monet’s right now. Not that I can, but yeah. Well, I don’t know, I wouldn’t buy into it.
Thomas Colson:
But think of this. Here’s another issue, okay? I described how these digital fingerprints work. If you change one little thing, if you change a period to a comma, if you change the shade of a color, it will change the fingerprint. It will change the blockchain, right? So you sell one of these NFTs and somebody buys it for a million bucks, then you go to your artwork because you own the copyright, you could create a derivative work and you very subtly, and remember, this is on a computer, you don’t have to repaint anything, you change the shade of the background a little tiny bit. You create a new NFT, then you sell that. Okay, what happens then? You just paid $2 million for a one of a kind, you paid $6.9 million for a one of a kind video, Crossroads, in that Trump picture where he’s face down and bloated. Now Winkelmann goes and just changes the shade a little bit and then sells another NFT for 5 million, 2 million or a hundred thousand.
Raymond Guarnieri:
I would be a little annoyed by that.
Thomas Colson:
You probably want to sue him for fraud or something, right?
Raymond Guarnieri:
But I probably couldn’t.
Thomas Colson:
I don’t know. It’s the wild west right now, because I’m sure I have never read an NFT agreement, but I’m going to now because one of us came up with the idea of doing this and we’ve been reading about it for a couple of hours. I want to understand more about how these NFTs work in contract. Because whenever you’re dealing with anything about possession, my first question to people is, “Let’s see the documents. Let’s see what you’ve agreed to on paper.”
Thomas Colson:
Eminem, who knows? These are so new, maybe they weren’t sophisticated enough to create a document and he just assumed, “Yeah, of course he’s going to create a derivative work from it, that was the point.” But then he doesn’t like it. Eminem’s like, “Oh, I don’t like that derivative work. I don’t want him doing that. I’m going to sue him for copyright infringement.” And Tom McDonald’s like, “Whoa, I bought it from you for a hundred grand. What’d you think I was going to do with it?” Well, there’s laws that define that, and Tom McDonald might be out of luck if there’s no agreement.
Raymond Guarnieri:
But you know, that kind of controversy can only help his career.
Thomas Colson:
Tom McDonald? I’d never heard of him till this morning, right?
Raymond Guarnieri:
I mean like a lawsuit, a battle like that.
Thomas Colson:
Yeah, that’s what I’m talking about. Yeah, you and I are hearing about it and our 10 million listeners are hearing about Tom McDonald, but no one else has probably heard of the guy, but if there was a big lawsuit over it, what a great way to build his fame, right? Suddenly he gets his moment in the sun and maybe he capitalizes that.
Raymond Guarnieri:
Yeah. Well, this is a really interesting topic. I’m glad that you brought this up because I think I knew this much before, about zero and now I know this much, but that’s a big difference.
Thomas Colson:
Yeah, you went from zero to something that’s an infinite growth.
Raymond Guarnieri:
It is. I don’t really know what that means, but I’ll take infinite growth. If you guys enjoyed this podcast, please don’t forget to share it, share your comments, let us know what you think of the new studio that we’re in. We think it’s pretty cool, but yeah please share your feedback and don’t forget to subscribe as well. And we’ll see you next time on Stuff You Should Know About IP.
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NFT Bragging Rights & IP Ownership – Ep. 33[Podcast]