Ownership of property is a legal concept with a very long history, and it is entwined within our capitalist societies. Property rights exist in real estate, personal property, shares in a company, and many other things. Property rights give the owner a monopoly over the property which gives them incentive to invest in improving the property, as they will benefit from its use or sale.
Intellectual property (IP) has created similar rights for its beneficiaries over things created with someone’s mind, such as artistic work. It allows the owner to control the IP’s use, sale, or licensing.
Tangible items such as paper books, music on CD’s, films on discs, have both forms of property. The physical item can be sold on the second-hand market by the purchaser/owner, but there is also IP in the book, music, or film. The ownership of the IP is retained by the creator/author.
Ownership of digital items has been questioned in several cases worldwide.
In Usedsoft v Oracle, the Court of Justice of the European Union (CJEU), in 2011, had to consider whether software purchasers could resell their used software licences on a second-hand market.
In Nederlands Uitgeversverbond v Tom Kabinet, the CJEU, in 2019, had to consider whether e-books could be sold on the second-hand market.
In Capital Records v Redigi, the United States Court of Appeal for the Second Circuit, in 2018, had to consider whether legal purchasers of digital music files could sell their used digital music and buy used digital music from others, on a second-hand market, at a reduced price.
The outcome of these cases is that software, digital music, digital films, and e-books cannot be resold on a second-hand market as they are not owned by the purchasers, they are licensed. Afterall, a digital file is data in the form of zeros and ones, its information, and it cannot be appropriated in the same manner as a physical item. The information and data represent the ideas created with the IP holder’s mind.
Now we have the rise in popularity of non-fungible tokens (NFTs). As you cannot own a digital item consisting of free-flowing information which represents another’s IP, an NFT allows the purchaser to own a certificate of authenticity associated with a digital item. NFTs appear to be a way of replicating the feeling of ownership that you would have with a tangible item. The IP rights are not sold or transferred to the purchaser, but the purchaser is able to trade a token which encapsulates a certificate, which is a unique connection to the digital work. Essential the physical paper book or disc is now an intangible certificate. NFTs have created a second-hand market for digital certificates connected to digital items.
NFTs appear to be a way of solving the problem of attaching ownership rights to digital items, but do they really? An NFT does not give a monopoly over the item. An art collector when purchasing physical artwork has control over its use, display, and future distribution. A purchaser of an NFT does not have any of this control over the work itself, they merely control an intangible certificate.