Not For Today! UK Government rejects Committee recommendations to address NFT IP concerns

In October last year, the Culture, Media and Sport (“CMS”) Committee of the UK House of Commons published a report entitled “NFTs and the Blockchain: the risks to sport and culture”. Intellectual property issues, and in particular, copyright infringement featured heavily in that report, with the CMS Committee describing them as the “most pressing” issues creators and consumers face from non-fungible tokens (“NFTs”) in the art and culture sector (see our earlier blog). Acknowledging the importance of IP rights in this space, the CMS Committee made various IP-related recommendations to the Government. 

The Government has now responded - largely rejecting those recommendations. We take a closer look below.  

What IP issues were originally identified in the CMS Committee report? 

The most pressing IP issues identified in the report related to copyright infringement. Whilst still untested in the English courts, the commonly held view is that creating (or “minting”) an NFT for a digital artwork without the rights owner’s permission amounts to copyright infringement. And this is something that the CMS Committee appeared to endorse, with the potential scale of infringement on NFT marketplaces being referred to as “widespread” and “systemic”. 

The report commented that the current nature of NFT marketplaces allows for limited recourse and redress. The CMS Committee noted that legal proceedings are often not practical or comprehensive in these sorts of cases and, whilst many NFT marketplaces offer notice and takedown procedures, they can be time consuming to file (compared to the ease of minting) and don’t protect against those same works re-appearing in new NFTs.

As for bringing a claim directly against the NFT marketplaces themselves, the report noted that NFT marketplaces are likely to be protected from liability under the “safe harbour provisions” set out in the E-Commerce Regulations 2002.

In an attempt to tackle these issues, the CMS Committee recommended that the Government:

• engage with NFT marketplaces to address the scale of IP infringement and enable copyright holders to enforce their rights; and
• address the impact of the safe harbour provisions by introducing a code of conduct for online marketplaces operating in the UK, including NFT marketplaces, that will protect creators (as well as consumers and sellers) in respect of the sale of infringing material on those online marketplaces.

There were also submissions made to the CMS Committee to adopt measures similar to Article 17 of the EU Directive on Copyright in the Digital Single Market (“Copyright Directive”). The reason stated for advocating for this was to enable meaningful licensing on online platforms and marketplaces. Under Article 17, platforms that are considered in-scope (i.e. online content sharing service providers) have to: (i) use “best efforts” to obtain a licence to make the relevant content available and block unauthorised content upon notice from rights holders; and (ii) act expeditiously, upon notice, to remove or disable access to unauthorised content and prevent that content from being re-uploaded (i.e. “notice-and-takedown” and “notice-and-staydown” mechanisms). Whilst the CMS Committee recognised that Article 17 doesn’t currently apply to online marketplaces, they were interested to understand more about it. So they asked the Government to publish its analysis of the implementation of Article 17, and equivalent approaches undertaken by countries outside of the EU.

How did the Government respond?

Whilst the Government recognised the infringement challenges IP rights holders face with NFT marketplaces, it ultimately rejected the CMS Committee’s proposals. In its opinion, the UK’s existing legal framework adequately protects creators, consumers and sellers against the sale of infringing material online. And the safe harbour provisions in the E-Commerce Regulations 2002 “provide robust protection against infringement of IP rights”. 

It therefore rejected the CMS Committee’s recommendation to introduce a new code of conduct for online marketplaces, electing instead to continue to monitor developments and engage with NFT marketplaces to “better understand the potential threats of IP infringement posed by those platforms”.

As for Article 17, due to the limited time that has passed since the Copyright Directive came into play and delays in member states implementing Article 17, the Government said that it is unable to carry out any analysis at present - more time is required to assess how Article 17 has been transposed, how it is operating in different EU member states and how it compares to approaches taken by other countries outside the EU. Even then, applying a liability regime like Article 17 to NFT marketplaces would likely raise different challenges and considerations to those for online content sharing service providers.

Comment

The Government’s approach seems to mirror the “wait and see” strategy that is being adopted for other emerging technologies. Although the Government has promised to further engage with NFT marketplaces and hasn’t fully closed the door, this will be disappointing for rights holders.

Whilst rights holders can use notice-and-takedown procedures to police their works online, this is not always effective and doesn’t prevent works from quickly re-appearing in newly minted NFTs. As the CMS Committee identified, large scale NFT marketplaces (such as OpenSea) host millions of NFTs, which, taken together with the number of different marketplaces available, makes it very difficult to police infringing works. 

For many artists, the alternative of expensive copyright litigation is not a viable solution. And even in circumstances where a successful infringement claim has been brought, the peculiarities of NFTs can have a severe impact on the remedies available. 

This does therefore appear to be a missed opportunity for the UK Government to have proposed more practical measures to deal with NFT-related IP issues. A voluntary code of conduct for NFT marketplaces could have helped steer the market in the right direction. But, for now at least, it appears that is not to be.