**5.3 Considerations related to specific primary-market obligations of NFT direct or derivative**

As outlined before, MiCA does not regulate NFTs, apart from the exemption rule excluding them from the MiCA whitepaper regime. The EU regulator assumes that NFTs are "unique" (individuated) and also presumes that the token is not related to other cryptos. But in the case of existing a predetermined contractual relationship between the NFT and the represented object, either in form of economic indexing or stabilization arrangement, or in form of contractual commitment (i.e., servicing, lending, or fund depositing) with respect to underlying assets (like in asset-referenced tokens – ARTs), the MiCA primary-market whitepaper transparency rules on construction, notification, and legal publication would be applicable to issuers. Even if that were not the case, NFT issuing entities

### *NFT Legal and Market Challenges in Permissioned Blockchain Networks DOI: http://dx.doi.org/10.5772/intechopen.106460*

would be anyway constrained, under MiCA EU provisions, by the general obligations applicable to crypto-asset issuers or petitioners of admission to trading in authorized DeFi platforms, when the tokens are not stablecoins (e-money—EMT or asset-referenced—ART—cryptos; when issuing ARTs or EMTs, issuance obligations intensify to protect investor, market stability, and monetary local or national policy). But all MiCA-ruled tokens are cryptoassets requiring adequate investor protection standards in all jurisdictions.

Some authors do not qualify tokens other stablecoins as crypto-assets in the sense of MiCA regime—*per omnia*, [6], arguing that EU regulation is designed to prioritize the supervision of stablecoins (AMTs/EMTs), thus excluding other cryptos. It is true that stablecoins are monitored with particular intensity, but encompassing most crypto-tokens present in markets (including NFTs under particular circumstances) is a key aim of the MiCA legislator as well.

As ruled in article 13 MiCA, such common minimal burdens involving all cryptoissuers refer to:


## **5.4 Essential intellectual property (IP) protection issues**

NFTs can represent, in the case of author artistic or scientific underlying creation, IP rights. Such intellectual work can adopt the form of virtually accessible videos, pics, graphics, lines, drawings, or artistic elements contained in the token or associated to it. The NFT can be created *ad hoc* to be linked to the PDL transaction containing and thereafter, recording the NFT data. The NFT is virtually possessed in the wallet of token holders who pay for it in the DeFi market.

In other cases, NFTs do not represent virtual artworks but preexisting assets (e.g., songs, movie images or paintings on canvas) on which authors or coauthors have also moral and economic IP rights. In many cases, authors retain copyright and token buyers just acquire rights of use as licensees, having faculties of loading, visualizing, or sharing images or objects accessible by possessing the token in a digital

wallet. Such noncommercial rights should be clearly communicated in marketing channels and in clear licensing terms and conditions as well in order to prevent future claims derived from insufficient or inadequate pre-contractual information, as recent US doctrine spotlights [7].

NFT trading facilitates the sale of works, either selling the whole value of IP economic rights or parts of it in case of high-value artistic unique pieces. But it is to be well noted that these tokens representing IP rights do no generate themselves a proof of authorship. To this extent, it is necessary to reflect on the circumstance of the previous generation of the authorship, always preceding the constitution of the token as a virtual support on the PDL.

DeFi NFT marketplaces usually present and show determined cryptographic elements containing or representing IP rights. These elements are sold by means of DLT transactions but were previously created by authors. Buying and selling of IP, from a legal perspective, can be executed by means of DLT transactions meaning the effective purchase and sale of those works. The sale means the virtual traditio (delivery for the cession of property) of the IP rights, from the moment in which the transaction is recorded in the ledger.

The generation of proofs of authorship needs, therefore, to be prior to the sale, or circulation, of any artwork. But the risk of distributed (DLT) use of digital work (or work in general) by unauthorized persons (misappropriation, IP usurpation) is permanent. Professional scammers or IP usurpers utilize virtually supported or mounted artwork and upload artworks to the blockchain as their own, creating the representation (NFTs minting) from previous art represented that they did not compose or fabricate. This is one of the main perils around NFTs and even around blockchain PDLs in general. Unscrupulous NFT creators pretend to be art composers of works they do not have even permission to distribute or exhibit, creating derivative works of original works and selling them without the author's consent or even knowledge. Additional phishing, impersonation, identity fraud or theft, and unfulfilled promises of NFT distribution or delivery are common disloyal additional practices tied to these shadow markets.

The activity of NFT minting of digital assets including IP (artwork, music, video clips, ....) or industrial property (trademarks, patents) by persons other than authors, owners, or valid licensees are liable for infringing third-party IP, and cannot grant to the token purchasers such rights either since they do not have them (nemo plus iura transferre potest quam ipse haberet). Misstating the rights conveyed in connection with the NFT sale entails possible additional claims against token minters and DeFi platforms involved in such sales.

Some legal remedies (still not ruled in most EU countries) entail:

