A UK cross-party Committee is urging the government to collaborate with non-fungible token (NFT) marketplaces to combat copyright infringement and implement a code of conduct to safeguard creators.
The concern revolves around instances where NFTs are generated from original creative works without obtaining proper authorization from the rightful creators and owners. Such actions can potentially lead to copyright disputes, resulting in several legal cases in the UK and the US.
UK Committee addresses risks and rewards of NFTs
The UK Committee highlighted that blockchains and NFTs hold unique potential for applications in art and culture. For instance, NFTs can open up new markets for artworks and incentivize artists to develop innovative digital skills. However, the committee’s inquiry highlights significant risks and potential harms for both creators and consumers in their utilization.
The most pressing concern identified by the committee pertains to intellectual property risks. The report underscores how the ease of minting an infringing NFT contrasts with artists’ arduous process in enforcing their rights. The sheer volume of NFTs hosted across marketplaces makes individual enforcement through repeated notice-and-takedown requests unfeasible.
The committee recommends that the government collaborate with NFT marketplaces to tackle the scale of infringement and empower copyright holders to safeguard their rights to address this. Additionally, the government should address the impact of safe harbor provisions by introducing a code of conduct for online marketplaces operating in the UK, including NFT platforms. This code of conduct would protect creators, consumers, and sellers from selling infringing and fraudulent material on these platforms.
Dame Caroline Dinenage MP, Chair of the CMS Committee, emphasized that traditional regulatory regimes have failed to protect creatives and consumers in the volatile new crypto world. Artists risk seeing the fruits of their hard work pinched and promoted without permission. At the same time, fraudulent and misleading adverts add an extra layer of jeopardy for investors involved in an inherently risky business. The government must ensure that everyone in the crypto chain is working to protect consumers and the rights of creators properly, she added.
Fan tokens in sports are risky for investing fans
NFTs are gaining popularity in professional sports due to the potential for a new revenue stream for athletes, clubs, international teams, and leagues with minimal financial risk on their part. However, the report highlights that while NFTs pose little financial risk to clubs, they can be inherently risky for fans who invest in them.
In contrast to generic NFTs, utility tokens, known as fan tokens in sports, theoretically grant holders special privileges and membership perks, such as voting on club decisions, rewards, exclusive merchandise designs, and unique experiences. As a result, they hold more tangible and inherent value. Nevertheless, criticisms have been voiced, suggesting that they fall short of delivering on promises of fan engagement and are being marketed as equivalent to other legitimate club memberships.
The report concludes that the unique bond between clubs and fans means that fan speculation on sports-related crypto assets carries a genuine risk of financial harm to fans and reputational damage to clubs.
The committee is also concerned that clubs might present fan tokens as an appropriate form of fan engagement in the future despite their price volatility and reservations among fan groups. The recommendation is that any measurement of fan engagement in sports, including in the forthcoming regulation of football, should explicitly exclude the use of fan tokens.
Given the technical, volatile, and largely unregulated nature of NFTs, advertising such products entails significant risks to consumers, even for legitimate products. At their most harmful, false advertisements and endorsements can facilitate scams and fraud.
The committee suggests that the government address the evidence gathered on misleading and fraudulent advertising for NFTs. It should implement a regime that compels the entire advertising supply chain to take measures to mitigate the risks of harm to consumers from the marketing of NFTs.
Meanwhile, introducing new Financial Conduct Authority (FCA) rules mandates that firms issue a warning with crypto investments, advising people not to invest “unless you’re prepared to lose all the money you invest.”
