7 Core IP Rights in NFT Legal Disputes & How to Protect Them

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Table of Contents

• Introduction to NFT Legal Disputes
• Understanding IP Rights in the NFT Ecosystem
• 7 Core IP Issues Fueling NFT Legal Disputes
• A Step-by-Step Guide to Resolving NFT Disputes in Delhi NCR
• Proactive Legal Strategies to Prevent NFT Disputes
• How Kanoon Advisors Can Help
• Frequently Asked Questions
• Conclusion: Navigating the Future of Digital Asset Law

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Introduction to NFT Legal Disputes

The explosion of Non-Fungible Tokens (NFTs) has created a multi-billion dollar market for digital art, collectibles, and assets. However, this rapid innovation has outpaced legal frameworks, leading to a significant rise in complex NFT legal disputes, particularly concerning intellectual property (IP) rights. For creators, collectors, and businesses in Delhi NCR, understanding the legal landscape is no longer optional—it’s essential for protecting valuable digital assets. This guide, drawing on The Kanoon Advisors’ 40+ years of litigation experience, demystifies the core legal challenges and provides a clear roadmap for navigating this new frontier.

At its heart, an NFT is a unique digital certificate of ownership recorded on a blockchain. But what does the buyer actually own? Is it the artwork itself, a license to display it, or something else entirely? The ambiguity in these transactions is a breeding ground for conflict. Issues range from outright copyright infringement, where an artist’s work is minted and sold without permission, to complex trademark battles as major brands enter the metaverse. Our team at The Kanoon Advisors is increasingly handling cases that test the boundaries of existing Indian laws, applying foundational legal principles to these modern technological challenges.

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Understanding IP Rights in the NFT Ecosystem

To comprehend NFT legal disputes, one must first distinguish between owning the NFT and owning the underlying intellectual property. This distinction is the source of most legal conflicts. The default rule is simple: purchasing an NFT does not automatically transfer the IP rights of the underlying asset.

What is the legal relationship between an NFT and its underlying asset?

Think of buying an NFT like buying a signed, limited-edition print of a famous painting. You own that specific print (the token), and you can prove its authenticity and your ownership. However, you do not own the original painting or the copyright to it. You cannot start printing and selling your own copies. Similarly, an NFT buyer owns the token on the blockchain, but the original creator typically retains the copyright to the digital artwork, music, or text associated with it. Any additional rights granted to the buyer must be explicitly outlined in the terms of sale or the smart contract’s metadata.

How do Indian IP laws apply to digital assets and NFTs?

While India does not yet have specific “NFT laws,” existing legislation is being interpreted and applied to this new technology. The primary statutes include:

• The Copyright Act, 1957: This is the most crucial piece of legislation. Digital art, music, and literary works associated with NFTs are protected as “artistic works” or “literary works” under the Act. The creator, as the first owner of the copyright, has exclusive rights to reproduce, distribute, and adapt the work. Minting an NFT of someone else’s work without permission is a direct infringement of these rights. The government’s official Copyright Office Handbook provides foundational principles that are now being applied to digital creations.
• The Trade Marks Act, 1999: This Act protects brand names, logos, and other identifiers. As brands like Gucci and Nike create virtual goods, their trademarks extend to the digital realm. Unauthorized use of a trademark in an NFT collection can lead to infringement claims.
• The Information Technology Act, 2000: This Act provides the legal framework for electronic records and digital signatures, which are foundational to blockchain technology and smart contracts.

Creator vs. Owner: A Comparison of Rights

The following table clarifies the default rights unless specified otherwise in a contract:

Right/Privilege	Original Creator (Copyright Holder)	NFT Owner (Token Holder)
Right to sell, transfer, or HODL the token	Only of the original work, not the token after sale	Yes, has full control over the token itself
Right to display the artwork for personal use	Yes	Generally, yes (e.g., in a digital gallery, as a profile picture)
Right to create and sell merchandise (commercial use)	Yes, retains this right by default	No, unless explicitly granted in a license
Right to create derivative works	Yes, exclusive right	No, this would be copyright infringement
Right to receive royalties on secondary sales	Yes, if programmed into the smart contract	No

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7 Core IP Issues Fueling NFT Legal Disputes

The decentralized and anonymous nature of blockchain technology can embolden bad actors, leading to a variety of IP infringements. At The Kanoon Advisors, we have identified several recurring patterns in the disputes we handle for clients in Delhi NCR.

1. Copyright Infringement

This is the most prevalent issue. It occurs when a party mints and sells an NFT of an artwork they did not create and do not have permission to use. This is legally equivalent to selling counterfeit prints of a painting. The artist retains the copyright and can sue for damages and an injunction to stop the sale.

2. Trademark Infringement

As brands build their presence in the metaverse, trademark protection is paramount. Disputes arise when third parties create NFTs that use a company’s logo, brand name, or iconic product designs without authorization. A notable global example is the lawsuit by Hermès against an artist who created and sold “MetaBirkin” NFTs. Indian brands must be vigilant in monitoring NFT marketplaces for such infringements.

3. Ambiguous Licensing Terms

Many NFT projects fail to define what rights the buyer receives. Can the owner use the NFT art for commercial purposes? Can they license it to others? When these terms are not specified in a clear, legally binding agreement attached to the sale, disputes are inevitable. A well-drafted license is a critical preventative tool.

4. Right of Publicity Violations

An individual’s name, likeness, and other personal attributes are protected by the right to publicity. Creating NFTs that feature a celebrity’s image without their consent is a violation of this right. This area of law protects an individual’s ability to control the commercial use of their identity.

5. Smart Contract Vulnerabilities

The smart contract is the self-executing code that governs the NFT. Flaws or bugs in this code can be exploited, leading to theft or disputes over royalties and ownership. While this is a technical issue, the legal consequences are significant. The code itself can be considered part of the legal agreement between buyer and seller.

6. Fractionalized NFTs (F-NFTs) and Securities Law

Fractionalizing an NFT involves splitting ownership among multiple people, who may expect a return on their investment based on the efforts of a promoter. This can cause the F-NFT to be classified as a “security” under Indian law, bringing it under the purview of the Securities and Exchange Board of India (SEBI). Non-compliance with securities regulations can lead to severe legal penalties.

7. Jurisdictional Challenges

The decentralized nature of blockchain means the seller, buyer, and marketplace server could be in different countries. Determining which country’s laws apply and where to file a lawsuit is a major hurdle. For residents of Delhi NCR, the Delhi High Court, with its specialized Intellectual Property Division, is becoming a key venue for resolving such technology-related IP disputes.

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A Step-by-Step Guide to Resolving NFT Disputes in Delhi NCR

If you discover your IP has been infringed upon in an NFT, it is crucial to act swiftly. The legal process requires strategic action to protect your rights and seek remedies.

Step 1: Documentation and Evidence Gathering

Before taking any action, gather all possible evidence. This includes screenshots of the infringing NFT on the marketplace, links to the transaction on a blockchain explorer (like Etherscan), the wallet address of the infringer, and proof of your original ownership of the IP (e.g., original art files with metadata, copyright registration certificate).

Step 2: Issue a Formal Cease and Desist Notice

The first official step is to have a lawyer draft and send a legal notice to the infringer and the marketplace hosting the NFT. This notice will demand that they cease the infringing activity, take down the listing, and potentially provide compensation for damages. Many platforms will comply to avoid legal liability.

Step 3: Utilize Platform Takedown Mechanisms (DMCA)

Major NFT marketplaces like OpenSea have a process for reporting IP infringement, often based on the U.S. Digital Millennium Copyright Act (DMCA). You can submit a takedown notice through their system. Providing clear evidence of your ownership is crucial for a successful takedown.

Step 4: Mediation or Arbitration

For more complex disputes, particularly those involving contractual disagreements, Alternative Dispute Resolution (ADR) can be an effective path. Mediation or arbitration is often faster and less expensive than a full court trial. It allows parties to reach a mutually agreeable solution with the help of a neutral third party.

Step 5: Filing a Lawsuit in Court

If the above steps fail, litigation may be necessary. An IP infringement lawsuit can be filed in the appropriate court. For residents of Delhi NCR, this would likely be the Delhi High Court. The court can grant an injunction to stop the infringement and award damages to compensate for your losses. Navigating court procedures requires expert legal representation, a core strength of our legal services team.

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Proactive Legal Strategies to Prevent NFT Disputes

The best way to handle a legal dispute is to prevent it from happening in the first place. Creators, sellers, and buyers can take several proactive steps to protect themselves.

For Creators and Sellers:

• Draft Clear Licensing Agreements: Do not rely on assumptions. Work with a lawyer to draft a clear agreement that specifies exactly what rights the NFT buyer receives. State whether commercial use is permitted and under what conditions.
• Register Your Copyright: While copyright protection is automatic upon creation, formally registering your work with the Indian Copyright Office provides a public record of ownership and strengthens your legal position in a dispute.
• Embed Terms in Metadata: Include a link to the licensing terms directly in the NFT’s metadata. This makes the terms easily accessible and harder for a buyer to claim ignorance of them.

For Buyers and Collectors:

• Conduct Due Diligence: Investigate the seller. Do they have a history of creating original work? Are they a known artist? Be wary of anonymous sellers with no track record. Verify the authenticity of the collection and the smart contract address.
• Read the Terms and Conditions: Before purchasing, carefully read the marketplace’s terms of service and any licensing agreement attached to the NFT. Understand what you are actually buying.
• Seek Legal Advice: For high-value acquisitions, consult a lawyer specializing in technology and IP law to review the transaction and associated contracts. A cyber crime lawyer in Gurgaon can also provide insights into digital asset security.

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Frequently Asked Questions

Q1: What happens if my art is sold as an NFT without my permission in India?

If your art is sold as an NFT without permission, it constitutes copyright infringement under the Copyright Act, 1957. According to court statistics, IP infringement cases have a high success rate when ownership is clearly proven. You can send a legal notice, request a takedown from the marketplace, and file a lawsuit for damages and an injunction.

Q2: Does buying an NFT give me the copyright to the artwork?

No. By default, buying an NFT only grants you ownership of the token itself, not the underlying copyright. You receive a limited, implied license for personal display. The right to reproduce, create derivative works, or commercially exploit the art remains with the original creator unless explicitly transferred in a written agreement.

Q3: Can I trademark an NFT project name or logo in India?

Yes, you can and should file for trademark protection for the name, logo, or slogan associated with your NFT project under the Trade Marks Act, 1999. It’s crucial to file under the correct classes, which may include downloadable digital goods (Class 9) and online marketplace services (Class 35), to ensure comprehensive protection.

Q4: Which court handles NFT legal disputes in Delhi NCR?

For intellectual property disputes related to NFTs, the Delhi High Court is the primary venue. It has a dedicated Intellectual Property Division (IPD) that is well-equipped to handle complex technology and IP law cases, making it the ideal jurisdiction for resolving such matters in the Delhi NCR region.

Q5: How can a lawyer help with an NFT dispute?

An experienced technology lawyer can help by drafting and sending cease and desist notices, filing takedown requests with platforms, negotiating settlements, drafting clear licensing agreements to prevent future disputes, and representing you in court if litigation becomes necessary to enforce your IP rights.

Q6: Are smart contracts legally binding in India?

While the legal status of smart contracts is still evolving, they can be considered legally binding if they meet the requirements of the Indian Contract Act, 1872, such as offer, acceptance, and lawful consideration. The Information Technology Act, 2000, gives legal recognition to electronic contracts, which provides a basis for their enforceability.

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Conclusion: Navigating the Future of Digital Asset Law

The world of NFTs and digital assets is both exciting and fraught with legal peril. As technology continues to evolve, the laws governing it will adapt, but the fundamental principles of intellectual property remain constant. Creators and investors in Delhi NCR must be proactive, informed, and strategic to protect their assets. Understanding your rights, conducting due diligence, and creating clear legal agreements are the cornerstones of safe participation in the digital economy. When disputes arise, swift and decisive legal action is key to mitigating damage and enforcing your rights.