How do NFTs work under Turkish Copyright Law?

As we addressed in the previous article of our Papers on Copyright Law in Turkey article series, Non-Fungible Tokens (“NFTs”) are unique assets that have emerged following the rapid development of digitalization and they have attracted the world’s attention, especially artists. This has given rise to significant legal questions in the field of copyright, as artists and even non-artists turn their works into unique, unchangeable NFTs via blockchain technology and sell them through online markets.

We turn now to the question of how this novel creation may be viewed under Turkish law; in particular, what the legal status would be of artwork that has been converted into NFTs within the scope of Law No. 5846 on Intellectual and Artistic Works (“the Law”) and the likelihood that those rights would be protected in the event of a violation, although unique enforcement challenges may arise vis-à-vis anonymity.

While NFTs have existed for a few years, the legal questions are novel in that their use has significantly increased lately. Another point worth mentioning about the subject is that anything may be turned into an NFT, provided that its conditions are fulfilled. For example, even things like ideas and works of art, such as tweets, laughs, and memes could be converted into NFTs and sold. In addition to these, the popularity of NFTs has increased as it has become more common for both traditional artists and digital artists to convert their work into NFTs and sell them.

However, when turning anything into NFT, various rights such as personal rights, author's rights, etc., must also be taken into account. A dispute on this issue caused one of the first NFT cases in Turkey. A portrait of Cem Karaca, one of Turkey's most important musicians in the field of rock music, has been turned into an NFT by an artist and the artist has announced that he will put the portrait up for sale on a well-known NFT sales platform. Upon this, Karaca's son filed a lawsuit against the artist, stating that his father's appearance had been commercialized and that therefore the NFT violated the Law and also his personal rights. In addition to material and moral damages, the lawsuit requested an end to the unlawful use, the removal of the NFT from physical/digital exhibitions and the prevention of transmission to the public. Following the expert report received within the scope of the file, the court announced its decision on the provisional injunction and ruled to block access to the websites where Cem Karaca's portrait was used without permission and to prevent the sale of the Cem Karaca portrait offered for sale in NFT form. The provisional injunction decision, which was also approved by the Court of Appeal, is a precedent as it is the first provisional injunction decision on NFT in Turkey. This precedent decision is instructive in terms of disputes that may arise in the future due to NFTs.

It should be noted that every NFT that meets the required conditions under the Law gains legal protection as a work of art, regardless of whether the work is converted into an NFT. In this context, the photograph of Atatürk signed by Atatürk immediately after the Battle of Çanakkale, which was turned into an NFT, was registered as a "work of art". This NFT, which is stated to have received a Certificate of Registration of Fine Artworks from the competent institution on 15 June 2021, is described as "the world's first and only NFT registered as a work of art by a state".

There is not much difference between selling an artist’s work in a gallery, or turning that work into an NFT and selling it in an online market. Selling the work of art as an NFT may even be more advantageous for the artist. When artists convert their work into NFTs and sell them, what is transferred with that sale is the property right of that work. If the work’s financial rights have not been transferred by a written agreement, then these rights will remain with the creator of the work.

Within the scope of the Law, the rights of the owner of the work are classified as financial and moral rights. Financial rights of the owner of the work include processing, reproduction, dissemination, representation, and transmission of the work to the public utilizing a sign, sound, or image transmission. On the other hand, the right to present the work to the public at any time and in any manner, the right to information about the content of the work, the right to see the name of the work, the right to prohibit changes in the work, and the right to protect the integrity of the work, are considered moral rights under the Law. It should be further emphasized that moral rights are strictly attached to the creator of the work; they are not subject to legal transactions and, therefore may not be transferred by any means. Instead, artists are only able to grant the right to use the content. However, financial rights could be subject to an act of disposal that would be contrary to these moral rights.

The legal validity of a transfer or license of the financial rights of a work of art depends upon there being a written agreement, according to the Law. If the creator of a work in the form of an NFT intends to transfer their financial rights while also selling their NFT to someone else, they must clearly state this purpose in writing in order to validly transfer the financial rights of the work in question. Otherwise, the creator of the NFT remains the owner of the financial rights of the work, and the person who purchases the NFT cannot benefit from the financial rights set out in the Law, they would only possess the property right of that token. Therefore, the creator of a work who sells it as an NFT is still able to benefit from its financial rights under the Law, such as bringing an action for compensation against an infringer when the rights arising from that work have been violated.

That said, following the principle of freedom of contract and any articles agreed upon by the parties in a sales agreement, the new owner of an NFT may be granted the financial rights of the relevant work. Hence, the terms in the sales and/or licensing agreement will determine the scope of the intellectual property rights over a digital work that has been purchased by a buyer. Since NFTs are immutable tokens, they function as an unchangeable marker and all transactional records such as who created the work as an NFT, who sold the NFT, who purchased it, or when the NFT was sold are kept in a secure digital environment by blockchain technology, the owner of the work shall be able to claim their rights, easily follow up in case of violation of their copyrights, and take the appropriate legal steps to protect their right; that is unless the users are anonymous. Unfortunately, the fact that users are anonymous is a major disadvantage of this business.

As a result, a product prepared as an NFT or converted into an NFT meets the requirements specified in the Law to be considered a “work” in accordance with Turkish law and its owner will benefit from copyright protection. For the financial rights of an NFT to transfer from the creator or a subsequent owner to a buyer, a special agreement beyond the blockchain record must be made, otherwise, the buyer will only have purchased the NFT itself. As long as the transfer of financial rights is valid however, the purchaser of an NFT will be able to benefit from the advantages provided by the financial rights under Turkish law.

This article was first published on nsn-law.com.

Tagged with: Media, Entertainment, Non-Fungible Tokens, NFTs, Blockchain, Copyright Law, NSN Law, Bilge Derinbay, Hande Ulker Pehlivan