In 2021, non-fungible tokens (NFTs) exploded in popularity. Representing over sixty million dollars in sales, NFTs are currently being bought and sold in almost every industry, in the form of exclusive videos in the sports industry and digital paintings in the art industry. NFTs are digital certificates that use blockchain technology to verify authenticity and proof of ownership. Through NFTs’ non-fungible and immutable characteristics, owners are able to create scarcity for and authenticity in digital copies of their works, replicating the tangible experience of owning a physical, limited-edition item. NFTs have also been able to promote a unique secondary marketplace, in which blockchain capabilities ensure that only the first consumer of an NFT has ownership and access to a particular copy and is able to show a record of any previous owners.
Copyright law and the first sale doctrine have unique implications for the evolving NFT market. Under the first sale doctrine, a lawful owner of a copy of a good has the right to sell or dispose of the copy. Once a copy is bought, the buyer no longer requires the copyright owner’s permission to do whatever they want to do with the copy (i.e., sell it, lend it, destroy it, etc.). Thus, the first sale doctrine effectively limits the copyright owner’s exclusive right to distribute copies. However, the first sale doctrine has yet to be applied to digital transfers. For that reason, many copyright owners use contractual licenses to control subsequent digital transfers. Congress and the courts have remained hesitant in applying the first sale doctrine to digital copies, mainly due to the copies’ intangibility and their behavior in the marketplace as compared to physical copies. Most importantly, a digital transfer requires an owner to reproduce a copy before sending the copy to someone else, thereby disturbing the copyright owner’s reproduction right, to which the first sale doctrine does not apply. Over the years, scholars and commentators have proposed several solutions, ranging from forward-and-delete technology to proposed legislation to simply deferring to the courts to decide as issues arise. The decades-long question of the types of technology that should fall within the scope of the first sale doctrine is intensifying as the digital marketplace grows.
At time of writing, this is the first piece of legal scholarship on NFTs that examines their interaction with the first sale doctrine. This Note examines the rise of the NFT phenomenon and the historical articulation of the first sale doctrine in the digital era. As NFTs present challenges for the copyright owner’s reproduction right, this Note recommends legislative intervention to clarify the doctrine’s applicability within the digital marketplace. This Note proposes an addition to the Copyright Act of 1976 that expressly allows for a first sale to be effective upon a digital transfer, albeit under certain conditions. Amending the act in this manner promotes the Copyright Act’s purpose of balancing the interests of copyright owners and consumers in a dynamic digital marketplace, and serves as a guide that will be necessary to avoid legal ambiguities and increased litigation.