THE NATURE OF NFTS WITHIN THE SCOPE OF LAW ON INTELLECTUAL AND ARTISTIC WORKS AND SMART CONTRACTS
Developing technology has brought innovations in many areas of life. These innovations have sometimes found their place in the current regulations of legal systems, and sometimes require new regulations and jurisprudence. In this article, we will examine the existence of NFTs and smart contracts for NFT sales within current legal framework.
The first issue to be answered in this article is the question of "What is NFT?". NFT is an unchangeable crypto asset that has entered our lives as an abbreviation of the term "non-fungible token", which uses the blockchain infrastructure. Blockchain is a nested data infrastructure where transactions and assets in the network are recorded and tracked. Assets recorded in the blockchain infrastructure may be tangible such as movable and immovable goods and intangible such as intellectual property, trademark, and copyrights. This infrastructure reduces risks and costs thanks to the ability to share and not change the assets and transactions recorded on the network. The decentralized structure of the blockchain ensures that transactions are carried out quickly and without intermediaries, and therefore, the data becomes unchangeable. NFTs exist on the existing cryptocurrency blockchain by not using a separate blockchain of their own. In this sense, NFTs serve as a signature of the author in digital artworks.
In our current legislation, the protection of the nature and copyright of the “works” is regulated in the Law on Intellectual and Artistic Works No. 5846 ("LIAW"). According to Article 1/B-a of LIAW, the work refers to "Any intellectual or artistic product bearing the characteristic of its author, which is deemed a scientific and literary or musical work or work of fine arts or cinematographic work". Accordingly, it is possible to define ideas and artworks of any nature as “work” if they have the characteristics of the author. NFTs (unchangeable crypto art assets connected to the blockchain infrastructure), which are digital art assets, should be accepted as "intellectual and artistic work" as long as they have the characteristics of the author. In this context, the NFT creator will qualify as the owner of work (“author”) and will be the user of the rights granted to the author in accordance with the LIAW will be correct within the framework of today's legal regulations. The NFT lays out the chronological schedule and the number of copies of the registered asset in a transparent and clear manner. The NFT makes it possible to determine by whom the work was first recorded in the infrastructure in case of copying. However, it should not be overlooked that NFT works, like traditional works, should only be accepted as “work” in accordance with the LIAW to the extent that they comply with the legal definition and their rights should be granted to the author. It would not comply with the rules of goodwill to say that every NFT will be considered as a work within the scope of LIAW. In the event that a screen recording of an interview between two persons or a copied work is put up for sale as NFT, these would not be considered as an idea-art product or be a “work” of art within the scope of LIAW, since they will not be the property of the owner. Pursuant to LIAW, the owner of the NFT work shall have the material and moral rights granted to the owner of the work, that is, the copyrights related to the work. In this context, the rights of processing, reproduction, representation and dissemination granted to the author shall not be exercised without the permission of the author. The sale of the NFT shall not harm the copyrights of the author of the work. Upon the sale of the NFT, only the crypto asset of the work is transferred, not the copyrights of the author.
Another important issue that comes into our lives with NFTis smart contracts. These contracts, established on the blockchain infrastructure, are fast and low-cost programs where the transaction is encrypted and stored through software algorithms without using any intermediary institution or organization. The most obvious example of smart contracts in traditional trade is vending machines. Just as the commodity is reached without the need for the intermediary (only with the money and command transmitted to the automatic), with smart contracts, the transaction is carried out on the predetermined agreement conditions without the need for the intermediary. Thus, an agreement could be concluded between the author and the buyer on the predetermined conditions without any intermediary, and while the buyer has the work specific to NFTs, the price of the work is transferred directly to the author's wallet. Depending on the terms of the smart contract, the author may receive a share from each change of the crypto asset of NFT and the buyers shall be deemed to have accepted this situation in each subsequent sale of NFT. However, there are disputes about the legal status of smart contracts. Although, there are opinions that smart contracts would not constitute the known debt relationship in our legal order since the executor of smart contracts is software codes that are closed to human influence, there is no regulation for smart contracts within current legislation yet.
As a result, in terms of evaluating the product as “work” within the scope of LIAW, NFTs which bear the characteristics of its owner and in the nature of being an idea-art product, are accepted as a “work” by our current legislation. However, can the smart contracts, including but not limited to NFT sales, create a debt relationship, their legal nature and validity remain controversial as have not yet been regulated by our legal system.