Xiao Sa: Exploring the Four Legal Risks of Entering Digital Collections

In 2022, digital collections will not only become a popular track in the field of entrepreneurship, but also set off a wave of cultural consumption.

But with the development of the digital Tibetan industry, legal-related challenges have gradually surfaced. such as:

Are there any legal issues with digital collections and how they are played?

Is there any risk of illegality in the transfer and transaction of digital collections?

What is the risk of infringement between the IP authorization of Digital Tibet and Erchuang?

These problems are not only troubled by practitioners, but also the problem of the current “chaos” in the Tibetan industry.

On June 15th, Babbitt Education invited Xiao Sa, senior partner of Beijing Dentons Law Firm, to share the theme of “Legal Risk Tips for Digital Collections Entering the Game”.

The following content is from the open class record, organized by Babbitt.

Xiao Sa: Exploring the Four Legal Risks of Entering Digital Collections

The positioning of NFT digital collections is cultural digitization, not national hype

It is true that the current economic upward pressure is huge, and it is not easy to grow an emerging business model from the market. In the NFT digital collection industry, it digitally migrates traditional artworks based on blockchain and smart contracts to create new forms, which are in line with the new trend of Internet development. Digital collections contribute to the digitization of culture and will be proven.

However, the industry is a mixed bag. When we communicate with some technology companies or big manufacturers now, everyone will be more worried about the “comparative wildness” of individual platforms, which is completely the law of the jungle. The more wild platforms live quite well, and the more disciplined platforms, the secondary market opens later, or has not yet opened, it will suffer more.

If the above situation continues to deteriorate, the NFT industry will soon be stigmatized, just as the P2P industry at that time was forced to withdraw from the stage of history step by step by illegal platforms that are not true P2P.

In order to prevent the stigma of the NFT industry, we must first stop the wind of “crazy hype”, instead of promoting hype, or even doing “market value management”. Then, we have to have a clearer positioning that digital collections are actually a cultural product, not a hyped object. Also, I highly recommend doing a cut with the black sheep, if not, the kids and water will end up being poured out together.

Certain entry thresholds can also be set, such as setting some thresholds for registered capital or setting certain requirements for shareholders. At present, the threshold for this industry is too low.

As for the secondary transaction, it may be possible to start from the trading venues approved by the provinces and cities within the scope of national authorization, allowing some qualified trading venues to accept NFT listing transactions, and set up systems within the trading center to reduce financial attributes and protect both. The property rights of cultural consumers give the market a certain amount of freedom.

Question 1. What is the legal nature of NFT?

In the context of our country, what is the legal nature of NFT? It should be considered that NFTs in my country are generated based on encryption technologies such as blockchain, and have non-copyable, non-modifiable, and indivisible certificates of virtual property or property interests that confirm ownership and authenticity.

Think of NFT as a basket, in which various rights and interests may be placed. These rights and interests are not fixed, but depend on IP licensing contracts or other contracts. NFT is actually a box, not the content inside. NFT itself is just a number plate, not the copyright itself, nor the property right itself. Don’t give NFT property rights easily.

In the form of a technology that can be trusted, NFT announces that the buyer and the IP party share part of the copyright. It can be said that NFT is only a form of rights sharing and a certificate of rights.

From a civil law perspective, NFT digital collections can be pledged. It is difficult to register the copyright pledge rights of the underlying works of NFT digital collections, but the law gives the corresponding rights after all, and market players can apply and try according to their own business models.

In addition, the rights of the packages in the NFT vary according to the laws of different countries and regions. There are always people who come to us, hoping to issue a universal NFT authorization contract. But NFT does not have a unified thing, how can there be a general authorization contract?

Question 2. What kind of works can be sent to NFT?

Regarding the question of what kind of works can be sent to NFT, through the analysis of the underlying logic and legal nature of NFT, it can be found that works that can send NFT need to be works with copyright by the IP party.

According to Article 2 of the Regulations for the Implementation of the Copyright Law, a work refers to an intellectual achievement that is original and can be reproduced in a tangible form in the fields of art, literature and science, and has the following three characteristics:

1. It must be a creative intellectual achievement (excluding pure labor products, physical or technical labor itself is not protected by copyright law);

2. Can be reproduced in some tangible form (must be an external expression that can be objectively perceived);

3. Must be original.

Article 2, paragraph 1 of my country’s Copyright Law stipulates that “the works of Chinese citizens, legal persons or unincorporated organizations, whether published or not, shall enjoy copyright in accordance with this Law.” The “citizens, legal persons or unincorporated organizations” here certainly does not include animals in Inside. Therefore, like a macaque selfie, although it is artistic and interesting, it is not a work in the sense of my country’s “Copyright Law”, and of course there is no copyright protection at all.

So, is an AI work a work? There are related cases in Shanghai and Beijing, and the final judgment results of whether AI creation is a work are different. So there is still a lot of controversy here.

As an entrepreneur, you should also consider it according to the region, and pay attention to which kind of place it is more inclined to protect. Everyone should pay attention to understand and observe.

Question 3. Authorization of Digital IP and Legal Analysis of Second Creation

Before issuing NFTs, at least the copyright property rights that must be agreed upon when signing an IP agreement include reproduction rights, information network dissemination rights, and adaptation rights.

The right of reproduction is the right to make one or more copies of a work by means of printing, photocopying, rubbing, audio recording, video recording, dubbing, and duplication. For the NFT platform, when the issuer issues the NFT authorized by the IP party, it does not issue the most original works, and based on the consideration of maximizing benefits, most of them will choose the form of multiple distribution. If the copy right is not stipulated in the IP agreement , is bound to infringe the copyright owner’s right of reproduction.

The right of information network dissemination can enable the owner to obtain the right of the original author to allow others to obtain his work on the information network, and become a “second owner”. Only in this way can the empowerment of musical works NFT be realized within the scope of compliance.

The right of adaptation is the right of the copyright owner to adapt a work and create a new work with originality. In order to attract more users, some NFT platforms have launched the gameplay of combining several independent NFTs into new NFTs. In the process of synthesizing a new NFT, it is inevitable that the original NFT work needs to be adjusted. If the right of adaptation is not agreed in advance, there is a high probability that the rights of the copyright owner will be violated.

It should be noted that the purpose of the author’s creation of the “second creation” work must be to introduce, comment on or explain a certain problem of the original work, otherwise it is not a fair use. Is there a way to solve the problem of “Second Creation” works? Have! Buying adaptation rights and network rights from big IPs is expensive, but it can solve the problem of copyright infringement. Otherwise, we can only think hard and find different “meaning expressions” to condense the fruits of wisdom and form new copyrights.

We have seen that some classic novels, such as Dune, have actually created many works after absorbing the nourishment of these works. You must not only let everyone continue to create, but also protect the copyrights of predecessors. This is a difficult place.

Question 4. Legal and compliant entry of digital collections

If NFT transactions are alienated into financial transactions, can “provincial-level trading center and municipal-level trading center licenses” help companies overcome legal difficulties?

cannot. The illegal operation of securities, futures, and insurance business, or the illegal payment and settlement business from funds, or other illegal business operations that seriously disrupt the market order, a license of a local exchange is indeed not enough to support, and the crime of illegal business operation “is out of the question”. The minimum requirement for “criminal crime” is “national regulations”, that is, a financial license at the national level.

This is because the minimum requirement for “criminal” of the crime of illegal business operations is not to violate “national regulations”, then when the aforementioned business requires a national-level financial license in accordance with national regulations, if the local financial supervision department has not obtained the State Council’s financial supervision and management The business license issued under the authorization of the department cannot prevent the criminal risk of illegal business operation.

There are two main legal risks of NFT platforms, illegal fundraising and helping criminals.

NFT is a box, you can put anything in it, what exactly are you putting in? If the entitlement you put in is false or empty, this is a serious problem.

For example, the works of Xu Beihong or Qi Baishi, you sell 300,000. Does this NFT contain copyright? Xu Beihong has been dead for more than 50 years, and part of the copyright of his works has been lost. Although there are still authorship rights, modification rights, and the right to protect the integrity of the work, these rights belong to the heirs, and it does not belong to you when you buy an NFT. There will be a series of problems with this type of NFT, you are selling the right to be short.

In addition, if there is no copyright property right in the NFT you bought, or the copyright is flawed. This may have the risk of short-selling and short-selling fraud, so we must grasp this issue, and the platform must not have short-selling and short-selling. Once there is a risk of fraud, it is very close to fundraising fraud.

In addition, in the actual operation of the consignment model NFT platform, the platform also has the risk of forming various crimes such as helping criminals of fraud or helping information network criminal activities.

In the process of consignment sales, there may be cases where consignors deliberately hype up prices in order to earn high profits. If the consignor resorts to fictitious facts or concealing the truth during the hype to induce other users to purchase the NFT digital collections consigned by the consignor from the platform, if the consignor claims to the outside world that the NFT digital collections it holds are the internal collections of the NFT platform, there will be future With a great probability of appreciation, then in this case, its behavior may constitute a crime of fraud.

If the consignor conducts large-scale speculation and is informed by the NFT platform but does not stop it, then the NFT platform may constitute a helper of the crime of fraud because of its unstoppable behavior. In the case that the fraud is mainly made through the information network, the NFT platform will also be suspected of constituting the crime of helping the information network criminal activities because it knows that the consignor uses the information network to commit the crime and provides technical support or assistance for the crime.

Therefore, for the NFT platform that adopts the consignment model, it should also do KYC work well, and should supervise the daily transaction behavior to prevent criminals from maliciously using the platform to carry out illegal and criminal acts, thus making themselves undeserved criminals. Legal Risk.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/xiao-sa-exploring-the-four-legal-risks-of-entering-digital-collections/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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