I. Introduction
International supermodel and human rights advocate Bella Hadid announced in June 2022 that she would be partnering with REB453 ("rebase") to create 11,111 exclusive Non-Fungible Tokens ("NFTs") to the digital world, with each piece being a unique 3D scan of the model herself. (1) Hadid was 3D scanned to create the art for the CY-B3LLA NFT, and each NFT will have unique aesthetics based upon the region of its release. (2) The CY-B3LLA NFT collectors receive access to global in-person meet and greets, invites to events, as well as access to the metaverse Bella mansion and global treasure hunts. (3) Although Hadid's NFTs are among the first created for the Metaverse involving 3D scans of herself with inspiration from local artists across the globe, she is not the first celebrity to create an NFT and will certainly not be the last. (4)
In an increasingly digital world, artists, celebrities, and investors alike are channeling their creativity and resources into an ever-evolving Metaverse. (5) Unlike the current web, which is based primarily on text, images, and video, the Metaverse is expected to be based on 3D virtual spaces linked together to create a virtual universe. (6) The evolution of virtual reality products such as headsets, glasses, and phone applications, allow their users to interact and enjoy a variety of fully immersive internet environments through the use of avatars and other developing digital technologies. (7) The relationship between the Metaverse and NFTs is that NFTs provide a way for digital assets in the Metaverse to have value and ownership, creating a digital economy. (8) NFTs can be used as currency within the Metaverse, and exchanged for assets such as virtual real estate, in-game items, and virtual characters and avatars. (9) The Metaverse came to be in tandem with blockchain technology, which allows for the creation of multiple digital currencies, known as cryptocurrencies. (10) These cryptocurrencies can then be exchanged for NFTs, such as the CY-B3LLA 3D scans of Bella Hadid. (11)
This Note will examine the emerging law pertaining to the buying and selling of NFTs and the accompanying intellectual property issues, particularly with regards to advertising, as these artworks become more commonplace in society. (12) While the law favors creativity and creative expression, NFTs require heightened regulation to prevent the exploitation of the artwork across the Metaverse. (13) In cases where the subject of the artwork contains their own rights to privacy and contracts within their profession, this heightened regulation is particularly essential because there is a human behind the piece which may illicit consumer confusion. (14) This Note will explore the history of intellectual property law and how it applies to advertising, current confusion among intellectual property as it applies to the Metaverse, as well as the parallels between physical and digital artwork in terms of regulation. (15) Finally, this Note will discuss the future of NFTs within brands and agencies and the need for increased regulation to avoid consumer confusion, privacy infringement, as well as contract issues pertaining to the subject of these digital artworks. (16)
II. History
A. United States Copyright Law and Current Advertising Regulations
Under the Constitution, copyright law was created to "promote the Progress of Science and useful Arts." (17) Under current economic theory, copyright law seeks to achieve a balance between maximizing production of works of expression and their accessibility to consumers. (18) Today, U.S. copyright law protects "original works of authorship fixed in any tangible medium of expression." (19) Copyright law recognizes eight categories of protected subject matters: (1) literary works, such as a novel; (2) musical works, such as sheet music; (3) dramatic works, such as a play; (4) pantomimes (story and gesture expressed through movement) and choreographic works (particular dance style); (5) pictorial, graphic and sculptural works (two-dimensional and three-dimensional works of art; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works. (20) The copyright owner contains the exclusive right to reproduce, distribute, publicly display and perform the work, and create derivative works. (21) Registration of copyright, despite not necessary for a creator to gain copyright protection, gives the copyright holder options regarding compensation if and when a lawsuit if ever brought. (22) A certificate of registration received before or within five years after the original work was published, constitutes prima facie evidence for the validity of a copyright. (23)
Although copyright law is intended to prevent copying and incentivize creativity, there are legal limitations. (24) Exceptions such as "fair use" permit the unauthorized use of a copyrighted work in certain circumstances such as "criticism, comment, new reporting, teaching...scholarship, or research." (25) Fair use may pertain to educational and non-educational purposes alike, from students and teachers making use of video clips for presentations, to parody purposes such as Saturday Night Live. (26) If an affirmative fair use defense does not apply, a person is liable for copyright infringement if they infringe a copyright owner's exclusive rights without authorization. (27)
1. Advertising
Advertising regulations in the United States are primarily governed by three acts: the Federal Trade Commission Act ("FTC Act"), the Lanham Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. (28) The main goal of the FTC Act is to "prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce." (29) The Lanham Act, while largely governing trademark law, works in tandem with the other acts to regulate false advertising and unfair competition. (30) Lastly, the DoddFrank Wall Street Reform and Consumer Protection Act focuses to promote "enforcement] against unfair, deceptive, abusive, or otherwise prohibited practices relating to most consumer financial products or services." (31)
Together, these acts play a unique role in ensuring that consumers are making fully informed purchases and decisions. (32) The advertisements available to consumers must contain substantiated, factual explanations regarding the advertised product. (33) When successfully imposed, the FTC creates a climate for preventing misleading advertising for the benefit of the consumer. (34)
2. Brief History of Misappropriation of Likeness
While misappropriation of likeness--the unauthorized use of a person's name or likeness--is not a new legal claim, it continually evolves amid technological advances. (35) When deciding whether a person's images and likeness has been misappropriated, courts consider a range of constitutional, statutory, and common law claims including First Amendment claims, Right of Publicity Claims, The Lanham Act, and defamation claims, due in part to no federal right to publicity. (36) Within these frameworks, elements to be considered range from appropriation of commercial value of a person's identity without consent of plaintiff for image/likeness release, injury to the plaintiff, plaintiff being placed in a "false light," or misrepresentation to which causes confusion of association of such person with another person. (37) Courts are often split on their decisions regarding misappropriation of likeness, due in part to the preemption of a variety of claims by aforementioned Copyright Law. (38)
a. NFTs...What Are They?
On February 25, 2021, Christie's Auction House became the first major auctioneer to offer a purely digital artwork with absolutely no physical component--Michael Joseph Winklemann's (Beeple's) "EVER YD AYS: THE FIRST 5000 DAYS" which sold for approximately $69 million. (39) This groundbreaking sale catapulted NFTs into the mainstream, creating interest in collecting NFTs as either an investment opportunity, or by way of quenching the desire for a new and disruptive art form. (40) Unlike previously acknowledged art forms, an NFT is a one-of-a-kind certificate of authenticity for a given digital artwork. (41) A key feature of an NFT is that the file itself doesn't contain the digital art piece--the file cannot be replaced nor interchanged due to its unique properties, and represents digital assets such as internet collectibles in the form of art, music, and games. (42) While the image of an NFT may be downloaded, copied, and viewed online by the masses, there can only be one authenticated owner of the blockchain which cannot be copied. (43)
A key factor in the increased interest of NFTs is the benefits to the artist, such as resale royalties, and dismissing any middlemen between the artist and buyer, which were often not traditionally applicable regarding physical works of art. (44) In addition, there are also utility NFTs--tokens that are focused on creating a community and granting its collectors access to these communities. (45) By offering digital assets that can be collected, traded, and sold, NFTs create space for brands to better incentivize their audience through exclusive content and community building. (46)
b. Current NFT Regulations
Given the unprecedented nature of NFTs and their newfound presence within the legal system, it is no surprise that courts are attempting to fit NFTs into traditional intellectual property frameworks. (47) To date, NFT regulations are based largely on legal precedent, which gives space for different interpretations of how NFTs must be considered in the legal realm. (48) However, recent understandings of NFTs challenge the preconceived notion of what an NFT is, and if they should be considered as personal property as well as digital assets. (49)
If viewed within traditional frameworks, under the Lanham Act, NFT purchasers might have a claim against counterfeit creators for false...
