NFT: An all-round legal view of Non-Fungible Tokens
23 June and 30 June 2021
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The tasks of a museum
The Austrian Federal Museums Act 20021 describes the tasks of federal museums, in accordance with an international standard, as follows: The federal museums are cultural institutions which, within the framework of a permanent social discourse, are to collect, conserve, scientifically process and document the testimonies of the past and present, including those of the arts, entrusted to them and make them accessible to a broad public. They are intended to increase and preserve the collection entrusted to them and to present it to the public in such a way that the processing awakens understanding for developments and connections between social, artistic, technical, natural and scientific phenomena. This definition of the task of collecting, preserving, exhibiting, researching and communicating cultural assets also corresponds to the guidelines of the International Council of Museums (ICOM), an organisation founded in 1946, associated with UNESCO and present in 138 countries.2
The handling of classic collection objects
In the field of visual arts, museums are therefore set to acquire physical works of art (paintings, sculptures, drawings, etc.), particularly through purchase, donation or inheritance. These works are catalogued, archived, conserved and (occasionally) exhibited or lent to other institutions. The emergence of audiovisual works of art, such as installations with screens and videos that run on special monitors, has already confronted the conservation departments with problems that are almost impossible to solve. Should the stock of spare parts of devices that are connected to these works and are no longer produced be bought up quickly in order to keep such devices as authentically operable as possible in the future?
Digital art adds another challenge to this when data format standards and reader interfaces are constantly changing in line with technological progress and content has to be converted to new formats in order to remain accessible.
If a museum follows its mission to keep its finger on the pulse, it will probably also have to deal with the current hype surrounding NFT art and consider including it in its collection, even if this means further uncharted territory for archiving, conservation and presentation.
Should museums expand their collection to include NFTs?
"The expansion of our collection to include NFT artworks was obvious for the Francisco Carolinum as a museum dedicated to photographic and media art, and in the course of preparing our current exhibition "PROOF OF ART - A brief history of NFTs, from the beginnings of digital art to the Metaverse" it was not only obvious but actually compelling. We see internationally a massive movement of artists using this technology and creating outstanding works that find the interest of the general public, collectors and art historians. We have therefore decided to reflect this new development in our collection, to document it, to exhibit it and to preserve it permanently." (Alfred Weidinger, Managing Director of OÖ Landes-Kultur GmbH in Linz).
What legal hurdles does this expansion of the collection bring?
If a museum acquires an NFT, the object of the purchase or donation should be clearly defined first. If the artwork as such is not included in the NFT, but - as is usually the case - merely linked to it, it should be (contractually) ensured that the museum also receives the digital artwork in a defined file format.
This data transfer will regularly not take place with the help of a physical storage medium (USB stick, CD-ROM, etc.), i.e., in the form of a physical object similar to the classic collection objects, but online. The museum will then store the data set in its own computer system. This process is, of course, not comparable with the receipt and safekeeping of a classic collection object, which is usually neutral in terms of copyright law (i.e. does not require a usage licence of the right holder). This is because archiving requires the production of an (electronic) copy only, whereby the right of reproduction is in principle reserved for the rights holder.3 In this case, the museum is therefore dependent on either invoking free use of the work at its disposal4 or obtaining a corresponding licence from the rights holder.
The same problem arises if the NFT work is to be exhibited and a copy must be made for the presentation monitor for this purpose. In addition, the public reproduction of the NFT artwork could fundamentally interfere with the right of communication to the public.
And the copyright situation becomes even more complex if the NFT artwork is to be lent to another institution for exhibition purposes, especially since this will affect the reproduction right, the distribution right and the right of communication to the public.
What is the solution?
Accompanying the acquisition of the NFT, a museum will be well advised to also obtain a licence from the rights holder at least for the purposes customary in museum practice. Theoretically, such a licence could also already be inscribed in the NFT.5 In view of the considerable energy consumption and transactional costs of such a content expansion in the blockchain, a hybrid system could be used: In such a scenario the contractual provisions regarding the acquisition process (purchase, donation, etc., including detailed provisions regarding authenticity, warranty, accessibility of the data set, etc.) and the licence agreement would not run via the blockchain but would be outsourced to a classic, old-fashioned contract.
"We were very pleased that the first NFT we acquired to establish our NFT collection came from a conceptual artist who is also a lawyer and immediately offered us an accompanying licence to use the artwork associated with the NFT. International standards will undoubtedly develop very quickly in this regard." (Alfred Weidinger).
1 Sec. 2 para. 1 of the Austrian Federal Museums Act 2002.
3 Sec. 2 (Reproduction right) Directive 2001/29/EC.
4 Directive 2001/29/EC provides for certain exceptions, the scope of which can be filled out by the member states in national law. In Austria, there is a provision to this effect in Sec. 42 para. 7 of the Austrian Copyright Act ("Institutions accessible to the public which collect works may produce reproductions for inclusion in their own archives (reproduction for their own use of collections) if and to the extent that reproduction is required for this purpose").
5 For further information see e.g. "Tokenized copyrights: Linking an NFT to a copyright licence".