Tokens, Branding and Digital Assets
“Art loves Chance, Chance loves Art”
Agathon
This article is about how content access cryptocurrency-based tokens may help diversify an artist’s branding portfolio and also raises some legal issues to consider before an artist takes the leap.
What is a token?
For purposes of this discussion, I am not going to address how people are raising money selling tokens as a crowdfunding venture (like an initial coin offering or ICO). Rather, I am going to address how artists can use tokens to sell and market existing art and music. In addition, I am going to limit my points to using a token as a “key” which permits users to access often exclusive digital content and assets.
According to Balaji S. Srinivasan, CEO of 21.co:
“[A] token is a digital asset that can be transferred (not simply copied) between two parties over the internet without requiring the consent of any other party.”
Mr. Srinivasan goes on to explain that when people purchase tokens they are purchasing the equivalent of private keys which can permit access to specified digital assets.
Private keys are part of an encryption or cryptographic strategy to ensure that information is only made available to those who have established a particular identity or permission to access that information. Private keys are intended to remain confidential to its owner. A public key is one that can be viewed on a directory or repository which lists public keys.
An application programming interface or API can be used by web developers to control an interface between an application and an operating system. As an example, mobile phone use is supported by APIs most commonly in the form of Java programming language. If you use an Android phone, you are using Java APIs. [See recent case Oracle v. Google, where a jury found that Google’s use of Java APIs was fair use under Copyright law.] Using a token can, therefore, be likened to an API when the token is designed for access to digital assets.
So what do you get when you buy a token? What your token can and cannot do is often unclear. The reason for this is because the technology and its uses are evolving minute-by-minute. How the token can be used may be defined by the platform on which it is being used. It may be defined by the artist or musician. The rights to use certain content is often fluid. The content to which the token is associated may vary from day to day.
In addition, access to particular content may not be guaranteed since it depends on the arrangements with the token issuer and the artist or musician. It could be possible, for example, that a content owner could add or remove content, block individual or blanket access to content as well as delete the content entirely.
In other words, it is an ongoing and living experiment.
I can’t emphasize enough that artists, musicians and fans understand the relationships between the art, the technology, and the token terms. There are powerful uses for this technology and it could bring significant income to artists as well as developers.
But first, it is necessary to look at the kind of assets an artist is likely to use in a token-enabled environment and how to incorporate those assets into a brand.
Branding
Brands are comprised of reputation, trademarks, copyrights, and other elements of “goodwill” that are often difficult to define. Most brands are recognizable due to their trademarks which are:
“[A]ny word, name, symbol or device or any combination of them that serves to identify and distinguish the source of one party’s goods or services from those of another party.”
Trademarks can be brand names, such as Coca-Cola® brand soft drink, a service mark, a certification mark or a collective mark. Superman® is a registered trademark of DC Comics covering several goods and services.
Several million dollars in revenue come from licensing brands in the form of trademarks. Trademarks rights are the exclusive rights to use a mark in commerce to distinguish your goods and services from another. Whether a product can be protected depends on whether the work has the qualities that would entitle it to trademark protection. However, you will not obtain trademark protection is your mark is “generic” or incapable of becoming a trademark.
Copyrights and trademarks are distinct intellectual property types, even though there are often design or illustrative elements in each. Copyrights protect original work of authorship that are:
“[F]ixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”
So, even a work in digital or electronic form which can be communicated via a machine or device would qualify as being “fixed in any tangible medium of expression” and potentially entitled to copyright protection. A scanned image of your work or a digital rendering of any component, would be a sufficiently tangible medium if it can be communicated with the aid of a machine and otherwise capable of being protected by copyright laws.
The works which could be potentially covered by copyright include: literary, musical and dramatic works; pantomimes and choreographic works’ pictorial, graphic and sculptural works; motion pictures; computer programs and compilations of works or derivative works.
What is crucial to remember is that copyright only protects the expression of ideas — not the ideas themselves — this is called the idea-expression dichotomy. Why is this important to understand? Because perhaps the most litigated aspect of copyright law is determining whether an author is trying to protect the expression of an idea (a thing fixed) or the idea itself.
The rights received, once copyright has been asserted, include the exclusive rights to reproduce, prepare derivative works, distribute, display and perform publicly and authorize others to do these things.
Once you have created and fixed a work in a tangible medium of expression, the work you created automatically enjoys federal copyright protection. If you register (submit an application) your work with the Copyright Office, in the event of an infringement on your work, you will be able to ask for actual damages, statutory damages, treble damages, profit, attorneys’ fees, and an injunction. If the work is not registered, and your work has been infringed upon, you will only be able to seek actual damages, which are those losses you can prove were the result of an infringement.
Another element of personal branding is the “right of publicity” which may be the subject of trademark protection, but usually is a right enforced by state courts where misuse of someone’s identity is an unfair trade practice or fraud. According to International Trademark Association (INTA):
“The “right of publicity” is a form of intellectual property right that protects against the misappropriation of a person’s name, likeness and perhaps other indicia of personal identity for commercial benefit. In the United States, the right of publicity has not been recognized at the federal level by statute or case law, although a related statutory right to protection against false endorsement, association or affiliation is recognized under federal unfair competition law.”
The combination of intellectual property types, as well as the right of publicity, form the elements of successful personal and corporate branding. Below is a discussion combining tokens and copyrights as digital asset forms.
First Sale Doctrine and Digital Assets
In a nutshell, in order to prevent copyright owners from having an interest in subsequent sales of physical objects where the copyright is manifested, and where the rights holders could control all secondary markets of these goods, the first sale doctrine was adopted. This doctrine was originally explained in the Supreme Court case Bobbs-Merrill Co. v. Straus, 210 US 339 (1908) and was later codified in the Copyright Act of 1909 which said:
“[T]he copyright is distinct from the property in the material object copyrighted, and the sale or conveyance, by gift or otherwise, of the material object shall not of itself constitute a transfer of the copyright, … but nothing in this Act shall be deemed to forbid, prevent, or restrict the transfer of any of a copyrighted work the possession of which has been lawfully obtained.”
Under the first sale doctrine (a federal statutory exception) when a consumer buys a physical book, for example, the consumer cannot copy the book and sell the copies without violating U.S. copyright laws. [See the recent Supreme Court case Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. ____ (2017) regarding “patent exhaustion” and compare the similarities to the “first sale doctrine” for copyrights which may be instructive: “The Patent Act grants patentees the “right to exclude others from making, using, offering for sale, or selling [their] invention[s].” 35 U. S. C. §154(a). For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude: When a patentee sells an item, that product “is no longer within the limits of the [patent] monopoly” and instead becomes the “private, individual property” of the purchaser. Bloomer v. McQuewan, 14 How. 539. If the patentee negotiates a contract restricting the purchaser’s right to use or resell the item, it may be able to enforce that restriction as a matter of contract law, but may not do so through a patent infringement lawsuit.” [Emphasis added.] Syllabus] However, the consumer has a personal property interest in the book itself and can sell the physical copy without worrying that the copyright owner will be successful in claiming that the consumer has violated the author’s rights to the book.
Once computer programs were covered under copyright law in 1980 and where those who bought physical copies of computer programs could make an archival or electronic copy of the program without violating copyright law, an unanticipated problem of digital downloads was ushered into the music industry as well as the software industry.
The most recent version of the Copyright Act under 17 USC 109 (b)(1)(A) says:
“[U]nless authorized by the owners of copyright in the sound recording or the owner of copyright in a computer program (including any tape, disk, or other medium embodying such program), and in the case of a sound recording in the musical works embodied therein, neither the owner of a particular phonorecord nor any person in possession of a particular copy of a computer program (including any tape, disk, or other medium embodying such program), may, for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord or computer program (including any tape, disk, or other medium embodying such program) by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit educational institution… .”
As a result, rights owners have updated the terms and conditions related to digital downloads and sales (whether music or software) and called such sales “licenses to use” which circumvents the first sale doctrine permitted for physical personal property. In this way, most rights to downloaded digital assets are retained by the copyright owner, since consumers are buying licenses.
Licenses are personal property under U.S. law, but the license terms are usually unknown or unread by consumers. As compared to the Napster days when peer-to-peer distribution was frowned upon, successful and legitimate business models have been built around licensing instead of sales, which is reflected in the proliferation of music streaming services. Unknown to most users is the multi-layered licensing terms services such as Spotify and iTunes have to navigate before music or podcasts reach consumer eyes and ears. According to Anthony C. Eichler:
“Most people probably assume that when they “purchase” a song on iTunes, they “own” it. Of the roughly 800 Million iTunes accounts, it is likely that very few consumers actually took the time to sit down and read the daunting and lengthy Terms & Conditions that they agree to with the click of a button. [Footnote omitted.] This agreement, however, states that they do not actually own anything they pay for via iTunes. [Footnote omitted.] To the contrary, they have been granted a limited license to access the digital asset only on their account, and only on a limited number of devices linked to the account. [Footnote omitted.] Further, the limited license granted by the User Agreement is non-transferrable in nature.”
The level of consumer interface transparency in this industry is an astounding marketing and sales feat. For a typical song advertised, sold and performed on a music website, there are publicity rights (if you use a photo of an artist, for example, you have to have permission from the photographer who owns the copyright as well as the artist to post the artist’s image); music rights (both performing and mechanical licensing rights have to be negotiated); as well as cross-platform playing permissions or licenses (if the player is using proprietary technology) all of which were negotiated well in advance of a consumer’s click on an “I accept” button. It is no wonder that digital music catalogs identified as digital assets are sometimes included in wills.
Although there is no nationwide definition of a digital asset, for purposes of illustration, here is the Delaware Code’s definition:
(7) “Digital asset’’ means data, text, emails, documents, audio, video, images, sounds, social media content, social networking content, codes, health care records, health insurance records, computer source codes, computer programs, software, software licenses, databases, or the like, including the usernames and passwords, created, generated, sent, communicated, shared, received, or stored by electronic means on a digital device. “Digital asset’’ does not include an underlying asset or liability that is governed under other provisions of this title.
Unfortunately, the Delaware Code’s definition appears under Title 12, Decedents’ Estates and Fiduciary Relations, Chapter 50, Fiduciary Access to Digital Assets and Digital Accounts. In other words, the definition only applies if the digital asset owner is dead.
In the case Capitol Records v. ReDigi, the court made it clear that the first sale doctrine does not include digital assets when a company is attempting to purchase and resell them on a digital domain. In its conclusion, the United States District Court for the Southern District of New York said:
“At base, ReDigi seeks judicial amendment of the Copyright Act to reach its desired policy outcome. However, ‘[s]ound policy, as well as history, supports [the Court’s] consistent deference to Congress when major technological innovations alter the market for copyrighted materials. Congress has the constitutional authority and the institutional ability to accommodate fully the varied permutations of competing interests that are inevitably implicated by such new technology.’ Sony, 464 U.S. at 431, 104 S.Ct. 774. Such defense often counsels for a limited interpretation of copyright protection. However, here, the Court cannot of its own accord condone the wholesale application of the first sale defense to the digital sphere, particularly when Congress itself has declined to take that step.”
To be a successful artist in today’s market, whether a visual artist, musician or author, requires an increasingly complex array of knowledge. To that end, it is worth considering a few things now regarding an artist’s use of cryptocurrency-based tokens for branding and work distribution. Specifically:
1. Whether the token itself, if used to access existing content, may be considered a digital asset;
2. If the token accesses copyright protected material, whether that copyright protected material may be sold depends on how and what rights the artist chooses to sell, e.g., whether the artist is granting rights to use in the form of a license; and
3. Whether the token or key can be sold or made available separately from the copyright or other intellectual property protected work.
My prediction: Token use as described above may become a threshold test case for establishing digital assets as a federally permitted statutory exception to the “first sale” doctrine under copyright law.
Thank you for reading.
Cynthia M.Gayton is an attorney, educator and author. The contents of this article represent her opinion and do not necessarily reflect the opinion of any affiliates. This article is derived in substantial part from a booklet prepared for an “Art on the Blockchain” MeetUp event she co-hosted with Jeff Clarkin held on June 13, 2017 at The Black Cat in Washington, DC. It is intended for educational and informational purposes only and is not intended to substitute for legal advice.
