Does The First-Sale Doctrine Apply To NFTs?

• Published date: 02 November 2022
• Subject Matter: Intellectual Property, Technology, Copyright, Fin Tech
• Law Firm: Taft Stettinius & Hollister
• Author: Mr Joseph Balthazor Jr.

Thanks to the first-sale doctrine, businesses and individuals can re-sell a lawfully purchased copy of copyrighted content without fear of facing allegations of infringement from the owner of the intellectual property. The doctrine is critical for businesses and individuals engaged in the reselling of products, such as used books. At the bottom, it acts as a defense to allegations of copyright infringement. Traditionally, however, courts have only applied the first-sale doctrine for copyright law to physical, tangible goods; they have been reluctant to extend it to digital works of art, such as MP3 files, rejecting a "digital first sale" doctrine (Capitol Records LLC v ReDigi Inc, 910 F.3d 649, 657 (2nd Circuit 2018)). Courts have likewise rejected applying the first-sale doctrine to digital download codes (Redbox Automated Retail LLC v Buena Vista Home Entertainment Inc, 399 Federal Supplement 3d 1018, 1032-33 (Central District California 2019)).

But what happens if someone sells a non-fungible token (NFT), and the underlying asset is protected by a copyright? Can the original owner prevent downstream sales of the NFT, or would it be precluded from doing so under the first-sale doctrine? NFTs are digital works of art that often come with a link to a copy, but because NFT transactions are recorded on the blockchain, one could argue they act more like physical, tangible works of art. This begs the question: does the first-sale doctrine apply to NFTs?

The first-sale doctrine for copyright law

Under the first-sale doctrine of copyright law, which is codified under Chapter 17 of the US Code, Section 109, a person who buys a copy of a copyrighted work from the owner of the copyright has the right to display, sell or otherwise dispose of that purchased copy. Critically, however, the first-sale doctrine does not apply to licensed goods. See Chapter 17 US Code Section 109(d) (providing that the right does not extend to "any person who has acquired possession of the copy or phonorecord from the...