APAA e-Newsletter (Issue No. 28, April 2022)

Spice DAO Face a Common Copyright Conundrum

Melissa Wingard, Phillips Ormonde Fitzpatrick Lawyers (Australia)


There are any number of myths that surround copyright and one which we commonly hear is the misunderstanding that merely by paying for a work, the underlying copyright is assigned to the buyer.

Spice DAO (which stands for Decentralised Autonomous Organisation) have made the news for making this exact mistake.

Copyright Law, NFT’s and Books

By way of refresher on the Australian Copyright Act 1968 (Cth) (Copyright Act), copyright is a personal property right, and it is therefore critical to distinguish between copyright in the work itself and the physical object in which copyright subsists.

Section 13 of the Copyright Act provides the copyright owner with the exclusive rights to do certain things in relation to the work, an adaptation of the work or other subject matter. These exclusive rights include, but are not limited to, the right to reproduce the work in material form (section 31(1)(a)(i)), convert the work into digital form (section 21(1A)), or communicate the work to the public (section 31(1)(a)(iv)).

The Copyright Act further provides that as personal property, copyright is only transmissible by assignment, by will, or devolution by operation of law (section 196(1)) and any assignment of copyright needs to be in writing and signed by the assignor (section 196(3)).

Therefore, when you go to the bookstore, or order a book online, what you are buying is a copy of the physical book for the purposes of personal enjoyment. Simply buying the book does not give the purchaser any rights in the underlying copyright. It also does not permit the buyer to further reproduce or make the work available to the general public, which would include through such acts as reading the book out loud on your YouTube channel or turning the book into a movie.

The same rules apply to NFT’s, even though the technology is much more advanced than the printing press. An NFT is a non-fungible digital token that uses the blockchain ledger, enabling NFTs to be identified and tracked. Typically, cryptocurrency tokens such as bitcoin on the blockchain ledger are fungible assets, they can be readily interchanged for something else – for example, one bitcoin can be exchanged for another. Legal tender, such as bank notes, are a fungible asset as a $100 note can be exchanged for two $50 notes or five $20 notes. NFTs however are unique and cannot be exchanged, much like a one of a kind painting. NFTs use blockchain technology to give themselves a digital uniqueness, the originality and scarcity of which makes them a collectible item.

However, issues have arisen when selling and purchasing NFT’s. The purchase of an NFT provides the buyer with a token that contains meta data, and a link to the website where the digital work is stored, not the digital work itself. The purchaser is provided with a website address – which has been likened to the directions to an art gallery where you can view the work.

Much like buying a physical painting or book, the purchaser of an NFT has the right to view the work, but they are unable to distribute or reproduce the work as these rights remain with the copyright owner unless such rights have been assigned or a licence entered into with the copyright owner that allows the purchaser to deal in that way with the digital work.

Therefore, under the Australian Copyright Act, to acquire any underlying copyright in an NFT or book a written assignment or licence is necessary. In the absence of this, any derivative works are likely to infringe.

Jodorowsky’s Dune

So, what happens when real world works are purchased with the idea that they are going to be turned into an NFT? Spice DAO, an anonymous NFT group, spent EU€2.66 million to purchase a copy of a rare art book know as ‘Jodorowsky’s Dune’. The 2021 Dune movie, that was recently in cinemas, is but one in a long list of attempts to create films out of Frank Herbert’s epic science fiction novels.

In 1974, filmmaker Alejandro Jodorowsky embarked on a process to create a film adaptation of Dune. Mr Jodorowsky’s Dune was to be quite the undertaking. A 14 hour long epic with a score by Pink Floyd and the likes of Salvador Dali and Orson Welles starring. It was ultimately never made, and the project fizzled out. The legacy of this project, however, was an extensive book of concept art that Mr Jodorowsky presented to studio executives before the project was cancelled. These books, known as ‘Jodorowsky’s Dune’, commonly come to market but usually sell for between US$25,000 to US$40,000.

Spice DAO bought the book, using crowdsourced funds, with three stated intentions:
1) Make the book publicly available;
2) produce an animated limited series inspired by the book to sell to a streaming service; and
3) support derivative projects, including issuing a collection of NFT’s based on the book.

Their intention was that once the book was made publicly available, they would destroy the physical copy of the book.

Spice DAO’s plans unravelled when, following their announcement of the purchase of the book and their intentions, the internet gave Spice DAO some advice on copyright law and informed them that what they had bought was a very expensive book. None of the rights necessary to carry out their intentions came with the exorbitant price. Not to be deterred, Spice DAO are continuing to pursue this project, although given that any adaptation or derivative work would require licenses from the estate of Frank Herbert, or Mr Jarodowsky at the very least, this NFT saga is likely to encounter the same fate as the original project.

Spice DAO has highlighted the need to understand what you are buying both in the virtual world and the physical world. A timely reminder of why having a basic understanding of copyright is important in any business endeavour!