Digital art, booming business.

In recent years, digital art experienced a huge boom. Several digital artworks were sold for very large sums under the form of NFTs at prestigious auction houses such as Christie’s and Sotheby’s or on new dedicated auction sites such as Opensea or Rarible. For instance, the NFT of the digital artwork Everydays: The First 5000 Days by artist Beeple sold for $69 million and several Bored Apes and Cryptopunks, two iconic NFT collections, also went over the digital counter for several millions.

Consequently, the digital art market has become booming business that a lot of players in the art market have since jumped on. The total revenue of the NFT market clocked in at $232 million in 2020. In 2021, it was $16 billion and in 2022 it was as high as $24.7 billion. In 2023, the NFT market seems to have cooled a bit, but the fact is, digital art is here to stay. However, the question that arises is whether digital art is treated legally in a different way from physical art?

Is digital art real art?

Art is commonly defined as a form of human expression that has aesthetic or conceptual value and is often intended to convey emotions, ideas or a particular message. Digital art includes works created using digital technologies, such as computers, software, digital images and interactive elements.

Like traditional art forms, such as painting, sculpture and photography, digital art can encompass various styles, techniques and concepts. It can range from digital paintings and drawings to interactive installations, 3D models, animations, digital collages and more.

Digital art has unique possibilities and advantages that are not always possible in traditional art forms. It allows artists to experiment with new technologies, interact with digital media sources and create interactive and immersive experiences. It also offers new opportunities for dissemination and access to artworks, as digital art can be easily shared and distributed online.

Of course, there may be different views on what is or is not considered art, and some people may not appreciate or recognise digital art as traditional art forms. However, art is often subject to interpretation and evolves with time and changes in technology and society. Therefore, it is important to be open to new forms of artistic expression, such as digital art, and recognise them as valuable contributions to the art world.

And what does the law say?

That digital art can indeed be considered art from an artistic perspective is clear. However, whether digital art is also legally considered art is not so unambiguous. Nevertheless, the answer to this question is legally highly relevant, as it will have implications in terms of intellectual property law, taxation and even anti-money laundering legislation.

In terms of copyright, legal protection is provided for original works, expressed in a concrete form and resulting from a creative activity. Indeed, copyright can protect any creation of the human mind expressed in a literary or artistic language. This includes graphic, pictorial, cinematographic, photographic, musical, sculptural, digital or other forms of expression. Importantly, however, the work must be sufficiently original to be protected. Obviously, digital art can also meet these conditions.

But the question arises in particular about the copyright protection of digital art under the form of a “non fungible token” (NFT ). An NFT stands for Non-Fungible Token. It is a digital code that is unique, irreplaceable, and non-exchangeable. NFTs are based on blockchain technology and use smart contracts to ensure the authenticity, ownership and transactions of the digital asset.

When the creator of the artwork is also the creator of the NFT, there is no copyright issue. In this case, there is a clear similarity between the artwork and the NFT and there is copyright protection for the owner of the NFT.

It is of course different if the creator of the artwork, is not the creator of the NFT. In principle, an NFT is not a reproduction of an artwork, but only a digital encoding of it. The making of the NFT itself, does not infringe the right of communication to the public or the reproduction right. But an image of the artwork will usually be attached to the NFT itself, and this does require the artist’s consent. In any case, it appears that owning an NFT does not necessarily imply ownership of the physical artwork associated with the NFT. This is only the case if it is contractually so provided. But it is possible for the owner of a physical work of art to grant a right to third parties on the basis of which an NFT of the work of art can be created and exploited. However, this then does not mean that the holder of the NFT also owns rights to the artwork itself.

NFTs of artworks belonging to the public domain ( that is 70 years after the artist’s death ) are also possible. This does not require permission from the owner of the artwork. But whether these NFTs then have any value is doubtful. After all, they are only the digital encoding of an image of the artwork, to which, of course, no right with the original artwork is attached.

And there is also some discussion about digital artworks on the tax front, especially in terms of VAT. Current EU VAT legislation (Directive 2001/112/EC[1]) allows EU member states to apply a reduced rate to the importation of works of art and the supply of works of art by their creator under certain conditions. Quite a few countries have introduced such a reduced rate. But recently it was stated by the Belgian Minister of Finance in a reply to a parliamentary question that NFTs “are not considered works of art”, so sales should be subject to 21% VAT and not the reduced rate of 6%. Whether this is a correct interpretation remains to be seen.

And problems also arise with regard to anti-money laundering legislation. The European Anti-Money Laundering Directive (EU) 2015/849 requires dealers in works of art to identify customers and report suspicious transactions. However, this directive only applies when we are dealing with trade in works of art. Again, it is therefore crucial to know whether an NFT can be considered an art object or not. The answer to this question is important to know whether NFT auction houses, for example, are covered by this legislation or not.

Quid?

It is striking to note how much the legal community struggles to legally grasp NFTs. There appears to be ambiguity or uncertainty in various areas of law on how to deal with NFTs. Again, all that can be asked of the legislature is to draw out a legal framework asap.