Law and Ledger is a news segment focusing on crypto legal news, brought to you by Kelman Law – A law firm focused on digital asset commerce.
The following opinion editorial was written by Alex Forehand and Michael Handelsman for Kelman.Law.
NFTs, Intellectual Property, and the Legal Challenges of AI-Generated Assets
As non-fungible tokens (NFTs) continue to evolve from digital collectibles into tools for commerce, licensing, and identity, the legal landscape surrounding intellectual property (IP) remains unsettled. The rise of generative artificial intelligence (AI) has added further complexity, raising questions about ownership, licensing, and enforcement of creative works tied to blockchain tokens.
Copyright and NFTs
An NFT does not automatically transfer copyright ownership in the underlying asset. As the U.S. Copyright Office has emphasized in recent guidance on NFTs and copyright (Copyright.gov), purchasers of tokens typically receive only the rights explicitly conveyed in the smart contract or accompanying license. This means that absent contractual language, buyers may not acquire reproduction or commercial rights in the digital artwork or asset.
Litigation has already highlighted these gaps. In Hermès International v. Rothschild, the Southern District of New York held that NFTs resembling Hermès’ iconic Birkin bags could infringe trademark rights, underscoring that tokenization does not exempt creators from existing IP laws.
AI-Generated Works and Ownership Questions
Generative AI tools capable of creating text, images, and music introduce new legal uncertainties. The U.S. Copyright Office has clarified that works not “created by a human being” are not entitled to copyright protection, raising concerns for creators who mint AI-generated assets as NFTs.
The primary concern, according to a Report to the Librarian of Congress by the Register of Copyrights, is “whether the ‘work’ is basically one of human authorship, with the computer [or other device] merely being an assisting instrument, or whether the traditional elements of authorship in the work (literary, artistic, or musical expression or elements of selection, arrangement, etc.) were actually conceived and executed not by man but by a machine.”
Courts are also beginning to address whether human direction over AI systems is sufficient to establish authorship. In 2023, the U.S. District Court for the District of Columbia became the first court to directly consider whether AI-generated works are eligible for copyright protection. The plaintiff sought to challenge the Copyright Office’s refusal to register an image he described in his application as “autonomously created by a computer algorithm running on a machine.”
The court upheld the Office’s decision, emphasizing that “copyright law protects only works of human creation” and that “human authorship is a bedrock requirement of copyright.” It further explained that copyright “has never stretched so far . . . to protect works generated by new forms of technology operating absent any guiding human hand.” Because the plaintiff himself acknowledged that he “played no role in using the AI to generate the work,” the court found that the authorship requirement was not satisfied. The case is currently on appeal.
Serious questions remain regarding the ability to copyright AI-generated material, along with transferring and licensing NFT copyrights. Projects issuing NFTs tied to AI-generated works should consider:
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Licensing frameworks: Drafting explicit licenses that define rights for token holders, including reproduction, display, and derivative use.
- Human Authorship: Creating material with human input, and not solely generating material with artificial intelligence.
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Attribution mechanisms: Ensuring transparency about the extent of AI involvement in creation.
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Contractual safeguards: Embedding terms in smart contracts or off-chain agreements to mitigate disputes over ownership and infringement.
Smart Contracts and Royalty Enforcement
One of the initial promises of NFTs was automated royalty enforcement through smart contracts. However, marketplace operators have increasingly allowed opt-outs or altered enforcement mechanisms, weakening reliability. This has particular implications for creators relying on recurring revenue models. While contractual rights remain enforceable in court, inconsistent technical implementation highlights the need for careful legal drafting in parallel with technological solutions.
Practical Considerations for NFT and AI Projects
For developers, artists, and platforms working at the intersection of NFTs and AI, several practices can reduce legal risk:
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Clear Licensing – Spell out exactly what rights token holders receive, and what remains with the creator.
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Trademark Awareness – Avoid designs or prompts that may generate infringing content, particularly in fashion, art, or entertainment.
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Human Authorship Documentation – Maintain evidence of human creative contribution to support potential copyright claims.
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Dispute Resolution Mechanisms – Consider arbitration or jurisdiction clauses in NFT terms of service.
Conclusion
The convergence of NFTs, intellectual property law, and AI-generated content presents both opportunities and risks. Tokenization does not override existing IP frameworks, and AI tools challenge long-standing definitions of authorship and ownership. By proactively addressing these legal questions through licensing, smart contract design, and compliance strategies, creators and platforms can navigate this evolving landscape more securely.
Kelman PLLC continues to monitor developments in crypto regulation across jurisdictions and is available to advise clients navigating these evolving legal landscapes. For more information or to schedule a consultation, please contact us.
This article originally appeared at Kelman.law.
