Property (Digital Assets etc) Bill

Lord Freyberg Excerpts

Second reading committee
Wednesday 6th November 2024 Grand Committee

[Lord Freyberg (CB)]

My Lords, it is a pleasure to follow the exposition from the noble Viscount, Lord Stansgate, on digital assets; I particularly enjoyed what he had to say on David Hockney, whose work I admire. I add my thanks to the Minister for introducing the Bill. First, I declare my interests as someone with a background in the visual arts and as an artist member of DACS, the Design and Artists Copyright Society.

The Bill before the Committee looks to make a narrow and specific change in law to give property protection to digital assets. Although I commend the lucidity of the evidence put forward by the Law Commission and its findings as part of its consultation process, some aspects of digital assets have unfortunately been overlooked by that process. I refer in particular to the impact that non-fungible tokens—NFTs—have had on artists, the art market and the wider creative industries, which were not adequately considered in the consultation by the Law Commission. This represents a potentially missed opportunity to address wider concerns around the roles that digital assets play in a variety of marketplaces. I note in particular that, although NFTs have been widely aligned with artworks—such as the first NFT, which sold at auction for almost $70 million in 2021—only cursory references were made to this important store of value in the consultation and, therefore, in the responses.

Although the sale of NFTs made headlines and could be considered somewhat fanciful, the reality is that NFTs and NFT marketplaces opened the doors to a plethora of issues, from intellectual property infringement to fraud. I therefore wish to highlight some of the important work of the Government’s Select Committee in addressing these concerns, which were not considered in the earlier 2022 Law Commission Digital Assets: Consultation Paper, as they were discussed nine months later in August 2023.

The Culture, Media and Sport Committee undertook an inquiry into non-fungible tokens and blockchain to assess the role of NFT marketplaces, the impact of blockchain on the traditional art market, and issues of intellectual property arising from a surge in NFT sales on international platforms. The committee heard from witnesses that the role of NFT marketplaces facilitated widespread copyright infringement and, in some cases, fraud. Marketplaces selling NFTs subjected their users, whether consumers or artists selling their NFTs, to terms and conditions of use that absolved them entirely of any responsibility regarding the veracity of the products sold and of any liability for wrongdoing.

Consumers trading in NFT marketplaces face high financial risks. They must first convert fiat currency into volatile cryptocurrency and contend with unpredictable service fees, known as “gas fees”. These risks are intensified by a lack of transparency, with marketplaces often not disclosing complete product information or taking responsibility for fluctuating transaction costs.

There is also a lack of reliable data on the scale of the NFT market to adequately evaluate, and therefore mitigate, these risks. At the time the CMS committee conducted its inquiry, it was understood that OpenSea, one of the largest NFT marketplaces, had over 80 million NFTs on its platform. However, no data on how many individuals were purchasing these or converting fiat currency into cryptocurrency was available. None the less, there was some speculation that around $100 billion- worth of cryptocurrencies were in circulation, leaving an enormous amount of capital subject to losses caused by fluctuation in prices.

Although the anticipated benefits of NFTs did not meaningfully materialise, the real risks and harms to creators and consumers in their use have persisted. The most pressing issues uncovered by the CMS committee’s inquiry pertained to risks to intellectual property. These included the infringement of creators’ copyright when NFTs were created or “minted” from their creative works—a restricted act under copyright law—as well as the limited avenues for recourse and redress available to creators whose works were minted, and the consumer confusion around the transfer of rights to, or even ownership of, the underlying assets in transactions of NFTs.

To mitigate the identified issues, the committee recommended that the Government engage with NFT marketplaces to address the scale of infringement and enable copyright holders to enforce their rights. It also recommended that the Government address the impact of safe harbour provisions by introducing for online marketplaces operating in the UK, including NFT marketplaces, a code of conduct that protects creators, consumers and sellers from infringing and prevents fraudulent material from being sold on these platforms. However, the Government’s response to the report, received on 4 January 2024, stated that they would not seek to introduce any legislation or code of conduct for online marketplaces, including NFT marketplaces.

So, although it is commendable and necessary, the Property (Digital Assets etc) Bill does not address the full extent of the issues arising from the sale and trade of digital assets in the real world. Sadly, it also does not factor in the work conducted by the CMS committee in April 2023. These issues are still valid—artists depend on fair pay for the use of their works in an online environment and are particularly impacted by unauthorised and unremunerated uses.

These problems are only intensifying. We now have generative AI platforms that have scraped images from the internet, without permission or pay, to train AI models. A lot of generative AI products will even encourage customers to prompt the models to produce an output in the style of another artist. Why would anyone need to ask permission or license the work of our talented artists if these platforms give something identical to their customers for free?

Given these concerns, will the Minister look to conduct a thorough review of the CMS committee’s work to support the advancement of the Property (Digital Assets etc) Bill? This review should aim to improve benefits while addressing the adverse effects that non-fungible tokens have had on artists, the art market and the broader creative sectors.