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As our colleagues reported in this Seyfarth Shaw Legal Update, President Biden signed a comprehensive Executive Order addressing AI regulation across a wide range of industries and issues. Intellectual property is a key focus. The Order calls on the U.S. Copyright Office and U.S. Patent and Trademark Office to provide guidance on IP risks and related regulation to address emerging issues related to AI.

Continue Reading White House Directs Copyright Office and USPTO to Provide Guidance on AI-Related Issues

In what appears to be the first court opinion to weigh in on the copyrightability of AI-generated art, the District of D.C. has blessed the Copyright Office’s position to date: only works created by humans deserve protection under the U.S. Copyright Act. Thaler v. Perlumtter, Case No. 22-cv-1564 (D.D.C. Aug. 18, 2023).

As we discussed in a prior post, The Copyright Office issued guidance earlier this year in connection with attempted registration of a comic book entitled “Zarya of the Dawn.” Using a legal framework established by the 1884 U.S. Supreme Court case Burrow-Giles Lithographic Co. v. Sarony, the office refused registration of the portions of the comic book that were purely generated by AI. Unlike the creative choices a photographer made in Burrow-Giles, the Copyright Office concluded, generative AI is based purely on machine-generated outputs that are not controlled by the human user.

Continue Reading No Human, No Way: D.C. Federal Court Denies Copyright Protection for AI-Generated Art

Don’t worry, machines haven’t completely replaced humans as artists—at least, not yet. But the U.S. Copyright Office is considering the possibility.

The Copyright Office recently declared that it will not grant protection over AI-generated works, upholding its longstanding rule that non-human authors cannot own copyright. At the same time, the Office is well aware that AI technology is changing everything. It is seeking public input on AI-related issues throughout the month of May, starting with a listening session on AI and visual arts from 1 to 4 pm Eastern today. A session on audiovisual works is scheduled for May 17, and another for music and sound recordings on May 31. Members of the public can access Zoom links through the Office’s website.

As it stands, under U.S. law there must be “some element of human creativity” for material to be copyrightable. In a registration decision issued February 21, 2023 regarding a comic book entitled “Zarya of the Dawn,” the Copyright Office explained that it would only issue a registration covering the compilation of images and text created by the human author. The registration would not cover AI-generated images contained within the compilation.

The decision relied on the 1884 U.S. Supreme Court case Burrow-Giles Lithographic Co. v. Sarony, in which the Court grappled with what was then the newly emerging technology in art: photography. Although the process of the camera capturing the photograph was purely mechanical, the Court explained, the photographer’s artistic choices in composing the photograph were protectable because they were instrumental in the ultimate output. The Copyright Office drew a parallel to Zarya of the Dawn, explaining that “the Work is the product of creative choices with respect to the selection of the images that make up the Work and the placement and arrangement of the images and text on each of the Work’s pages.” In contrast, the images themselves were created using Midjourney, an AI tool that generated visual depictions based on text prompts. “While additional prompts applied to one of these initial images can influence the subsequent images, the process is not controlled by the user because it is not possible to predict what Midjourney will create ahead of time,” the Office concluded. Therefore, the process of creating the images “is not the same as that of a human artist, writer, or photographer.”

The Office followed up with formal guidance published in the Federal Register on March 16, 2023, explaining that the term “author” as used in the Intellectual Property Clause of the U.S. Constitution and in the Copyright Act “excludes non-humans.” Therefore, when applying for a copyright registration of a work that contains AI-generated content, the AI-generated content must be explicitly excluded from the application. If the applicant fails to disclose which portions of the work were AI-generated, and the Office later becomes aware of that fact, the resulting registration may be cancelled.

In fact, this is what happened in connection with Zarya of the Dawn. After originally obtaining a registration covering the entire comic book, the book’s human author boasted about it on social media, generating interest among journalists. The Copyright Office saw the attention its original decision had gotten, and decided to revisit the issue sua sponte, revoking part of the registration.

The Zarya decision does provide helpful guidance on the current state of copyright law and AI, but the lines between human-generated art and AI-generated art remain blurry. For example, although Midjourney actually created the output of images in Zarya, a human had to come up with the text prompt to initiate the process. Should the human author be allowed to claim copyright in the prompt? And, if so, would that right actually be meaningful?

Generally, it is not possible to obtain copyright in short phrases. The Copyright Office has concluded that short phrases do not contain a sufficient amount of creativity to be copyrightable. Even so, depending upon the length and complexity of a given prompt in an AI tool, there may be room to argue that authors are making creative choices affecting the ultimate output generated by the tool. If a particular tool generates consistent output based on the same prompt, copyright could help artists exclude others from using identical prompts to obtain identical outputs.

At the same time, under the Copyright Office’s current policy, there would be no copyright in the output itself. In other words, no one would own rights in that output, so copying it wouldn’t constitute infringement. Therefore, even if the artist were able to prevent another individual from using a particular prompt to re-generate an output, there would be nothing stopping that same person from simply making a digital copy of the output itself. Copyright in the original prompt would be toothless in this context.

It will be interesting to see how all of these dynamics play out as artists and authors increasingly rely on AI tools as part of their creative process. It will also be interesting to see how the Copyright Office balances the current legal framework preventing copyright over AI-generated content with the original goal of copyright law as articulated in the Constitution: “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

The deal market reached historic levels in recent years, with record-setting merger and acquisition activity in 2021. Markets have since cooled, with capital becoming harder to find. But any company preparing to sell within the next five years should consider the more common IP issues that arise during the legal due diligence process.

IP Ownership

Nearly all purchase agreements require the seller to warrant that it owns or licenses the intellectual property necessary for operation of the business. In most cases, this can be broken down between two central areas – technology and branding.

Technology is often protected through patents or trade secrets. Of course, not every company is “tech-heavy,” and the importance of tech-related IP varies based on the nature of the company being sold. But quite often, a company will tout its innovation when selling, but during the due diligence process, it is revealed that the company lacks adequate protection for that innovation. A prudent IP strategy would therefore consider patent protection for more physical innovations and trade secret or copyright protection for software.   

Branding is protected by either registered or common law trademarks. Here, companies should consider which brands are most significant and file for registration of the trademarks relating to those brands. This might include brand names, product line names, style names, or even unique packaging or product design.

Infringement

Few investors want to inherit a lawsuit or a threatened lawsuit. A purchase agreement will therefore require that a company list any existing or threatened lawsuits within a certain period, typically within the past three to five years. Here, too, not all lawsuits are created equal. A settled “patent troll” lawsuit is typically not the end of the world and is very common for any company in the middle market or larger. On the other hand, lawsuits directed at the core technology of the business will almost assuredly prevent a deal from going through.

Licenses

A buyer’s legal counsel will review every material contract of a company and look for issues that may occur after close. In the IP context, this involves a review of any contract that grants or receives a license to intellectual property.

One common issue is whether an outbound license effectively grants ownership of a company’s intellectual property without the company realizing it, for example, when an outbound license is exclusive. Exclusive licenses should be avoided other than for significant partnerships that are akin to a joint venture. Licensing issues can also occur when a software company develops software for a client but fails to retain ownership of the company’s background IP. Customer agreements should therefore include a clause that reserves ownership of any IP that may also be used for another customer down the road.

Employee/Contractor Ownership

Companies should review employment agreements to ensure the agreement has a present tense assignment of intellectual property. Agreements that state the employee “will assign” their inventions, or merely that the company owns the inventions, are not present tense assignments and will only require the employee to assign the IP at a later date. Employees come and go, and often are not cooperative once they “go”.

Another question that will be asked: have independent contractors developed innovations or software for the company? With few exceptions, anything created by a contractor is not owned by the company absent a written agreement. It is therefore imperative to properly “paper” the IP ownership chain of title when development has been performed by anyone other than the employees of the company.

The Supreme Court yesterday declined to hear a case brought by a computer scientist whose “invention” was in fact created by artificial intelligence. Stephen Thaler was appealing a Federal Circuit decision that interpreted the Patent Act to require a human “inventor” for purposes of obtaining a patent. The invention at issue was conceived of by Thaler’s AI model DABUS and not by a human, dooming its chances of obtaining patent protection.

The law of inventorship is now quite murky. Professor Dennis Crouch wrote yesterday about the ethical issues presented to patent attorneys in the wake of the decision. If AI-created inventions are not patentable, then is a patent attorney required to interrogate their client to determine which parts of the invention were human versus AI-created?

Of course, the elephant in the room is this: what inventions will be protectible when every R&D operation utilizes artificial intelligence to get ahead? Extending to copyright law, where Thaler is fighting a similar battle, isn’t there a “modicum of creativity” leading to the AI-created work? History suggests the law will split inventorship down the middle and grant rights to those “portions” of an invention or copyrightable work that were created by a human, and avoid granting protection to the “portions” that were AI-generated.

Copyright law does this well with the protection of derivative works. The term “Derivative Work” is defined in 17 U.S.C. § 101:

A “derivative work” is a work based upon one or more preexisting works…

Examples of creative works include a translation of a novel into another language. Or a screenplay adaptation of a novel. Or—remember in the 90s when rappers would sample 80s music? The end song would be a derivative work of the 80s tune. The “author” of the end work (translation, screenplay, 90s rap song) owns the copyright on the derivative work. But the author must have a license to the original copyrighted work, or the original work must not be copyrighted (e.g., an expired copyright). In this manner, copyright law separates the original creative expression from the preexisting copyrighted work. The same can be done for AI-generated works, with the human expression protected to the extent possible, and the AI-generated expression excluded from protection.

Patent law has also separated protectible and unprotectible portions of the inventions. For example, 35 U.S.C. § 101 controls which inventions are eligible for patent protection. As early as 1852, the law precluded the patentability of abstract ideas that would effectively preempt the abstract idea. Le Roy v. Tatham, 55 U.S. (14 How.) 156, 175 (1852) (“A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.”). More recently, the Supreme Court maintained that an abstract idea was not patentable, but a practical application of an abstract idea may be worthy of patent protection. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208, 216 (2014) (“[I]n applying the §101 exception, we must distinguish between patents that claim the ‘buildin[g] block[s]’ of human ingenuity and those that integrate the building blocks into something more”). Look for patent law to handle AI inventions in much the same way and to continue carving out patent protection of AI-generated inventions through the lens of §101. What was created by AI cannot be protected and will be carved out, much the way anything other than a “practical application” of an abstract idea cannot be patented. But the elements of human ingenuity giving rise to the invention will surely be protected to continue the incentive for technological innovation.

Famed director Quentin Tarantino and production company Miramax settled their infringement lawsuit over non-fungible tokens (“NFTs”) before the US District Court for the Central District of California could weigh in on the merits of the claims, leaving us with far more questions than answers when it comes to the development of intellectual property law around this trendy new technology.

Indeed, the directors of the US Patent and Trademark Office and US Copyright Office are in the process of conducting a joint study to untangle the various interests at play, having promised Sens. Thom Tillis and Patrick Leahy they will deliver findings by June 2023. Meanwhile, several other federal district courts are struggling with how to apportion value in the context of digital marketplace transfers.

Here’s what you need to know about where things stand:

The problem lies in the fact that NFTs haven’t found their place within the 232-year-old (albeit evolving) framework of the US Copyright Act. Nor is it clear whether—or how—NFTs might trigger liability under the 76-year-old federal Lanham Act, which governs trademark infringement and unfair competition.

NFTs are units of data stored on a blockchain that signify ownership of (supposedly) unique digital media items. They are sold and/or traded in connection with “smart contracts” that govern the terms of transfer. But NFTs are separate and distinct from the digital items they are meant to authenticate, making it extremely difficult to assign title to the various intellectual property rights stemming from the sale of each NFT.

In this context, the joint federal agency study is meant to address a number of key issues, including:

  • Acquisition of rights: Who owns what if the NFT creator is a different person or entity than the creator of the underlying asset?
  • Transfers of rights: How does the transfer of an NFT impact IP rights in the associated asset?
  • Licensing of rights: How should IP rights in the associated asset be licensed in an NFT context?
  • Infringement of rights: What is the appropriate infringement analysis where an NFT is associated with an asset covered by third-party IP? Or where the NFT creator also owns the IP in the underlying asset, and the asset is infringed by a third party?
  • Remedies: Are current statutory protections adequate to protect rights owners in NFT marketplaces?

Several lawsuits addressing various copyright, trademark, unfair competition, and breach of contract issues in connection with NFTs have been filed in New York and Los Angeles over the past year and a half, but have either settled or are still in their infancy, leaving us with a dearth of case law on the issues:

May 2021: French luxury brand Hermès sues artist Mason Rothschild for trademark infringement based on Rothschild’s sale of NFTs related to digital images he had created of handbags he dubbed “MetaBirkins.” Rothschild lost his motion to dismiss and is seeking certification for an interlocutory appeal. Hermes Int’l et al. v. Rothschild, Case No. 1:22-cv-00384, US District Court for the Southern District of New York.

June 2021: Roc-A-Fella Records sues its co-founder Damon Dash, alleging that Dash’s attempt to mint Jay-Z’s album “Reasonable Doubt” as an NFT constituted unlawful conversion of the copyright in the album owned by Roc-A-Fella. The Court granted a temporary restraining order against Dash, and the parties subsequently settled. Roc-A-Fella Records, Inc. v. Dash, Case No. 1:21-cv-05411, U.S. District Court for the Southern District of New York.

November 2021: Miramax sues Tarantino based on Tarantino’s sale of NFTs for a collection of digital images of portions of the original handwritten version of the screenplay for Pulp Fiction, implicating both copyright and trademark rights. In this case, beyond pure IP issues, the parties disagree over interpretation of Tarantino’s original contract with Miramax, in which he reserved all rights for print publication of the screenplay (including in digital form). On September 8, 2022, the parties filed a notice of settlement. Miramax, LLC v. Tarantino, Case No. 2:21-cv-08979, U.S. District Court for the Central District of California.

January 2022: Rapper Lil Yachty (real name: Miles Parks McCollum) sues NFT seller Opulous for trademark infringement based on Opulous using his name and likeness as part of a “Lil Yachty NFT Collection” advertising access to his new music. Defendants were unsuccessful in challenging personal jurisdiction and recently filed their answer to the complaint. Miles Parks McCollum v. Opulous et al., Case No. 2:22-cv-00587, U.S. District Court for the Central District of California.

February 2022: Nike sues online retailer StockX for trademark infringement based on StockX’s sale of NFTs for limited edition Nike sneakers that include images of the sneaker. The case is in the discovery phase. Nike, Inc. v. StockX LLC, Case No. 1:22-cv-00983, U.S. District Court for the Southern District of New York.

June 2022: Yuga Labs, the company behind the famed NFT collection known as the “Bored Ape Yacht Club,” sues artist Ryder Ripps for trademark infringement. According to Yuga Labs, Ripps has been using Yuga Labs’ trademarks to lure consumers into buying his own copycat NFTs. Ripps recently filed a motion to strike or, in the alternative, to dismiss, which itself was stricken by the Court. Yuga Labs, Inc. v. Ripps, Case No. 2:22-cv-04355, U.S. District Court for the Central District of California.

The only meaty judicial opinion to come out of any of the above cases so far has been Judge Jed. S. Rakoff’s May 18, 2022 order denying Mason Rothschild’s motion to dismiss Hermès’ trademark claims. Although the order does not resolve any of Hermes’ claims on the merits, it does offer a first glimpse at how courts may treat trademark claims involving NFTs moving forward.

In his motion, Rothschild argued that he used “MetaBirkins” as a title to an artistic work as opposed to a source-identifying trademark. Therefore, it constituted free expression protected under the First Amendment pursuant to the Second Circuit’s seminal case Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989). Rogers held that use of a trademark in connection with a work of art does not constitute infringement if the mark is “minimally artistically relevant” to the product and use of the mark does not “explicitly mislead” regarding content, authorship, sponsorship, or endorsement. 875 F.2d at 1005.

Key to Rothschild’s argument was the fact that although he sold each image with a unique NFT identifier, the NFTs were separate from the underlying work and labeled numerically as opposed to using the name “MetaBirkins.” So although it was the NFTs themselves that garnered prices comparable to real-life luxury handbags, Hermès’ infringement claim necessarily had to center around unauthorized use of the mark for the underlying artwork. To Hermès, the artwork and NFT “commodity” were intertwined, given Rothschild’s use of “MetaBirkins” to sell other products and operation of digital storefronts and marketing campaigns using the name.

Judge Rakoff denied Rothschild’s motion based on the fact that Hermès had adequately alleged that the “MetaBirkin” label was explicitly misleading under the Ninth Circuit’s likelihood of confusion factors, and therefore could potentially survive a Rogers challenge. He declined to weigh in on the second Rogers factor, however: whether “MetaBirkin” qualified as artistically relevant. Hermes’ allegation that Rothschild “entirely intended to associate the ‘MetaBirkins’ mark with the popularity and goodwill of Hermès’ Birkin mark, rather than intending an artistic association” was sufficient to defeat a motion to dismiss.

Judge Rakoff did observe that use of NFTs in connection with the underlying work should not automatically strip the work of artistic significance. He agreed with Rothschild that the fact that the NFT’s status as a marketplace commodity in and of itself should not necessarily be wrapped up in the value of the artwork it authenticates: “because NFTs are simply code pointing to where a digital image is located and authenticating the image, using NFTs to authenticate an image and allow for traceable subsequent resale and transfer does not make the image a commodity without First Amendment protection any more than selling numbered copies of physical paintings for the purposes of Rogers.”

Other courts, and perhaps even the USPTO and Copyright Office, will likely look to Judge Rakoff’s initial guidance as a foundation for this newly evolving area of intellectual property law moving forward. In the meantime, the lines are still blurry between creative freedom, artistic value, fair use, ownership, marketplace competition, and commercialism in the digital age—at least with respect to NFTs.