Depth | Legality Analysis of China's Law on Introducing Royalty/Right of Recourse in NFT Data Collection

Published on 9/26/2022   194 views   0 Comments  

Last month, X2 * *, a leading exchange, said on the social platform that it would launch the "royalty selection" function. In other words, the platform tried to give buyers the right to choose whether to pay NFT royalties. X2 * * The original assumption is that when users purchase NFT data collections through this platform, they can click "OPTIONAL ROYALTY" to choose how much royalties to pay. If the normal royalty setting of an NFT is 2%, the buyer can choose to pay 2.% (100%), 1% (50%), and 0% (0%) of the royalties.

This move has directly touched the cake of many NFT project parties and art creators.Just ask, as an economic rational person who has not yet achieved wealth freedom, is it silly not to choose 0 royalties? Therefore, the issue of canceling the royalties has been making a lot of noise on the Internet. Many NFT project parties and digital artists have attacked it. They believe that it is not feasible to implement the "zero royalty" system at this stage. Not only can it not achieve the goal of pulling the NFT data collection out of the bear market, but it has directly destroyed the jobs of many hardworking writers, making the days when everyone is not rich even worse. With the public opinion fermenting, X2 * * platform had to declare two days later:β€œ0 Royalty is never the future of NFT。” Then, the platform successively introduced a series of zero royalty "flat replacement" policies, trying to boost the liquidity of NFT market in the bear market.

So, what is the NFT royalty?Is the creation of this royalty system in line with legal norms?The most important thing is, does it have legal risks to directly transplant overseas royalty playing methods in the field of digital Tibet in China? Today, Sister Sa's team will answer for you one by one.


1、 Royalty is not a royalty, but a right of succession


Royalties in China refer to royalties. It is generally believed that,Royalty is the monetary benefit that the originator or copyright holder of intellectual property collects from other people who use their intellectual property, which is essentially a way of payment(Some scholars also regard royalties as part of their remuneration.).

Royalties in the context of NFT data collection are not simply "paying for knowledge" in the traditional senseNFT royalty refers to that after a certain NFT is sold once, the NFT project party or creator can obtain a fixed proportion of income from the value-added part of NFT every time it is transferred.For example, Sister Sa created an NFT and wrote a 10% royalty setting into a smart contract on a platform, and then the NFT was bought by Xiao Yang at a price of 100 yuan. One month later, Sister Sa's fame soared, and Xiao Yang took the opportunity to sell the previous NFT at a price of 10000 yuan, making a profit of 9900 yuan. At this time, the NFT contract will automatically implement the royalty setting, transferring 10%/990 of the 9900 yuan earned by Xiao Yang into Sajie's wallet. Since then, if the NFT continues to appreciate and circulate, Sister Sa can get a fixed 10% income from the value added of each transfer.

In fact, the royalty playing method in the overseas NFT market is not the first in the crypto world. It is even said that the system design that continuously gives artists benefits through art transfer already exists, and there is a special term in the legal communityβ€”β€”right of renewal。 The right of succession was first established by France in 1920,It is expressed as "droit de suite" in French, originally meaning "the right to follow the works"。 It is expressed as "resale right" in English. Driven by the developed countries in Europe, the right of succession was written into the Berne Convention, the most widely accepted international convention for the protection of intellectual property rights in the world, at the 1940 Brussels Conference. It is worth mentioning that China is a party to the Convention and is bound by it. According to the definition of the right of succession in the Berne Convention, the right of succession refers to "the right to share interests in any sale of the work after the first transfer of the work by the author". In other words,In addition to the first sale, the author can share a certain proportion of the benefits from each resale of the work, and this resale does not distinguish the transaction mode, regardless of whether the work appreciates in resale.

We must know that in the Berne ConventionThe right of succession is only an optional right, not an obligation of international law required by the Convention to be fulfilled by the contracting parties. It is neither universal nor a rule of international jus cogens。 At the same time, the Berne Convention clearly states that the right of succession is anon-negotiable、Inalienable, butCan inherit(After the death of the author, the rights are enjoyed by the person or institution authorized by the national law, and the specific implementation depends on the national law of the specific country).

The reason for setting the right of succession system is actually to solve a huge pain point that artists have faced since ancient times:Artistic works are often promoted to the sky after the death of a writer. Artists themselves, their families and future generations often cannot gain any benefit from the appreciation of artistic works。

This leads to a phenomenon that is obviously unfair in traditional moral conceptsβ€”β€”People who create value can't get benefits。 To take one of the most realistic examples, Jean Francois Miller, a famous painter of the Barbizon School in France, as the most famous legendary painter in modern times, painted many famous paintings, including Evening Prayer, the Picker and the Sower. It is sad that Miller himself was down and out during his life, and even needed to farm to make a living when he was most poor. His paintings were almost ignored during his life, but they were sold at a high price after his death, especially after the work Evening Prayer changed hands several times. When Miller's priceless paintings were highly sought after in the magnificent auction house, his widow could only make a living by selling popcorn on the roadside in Paris against the cold wind every day.

so to speak,The original intention of the right of succession system is to solve the basic livelihood of artistsHowever, in the era when blockchain technology and NFT have not yet emerged, there are many disputes over whether to introduce the right of succession system and how to ensure the realization of the right of succession in practice,Even today, the right of succession has not been legally recognized by most sovereign countries。

Note: The painting is the famous painting Evening Prayer by Jean Francois Miller


2、 Can China's digital collection industry be established


The right of succession system?

It is believed that practitioners in the digital collection industry will have a question when they read this: can NFT digital collection royalties (right of continuation) be played in China? What are the advantages and disadvantages of establishing royalty (right of succession)? Is there any legal risk?

Sister Sa's team first gave an answer: Although China's Copyright Law did not introduce the right of succession system,However, the Civil Code does not exclude the parties to the transaction from agreeing on the right of recourse in the contract, in other words,Our country's law allows the parties to the transaction to clearly agree on the right of recourse clause in the contract on the premise of expressing their true intentions.

(1οΌ‰ The legal basis of the agreement on the right of recourse

At present, the right of recourse is not set in the legal system of intellectual property in China, but this does not mean that the civil subject cannot agree on the terms of the right of recourse when signing the contract. Article 130 of the Civil Code stipulates that:β€œCivil subjects shall exercise their civil rights according to their own wishes, without interference。” This isthe rule of autonomy of the willIn the Civil Code of China, it is the most intuitive embodiment. According to the principle of will autonomy, the right of succession has a legal space in civil legal acts.

It is generally believed in the legal circle that,The rights and freedoms enjoyed by individuals according to law shall not be usurped (reserved by law) unless there are legal reasons, and their rights can only be exercised according to the free will of individuals。 The punishment and exercise of individual civil rights is the scope of autonomy of the obligee. The Civil Code gives the obligee the greatest possibility and freedomCreate rights and obligations norms binding different subjects within the boundaries allowed by law。 Such freedom is widely reflected in the exercise of civil rights. For example, in principle, the contract law allows the parties to decide whether to enter into a contract, with whom to enter into a contract, in what form to enter into a contract and determine the content of the contract.

Back to the legality of the right of succession, that is,As long as the contract complies with Article 143 of the Civil Code, that is to say, (1) the actor has the corresponding civil capacity; (2) The expression of intention is true; (3) If it does not violate the mandatory provisions of laws and administrative regulations, and does not violate public order and good customs, it should be recognized and protected by law.Sa Jie's team believes that setting the right of succession in the smart contract of digital collections does not violate the mandatory provisions of China's laws and administrative regulations, nor does it violate public order and good customs.

Of course, the project party and the creator agreed in the smart contractThe share proportion of the right of continuation must be in line with common sense and general trading habits(Refer to the royalty setting of overseas mainstream NFT trading platforms, which is generally between 2% and 10%). If the royalty setting is too high, it may not only hinder the liquidity of NFT data collection, but may even be recognized as an unfair clause signed by one party by taking advantage of the other party's predicament and lack of judgment ability. The injured party has the right to request the people's court or arbitration institution to revoke it. In addition, money laundering may also be suspected if abnormal transactions are frequently conducted after the excessively high edition tax is set.

(2οΌ‰ The Ability and Impossibility of Establishing the Right of Succession in Chinese Law

in fact,The system of right of continuation appeared in Article 14 of the Copyright Law of the People's Republic of China (revised draft for review) published by the Legislative Affairs Office of the State Council in 2014The specific expression is: "After the first transfer of the original copy of an art or photographic work or the manuscript of a written or musical work, the author or his successor or legatee has the right to share the proceeds from the original copy or the manuscript that the owner of the original copy or manuscript resells by auction. This right belongs exclusively to the author or his successor or legatee. The measures for its protection shall be separately formulated by the State Council."

butFinally, this article was not reflected in the revised Copyright Law。 The root causes are as follows:

(1) The right of recourse clause only stipulates that the creators of works transferred through "auction" can enjoy the legal right of recourse,Unilateral increase in auction costs has caused collective opposition in the auction industryοΌ›

(2) Zhou Lin pointed out that from the perspective of the current situation of the art market in China, most of the artists who can actually enjoy the benefits of the right of succession are not those poor and unsustainable artists, but "art tycoons" who do not need relief. The number of artists benefiting from the project is very small and the artists actually receive very little royalty.This is contrary to the original intention of legislation on the right of succession to help the needy and encourage creationοΌ›

(3) The implementation of the right of recourse may lead to considerable social costs, such as the operating costs of the specialized enforcement agencies for the implementation of the right of recourse, and the negative impact on China's art market.

(4) Survival rightSuspected violation of the principle of "exhaustion of rights"(Even today, there is still fierce academic debate on this reason. Some scholars, from the perspective of the duality of the property and person of the right of succession, believe that it does not violate the provisions of the principle of exhaustion of rights.).

In the process of introducing the right of succession into the law, Teacher Fei Anling clearly pointed out that the legitimacy of the right of succession is in essence a question of inquiry,Whether the author is entitled to share the added value of his work through a certain market mechanism.This is actually a manifestation of the limitation of legal intervention in the market. So, does China's art market need legislative intervention at present? This is an important issue worthy of communication between practitioners and legislators of digital collections in China. However, Sajie's team believes that the right of succession should be introduced into the current digital collectionThe biggest significance is that it directly increases the cost of hyping and cleaning transactions, so as to achieve the goal of compliance transformation of digital collections。 Although this transformation is bound to be accompanied by pain, it is the only way for the development of industry compliance.

In the final analysis, we must make it clear that academic disputes and legislative gaps do not constitute obstacles to the agreed right of recourse between the parties to the transaction. In judicial practice, the most important criteria affecting the validity of the contract are: (1)True declaration of meaningοΌ› (2οΌ‰It does not violate legal provisions and general public order and good customs.


Write at the end


Sajie's team deeply felt the impact of current technology on traditional legal norms when studying the copyright of NFT digital collections and the right to follow up in traditional legislation. We often believe that the development of emerging technologies will lead to the "invalidity" of traditional legal norms in the process of adjusting new social relations, but the system of right of succession is completely different. so to speak,The birth of blockchain technology and ERC-721 technical standard of NFT has given a new life to an ancient legal normThis makes the right of succession system, which was born in the field of traditional artworks a hundred years ago, realistic and operable in the current society. The traditional obstacles to the right of succession, such as the precise positioning of the original right subject, the real-time tracking of sales data, the calculation of the quota, and the real-time cash of interests, are being broken one by one.

Sajie's team always believed that the relationship between emerging technologies and traditional legal norms should not be one-way output of one party and passive acceptance of the other. From the collision between NFT royalties and the right of succession, we seem to see a possibility of dialogue between the twoβ€”β€”Realize the system with technology and integrate technology in the system。


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