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The Legal Implications of AI-Generated Content in Copyright Law

The Legal Implications of AI-Generated Content in Copyright Law

The influence of Artificial Intelligence (AI) is expanding in diverse domains, as seen in natural language processing tools like GPT-3, image recognition software such as Google Lens, and product recommendation engines, including Amazon’s product suggestion system. AI is gaining traction in the art world, exemplified by the sale of “Edmond de Belamy,” a portrait generated by AI, for an unprecedented $432,500 in an auction. Nonetheless, the increasing involvement of AI in creative pursuits raises copyright concerns.

When it comes to training AI models, the use of copyrighted materials is considered to be in a legal grey area. As it stands now, copyright laws do not safeguard any creation that is wholly generated by AI, regardless of whether it stemmed from a human-crafted text prompt. While fair use laws permit the use of copyrighted material under certain conditions without the owner’s permission, the ongoing legal disputes could disrupt this status quo and bring uncertainty in the future of AI model training.

Undoubtedly, the advent of generative AI has revolutionized our lifestyle, labor practices, and artistry output within a mere few months. In turn, the inundation of AI-fabricated written works, pictures, and tunes, alongside the mechanisms through which they were created, has stimulated a plethora of intricate legal inquiries. These challenge our understanding of ownership, fairness, and the core foundation of innovation.

Can AI-generated art Be Copyrighted?

The issue of whether AI-generated art can be protected under copyright laws has been a contentious topic, with various opinions and viewpoints. The U.S. Copyright Office has taken the position that creations made by non-human entities, including machines, are not eligible for copyright protection. Consequently, the product of a generative AI model cannot be considered copyrightable.

The fundamental challenge lies in the way generative AI systems operate. These models learn by identifying and replicating patterns found in data. Thus, the AI system must first learn from human creations to produce output such as written text or images. For example, if an AI-generated image resembles the art of Japanese artist Yokoyama Taikan, it would have been trained using actual pieces of art created by the human artist. Similarly, to generate written content in the style of J. K. Rowling, the AI system would need to be trained with words written by J. K. Rowling.

However, according to current U.S. copyright law, these AI systems – which encompass image and music generators, as well as chatbots like ChatGPT – cannot be regarded as the creators of the content they produce. Instead, their outputs result from a culmination of human-generated work, much of which is copyrighted in some form and sourced from the internet. This does not mean that AI-generated works are necessary in the public domain. Another example if a company uses AI to generate content, that company may still have proprietary rights to that content, such as a trade secret or patent.

This raises a perplexing question: how can the rapidly evolving artificial intelligence industry be harmonized with the intricate details of U.S. copyright law? This is a question that creative professionals, companies, courts, and the U.S. government are all grappling with as they navigate the complexities and nuances of AI-generated content and intellectual property laws.

Will Copyright Issues Get Tougher When Humans and AI Do The Work Together?

The issue of copyright protection for creative works resulting from collaboration between humans and machines is complex. According to the Copyright Office, if a human arranges or selects AI-generated material creatively or modifies it in a sufficiently creative way, copyright protection will only apply to the human-authored components of the work, not the AI-generated material itself. The issue of copyright protection for works created jointly by humans and machines is less clear, and registration applications must name all joint authors.

The use of generative AI for creating artistic works can also lead to copyright infringement concerns if the output shows similarities to pre-existing works on the internet. These models are often trained on existing works found online, which may lead to similarities to previous works. While there are cases where a human creatively selects or arranges AI-generated material or modifies it, resulting in copyright protection for only the human-authored aspects of the work, the situation becomes murky regarding works jointly created by humans and machines. It’s a requirement to name all joint authors, including potentially the AI, in applications for registration. It may be challenging to ascertain whether generative AI output is a derivative work or infringes upon the rights of previous authors.

Lawsuits

Getty Images has taken legal action against Stability AI, accusing the company of unlawfully copying over 12 million photos from Getty Images’ collection and utilizing them in generative AI systems without proper permission or licensing. Stability AI is not alone in facing lawsuits related to generative AI. With the launch of generative AI by numerous companies such as Microsoft, OpenAI, and GitHub, creative industries are beginning to file lawsuits over the co-opting or use of copyrighted work by AI. In addition to Getty’s case, a group of artists has also sued Stability AI, Midjourney, and DeviantArt for alleged mass copyright infringement via the use of their work in generative AI systems. These lawsuits are bringing to light the legal implications of using generative AI, which is becoming an increasingly common practice.

Legal action of collective nature was instituted against GitHub, Microsoft, and OpenAI. The motion claimed that the AI-powered coding aide GitHub Copilot infringed copyright laws by generating code derived from code licensed under open source, which is publicly accessible. Copilot provides programmers with suggestions for novel code based on their existing code in real-time. As per the legal action, Copilot’s code-generating software was trained on code that was subject to copyright, without obtaining the necessary authorization. Furthermore, the program creates new code that is akin or identical to the original work. This is the premier lawsuit to be brought involving generative AI. The case aims to attain class-action status, and if it prevails, it could potentially affect the whole AI industry and how it utilizes publicly available code for training models.

Microsoft, GitHub, and OpenAI have submitted a motion to dismiss the legal action. They argue that Copilot produces unique code and that the code generated is not merely identical copies of the data used for training.

These are some lawsuits that were filed lately involving generative AI. The resolution of the legal action and its influence on the AI industry remains unknown.

Ending Remarks

Copyright law is a fundamental aspect of protecting intellectual property and encouraging creativity. It gives creators the right to control their work’s use, distribution, and adaptation and encourages them to create more by offering them exclusive rights. Creative Commons licenses provide even more options for creators to choose the level of protection they want for their work.

As AI technology advances, it becomes increasingly involved in the creative process. With AI’s ability to generate original content and collaborate with humans, there is a growing need for a legal framework that addresses the copyright protection of collaborative works involving AI. It is crucial to strike a delicate balance between safeguarding the rights of creators and nurturing innovation and originality. It is difficult to predict the exact trajectory of copyright law as it pertains to AI-generated works. Still, it is undeniable that as AI technology becomes increasingly integrated into the creative process, the legal framework governing copyright protection will undergo significant and ongoing transformation.

 

Source: https://thedatascientist.com/the-legal-implications-of-ai-generated-content-in-copyright-law/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

The 1940s legal test that could pave the way for crypto regulation

The 1940s legal test that could pave the way for crypto regulation

Binance USD (BUSD) is a stablecoin issued by New York-based Paxos Trust Company and is backed 1:1 by the US dollar. However, recent regulatory scrutiny by the US Securities and Exchange Commission (SEC) has raised questions about whether BUSD should be considered a security.

There are arguments for and against this, which I’ll dive into in this article. Most interestingly, the Howey Test and legislation from the 1940s could have a key role to play in this most modern of financial disputes.

Security or not security

To begin, it is important to understand what a security is. According to the SEC, a security is any investment contract, note, stock, or instrument that represents an ownership interest in a company, partnership, or investment pool, or that is offered as a means of raising capital.

In the case of BUSD, the SEC issued a notice to Paxos stating that the stablecoin should have been registered as a security.

The regulator argued that BUSD meets the definition of a security because it is offered as a means of raising capital, has the potential for profit or loss, and derives its value from the success of a third party, namely Binance.

However, Paxos has disputed this classification. The company has even threatened litigation.

There are several arguments for why BUSD is not a security. First, BUSD is a stablecoin, which means that its value is pegged to the US dollar.

This pegging makes it less likely to experience the volatility associated with other cryptocurrencies. As a result, BUSD may not meet the definition of an investment contract because it does not have the potential for significant price fluctuations.

Second, BUSD is not an investment in a company or partnership, but it’s a digital asset that represents a claim on a reserve of US dollars held by Paxos. This means that BUSD does not represent an ownership interest in any entity and is not used to raise capital.

Third, BUSD is used primarily as a means of payment and is not marketed as an investment. Unlike securities, which are marketed to investors expecting a profit, BUSD is promoted as a stablecoin used for transactions.

On the other side of the coin (pun intended), there are arguments for security classification.

To start, BUSD is backed by Paxos, which is a regulated financial institution. This means that investors may view the stablecoin as a safe investment, similar to a money market fund or certificate of deposit.

Next, the fact that BUSD derives its value from the success of Binance may be enough to classify it as a security. Investors may be purchasing the asset with the expectation of profit.

Lastly, the fact that BUSD is used primarily as a means of payment does not necessarily stop it from being a security. The SEC has previously classified cryptocurrencies like Bitcoin and Ethereum as commodities, despite their use as a means of payment.

The Howey Test for cryptocurrencies

The Howey Test is a legal standard used to determine whether a financial instrument is a security. There is debate over whether the almost 100-year-old test can be applied to digital assets, so some experts have proposed a modern-day version tailored to cryptocurrencies.

This version would include looking at several factors.

The first – as with the original test – is whether there is an investment of money. However, if a digital asset issuer has not sold any assets to build its project, it is unlikely to be considered a security.

The second factor is whether there is an expectation of profits from the investment. If a digital asset is utility-based and is used for purposes other than investment, such as voting, it is unlikely to be considered a security.

The third factor is whether the investment of money is in a common enterprise. If the project is decentralized and not controlled and operated by a centralized entity, it is unlikely to be considered a security.

The fourth is whether any profit comes from the efforts of a promoter or third party. If the profit primarily comes from the community, which has nothing to do with the issuance of the digital asset, it is unlikely to be considered a security.

Improving the Howey Test

One approach to adapting the Howey Test to fit cryptocurrencies better is to examine the underlying tech of the digital asset being scrutinized. This would involve evaluating whether the cryptocurrency is sufficiently decentralized and functional to qualify as a utility token rather than a security.

If a token is used mainly to access a blockchain network or platform, and its value is tied to its use rather than speculation, it may not fit as a security.

The SEC has also brought cases against companies that issue cryptocurrencies but do not meet the requirements of the Howey Test. This suggests to me that the SEC is trying to apply the standard to cryptocurrencies even though it may not be completely apt.

While there are some potential ways to improve the test’s application, the ongoing debate highlights the need for greater clarity and guidance from regulators regarding the treatment of cryptocurrencies.

Seeking clarity

While the Howey Test can serve as a starting point for regulation, it is essential to adapt and refine the rules to better reflect the realities of the cryptocurrency market.

A more nuanced and flexible approach is required to ensure innovation while protecting investors from fraud, and more fleshed out regulatory guidance can establish clarity in the market. To do this, authorities should work collaboratively with industry players.

To end where we started, it’s important to note that BUSD should not be classified as a security. Its main purpose is to serve as a payment method rather than an investment tool, and it’s not structured to produce returns for investors in the same manner as conventional securities.

BUSD’s value – with its link to the US dollar’s value – is meant to remain steady instead of being influenced by the speculative pressures that frequently hit other cryptocurrencies. So, let’s keep it this way.

 

Source: https://www.techinasia.com/1940s-legal-test-crypto-regulation

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Navigating the uncharted legal territory of NFT: What to avoid?

Navigating the uncharted legal territory of NFT: What to avoid?

According to the NFT aggregator platform- CryptoSlam, the market for Non-Fungible Tokens (NFTs) plummeted from its peak of $17 billion in early 2022 to $460 million in October 2022, a staggering decline of 97.3%. While the decrease in NFT transaction volume may be partially attributed to dropping cryptocurrency prices, NFT developers continue to create NFT. In fact, creators are confident that the NFT industry will recover. We see new projects popping up every day on Twitter. We see different projects challenging the Number 1 spot on sales volume. At the point of publishing, Art Globblers are topping the charts. I see centralized marketplaces like Bybit are still selling out their Mystery Boxes. Everyone is building harder than before.

Taking the sentiments from the ground and as per the requests from various communities asking about NFT regulations, I have decided to share some insights on legal implications and the regulatory side of things so that you will be aware and up to speed on the state of the NFT sector.

Around 105 nations have legalized NFTs either expressly or as part of a larger recognition of cryptocurrencies and virtual currencies. However, as the aforementioned list illustrates, legislation regarding NFTs is frequently general and not designed mainly for NFTs.

The U.S., Canada, Australia, and most of the European Union are notable examples of markets that are integrated and moderately regulated. In each of these jurisdictions, the predominant legal strategy is to view NFTs as either a type of capital gains taxable asset or a component of an individual’s income tax portfolio. However, there are still a lot of nations where NFTs and cryptocurrencies are either implicitly or expressly banned. This is largely because those governments view NFTs and other digital assets as threats to the current financial system and sources of illicit and/or terrorist financing. China, Vietnam, Algeria, Egypt, Qatar and Nepal are notable instances.

I will go through a few markets.

U.S.A

Although there are no particular NFT legislation in the US, similar to the UK, some NFT crypto-asset kinds may be covered by already-existing federal statutes. For instance, the Securities and Exchange Commission (SEC) may treat specific types of NFT as securities under US securities law.

India

Since there is no official legal framework for NFTs and no classification of NFTs under the SCRA, it is unclear if dealing in NFTs is forbidden under the Securities Contract Regulation Act, 1956 (“SCRA”). If NFTs are deemed to constitute derivatives, trading in them would be prohibited in India.

Singapore

Singapore’s central bank has recently announced that it will not regulate the NFT market. Recently, under Singapore law, it will be subject to MAS’ regulatory requirements if an NFT has the characteristics of a capital markets product under the Securities and Futures Act (SFA). Similarly, should an NFT have the features of a digital payment token under the Payment Services Act (PSA).

U.K.

NFTs are not subject to any special NFT rules in the U.K., but they are recognized as a kind of crypto asset. To be more precise, it can be classified as a security token, an e-money token, or an unregulated token. However, most NFTs are not regulated since they do not meet the first two prerequisites. Even if it does, it can still result in broad regulations, such as an anti-laundering rule for art sales over €10,000 and capital gains tax if purchased or sold at a profit. Strict laws require consumers to be adequately informed and warned about the risk of loss or price volatility if public advertisements promote NFTs.

China

NFTs can currently be purchased or sold by individuals in Mainland China. NFTs are not presently subject to any specific laws or regulations. The National Internet Finance Association of China, the Securities Association of China, and the China Banking Association jointly released an initiative regarding the prevention of financial risks associated with NFTs. Because the three associations are under the supervision of the central bank, the banking regulatory authority, and the security regulatory authority, respectively, and because the Initiative is not a regulation under PRC law, it reflects the attitudes and policy orientation of regulators in Mainland China. For some time, the word “NFT” was also deemed a sensitive word and temporarily blocked by some official media sites.

Japan

While there are presently no particular regulations in Japan that govern NFTs, the government said in January 2022 that it was creating an NFT task force, which suggests that regulation is soon to come. Currently, an NFT may meet the definition of a security under the Financial Instruments and Exchange Act if its holder receives cash or other assets that represent a sharing of profits. It should be carefully considered whether NFTs violate gambling laws, which are especially important for NFTs employed in games.

Now that you have read briefly how the regulators around the world look at NFTs in general. If you are an entrepreneur, your DNA could be telling you to be a creator or start an NFT Marketplace. So what are some legal considerations if you want to create a business like an NFT marketplace? What do you need to do?

  • Creation of a legal entity: A corporate body must first be established before a marketplace can be introduced. Your company will benefit from the most robust liability protection, increased capability, and credibility while looking for outside financing.
  • Formation of smart contracts: The digital work must be individually recognizable and have transferrable ownership within the smart contract. The economics of trading should be included in the creation process, including how much to charge for a primary sale, how much to charge for a secondary sale, royalties, transaction costs, and other characteristics of the aftermarket to facilitate trade with money naturally flowing to the right parties.
  • Terms of service: It regulates the interactions between users and the NFT marketplace operator, as well as between buyers and sellers of the NFTs displayed on the platform, which is a necessary component of NFT marketplaces. A carefully drafted term of service agreement will typically include clauses that limit the company’s overall responsibility and can aid in defending your firm from several legal problems.
  • Terms of sale: If the platform’s terms of service do not adequately address risks to the seller or creator, sellers or creators listing their NFTs on an NFT marketplace may choose to impose additional terms of sale on buyers of their NFT.
  • Securities law compliance: It’s critical to develop features that show the difference between your newly minted token and what governments seek to regulate to ensure it doesn’t have the characteristics of a security.
  • Intellectual property: It is crucial to confirm the validity of each participant’s intellectual property rights at every stage of every NFT transaction. Copyright ownership, which belongs to the original work’s creator, governs the original work. Make careful to divide up intellectual property ownership among the authors, artists, buyers, collectors, and other parties.
  • Consumer protection: Most jurisdictions have consumer protection laws. Consider a scenario where an NFT marketplace fails to appropriately notify its clients about the products they are buying and the hazards involved. Cybercriminals will probably attack NFTs in order to profit financially. To protect against these attacks, your platforms will need reliable controls. Other regulatory standards, including KYC and anti-money laundering, might also need to be implemented.

The fast-changing NFT space, where digital assets prevail, was not considered when developing the current regulatory and legal framework. However, some crucial challenges have surfaced as investors, financial institutions, and fintech firms investigate this market. Is there a gateway to your platform that guards against money launderers and other undesirable parties subject to government sanctions?

NFTs are indeed not treated as cryptocurrencies right now. Regulators are trying to clamp down on grey NFT projects and have warned the general public about buying NFT. So far, I have been talking about how governments look at us and what entrepreneurs need to understand when they start their NFT business as a marketplace. I have come out with a few quick reminders for consumers when buying NFT.

3 Quick Reminders on NFT Buying

  • Do not buy NFTs that include securities, insurance or other financial assets as the underlying value of NFTs. An NFT may become a regulated financial product if it grants its owner the right to income streams or a stake in an underlying portfolio of investment assets. There are many grey examples to be named.
  • Do check on the copyright behind the NFTs. Some of the creators are plagiarizing artists’ original work. Playboy Enterprises filed a lawsuit against the owners of a website that was constructed to seem like the one Playboy used to market their “Rabbitar” NFTs. Playboy claims that the scam was successful because more than a thousand customers fell for it and collectively paid more than a million dollars for Rabbitars they never received.
  • Do remember that trading NFTs for profit is subjected to capital gain tax. It is good to consider all tax implications before making the trade. Take India, for example. All virtual digital assets, including NFTs, are subject to the government’s 30% tax levied.

NFT is a beautiful term and has excellent potential. As crypto community members, we should try our best to keep it clean and proper. Hiding financial products or securities behind an NFT is not an excellent way to support innovation. It will give the regulators a chance to kill the innovation. You need to understand regulations to grow in the right manner. #anndylian

 

Source: https://www.securities.io/navigating-the-legal-territory-of-nft-what-to-look-out-for/

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j