NFTs have taken the world by storm. Creators are motivated to mint billions from digital art; users excited for collectibles and exclusive memberships; investors ambitious about valuations; and governments concerned about its legal and policy ramifications.
India joined the hype with Bollywood celebrities, fashion designers and sportspersons releasing their own NFTs; a growing user base flipping them on platforms like OpenSea and WazirX; foreign investors accelerating investments. And as far as the Government is concerned, well, it is still playing catch-up.
NFTs & the Indian Industry
India’s NFT craze is catching up with the burgeoning Indian gaming industry too – soon to be a $7bn gaming market in and of itself. Millions of Indians are playing casual games and participating on platforms like Axie Infinity, Sorare and CryptoKitties in increasing numbers.
While Indian users are using global NFT gaming platforms, there is still a demand-supply gap for indigenous games and NFT use cases. But promisingly, domestic companies are bridging this gap. Companies like JetSynthesys are merging the worlds of music and gaming, esports majors like Nodwin Gaming are releasing game and sports-based NFTs, whereas upcoming companies like Fantico and Avisa Ventures are exploring the ‘play-to-earn’ potential of the space. Investors like Sequoia, Antler, and BeeNext have also bet high on a bunch of upcoming Indian start-ups focusing on NFTs.
Legal considerations
In our past articles, we have written extensively about the immense potential of this industry; especially the presence of over 600 million smartphone users, the availability of cheap high-speed internet and 65% of the population below the age of 35. This means the market is a highly lucrative one to tap into. We assess briefly below the key issues affecting the legal viability of NFTs in the Indian market.
Ownership & copyright
As NFTs represent an underlying digital asset, issues around copyright ownership are important. Under the Indian Copyright Act 1957, the right to create an NFT typicallylies with the owner/assignee of the copyright, who has the right to reproduce and exploit it on the digital platform. Whether the owner/assignee of such copyright is the author/creator/employer/assignor/producer (in case of games stemming from film content) etc. is a question of interpretation, and is dependent on the chain of title documents entered among various stakeholders like publishers, creators, producers etc.
Further, to cement the transfer of ownership in the copyrighted NFT to the buyer, smart contracts are used to execute the NFT sale. Gaming companies innovate constantly and, with the evolving models, it will be important to assess the scope of the rights sought to be transferred with the NFT. For instance, one may need to evaluate whether there is any limited assignment of any part of the copyright itself. For a copyright assignment to be valid, it needs to be in writing and carry a signature of the assignor.
Use of cryptocurrencies
Indian regulators have historically taken a cautionary approach to digital assets, starting with the RBI (India’s apex bank) effectively banning cryptocurrencies in 2018 (which was later struck down by the Supreme Court of India). But times are slowly changing. The recently released Finance Bill 2022, for the first time, acknowledged ‘virtual digital assets’ in legislation. While the 30% tax is not that well received by the industry, it shows that legislators are keen on aligning policies to embrace fast-changing technologies. A policy on this may soon be on the anvil.
Effect of gaming laws
Depending on the monetisation model and the overall game for which the NFT is offered, one would also need to evaluate the applicability of the state-wide gaming laws of India. These laws trigger when there is money, or money’s worth put at stake for prizes. Depending on the NFT use case in a game, these laws may apply differently. If the game triggers these laws, then the offering may need to be for a ‘skill game’ format, and may subsequently be blocked further in certain states. Factors like the rules of the game, structure of the platform, location of the company, and monetisation model will be key to assess how susceptible such games are to scrutiny and enforcement action.
Only time will tell whether NFTs are the future or just a fad. But given India’s appetite for tech innovations and user fascination towards Web 3.0 in general, NFTs and the gaming industry may go a long way in the country.
[The authors acknowledge the contribution of Arjun Khanna (Associate) at IndusLaw.]
