IMGL Magazine April 2022

NFTs and virtual digital assets

Making way for Virtual Digital Assets: Perspectives under Indian Laws A s it has around the world, the cryptocurrency and NFT (Non-Fungible Token) fever has gripped India and the excitement surrounding these virtual digital Indian lawyers Ranjana Adhikari, Nirali Sanghavi and Arjun Khanna examine how virtual digital assets may be incorporated into new game developments

Indian gaming firm JetSynhhesis has announced its plans to integrate NFTs into their game titles beyond in-game skins and avatars. Esports event organizer NODWIN Gaming has tied up with a sports NFT marketplace to issue NFTs capturing important moments of a chess league conducted by the event organizer. As the first VDA-integrated gaming models are being readied for introduction onto the market, we take a look at some of the key legal issues developers must consider under the current Indian legal landscape. Intellectual Property Rights The assets underlying NFTs derive their value from the intellectual property rights therein. The Copyright Act, 1957 (“Copyright Act”) recognizes the existence of an author or owner’s copyright in literary, musical, dramatic, cinematographic films, sound recordings or artistic works. It grants the author or owner of the copyrighted works the right to reproduce, issue copies, adapt, perform, sell, give on commercial rent or otherwise exploit the works for whatever purpose, including making monetary gains. In the event the author or owner chooses to license the works to a third party, the licensee enjoys the aforesaid rights in the works to the extent granted under the license. From a game perspective, underlying assets issued as NFTs such as videos, characters or other in-game offerings may be considered works in which the author/owner’s copyright subsists. In cases where the developers are the authors of the underlying assets, they are the first owners of the assets as per the provisions of the Copyright Act 2 . When a developer incorporates copyrighted assets (“Works”) in the game to be purchased as NFTs, it involves

assets in the gaming market is palpable. Game developers are extensively researching ways to integrate virtual digital assets (“VDA”) into their gaming ecosystem. Online gaming is a sunrise sector in India. The pandemic induced lockdown coupled with cheap access to high-speed data has seen the Indian gaming market explode with the active user base currently at around 450 million. According to a 2021 report, online gaming in India is growing at a Compound Annual Growth Rate (CAGR) of 40 percent with a current market size of US$ 2 billion. This growth is expected to triple to over US$ 7 billion by 2026. There is also an increased propensity among gamers, an army some 90 million strong, to pay or interact with In App Purchases (“IAPs”) within the game. Presently, real-money gaming (“RMG”) dominates the user pay, with IAPs accounting for a healthy 27 percent of the net expenditure. This is forecast to increase and surpass the current spend for RMG games 1 . In parallel with the rise of online gaming, India has experienced a sharp increase in consumer appetite for NFTs. Cryptocurrency exchange WazirX launched a dedicated NFT marketplace for Indian creators which has sold more than 15,000 NFTs for combined sales volume of over than US$ 400,000. While the initial focus of NFTs has been on digital art and collectibles, local gaming businesses are rapidly exploring opportunities in gaming, especially the “play-to- earn” model which offers users the chance to win in-game items as NFTs and cryptocurrencies in return for time spent on the game. Emerging local blockchain businesses have raised over US$ 500 million in investments from the likes of Tiger Global, Kalaari Capital, Sequoia among others.

1 2021#:~:text=The%20Indian%20gaming%20market%20is,%2C%20core%2C%20and%20 casual%20genres 2 Section 17 of the Copyright Act, 1957 stipulates that the author of a work shall be the first owner of the copyright therein provided, inter alia, that the work has not been created under a contract of service in which case the employer hiring the artist to create the work will be the first owner of the copyright in the said work.

IMGL Magazine • April 2022 • 51

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