Crypto + Copyright = 🤡💩

No, you can’t own a fucking color, you absolute lunatic

The world of crypto is full of scams, grifts, and absolutely foreseeable flops. The underlying ideology of crypto — the much-vaunted “system design” — starts from the principle that systems are most stable when they appeal to each participant’s self-interest, rather than their solidarity, generosity or empathy. This is an extension of the “greed is good” / ”there’s no such thing as society” ideology of the Thatcher-Reagan revolution. It’s an ideology grounded in empirically false propositions about how people actually behave in markets.

In a recent interview, Yanis Varoufakis describes his experience running an economy in God-mode when he was chief economist of Valve, overseeing game economies with “access to the full data set in real time,” lured by the prospect of “playing ‘god; i.e. being able to do with these digital economies things that no economist can do in the ‘real’ world, e.g. alter rules, prices, and quantities to see what happens.”

What did I learn back then? The key insight was that observed behaviour utterly demolished some key neoliberal fantasies: Barter does not give way to sound money, in the form of some digital gold simulacrum. (Nb. We established that various goods/items vie for dominance as numeraires, without ever dominating.) Selflessness is always present (evidenced by substantial doubly anonymous gifting). Social relations emerge (even in these faceless digital worlds) which then ‘infect’ prices and quantities in a manner that bears little connection to the neoliberal view of exchange values formed in a political and moral vacuum.

The insistence that markets work best when you check your ethics at the door doesn’t describe how most people want to behave in markets, but it does provide cover for scammers, who can justify their takings by insisting that they were only acting in their “enlightened self interest.” Caveat emptor, bro.

No, YOU Adjust YOUR Priors

The world is full of complex systems that most of us don’t really understand. When we try to reason about these systems, we fill in our blank spots with guesses informed by our “priors” — the things we assume are likeliest to be true. That is where we get tripped up — where our own ignorance and the predatory grifts of others can put us in real harm’s way.

The priors of cryptoland — that taking everything out of the commons and putting it into private ownership is the best way to maximize welfare — are really, really wrong. The whole “Tragedy of the Commons” thing was revealed to be an academic fraud committed by an ardent fascist, who literally made the whole thing up as part of a project to justify genocide of indigenous people.

Despite the fact that this has been well understood by historians and economists for years (and despite the fact that Elinor Ostrom won a Nobel Prize for her empirical rebuttal of this work of fiction), the idea that the public domain is an inefficient wasteland that requires landlords to improve it shambles on as an unkillable zombie “fact.”

Copywrong

One of the domains that almost no one understands is “intellectual property,” an incoherent jumble of policies ranging from trademark to copyright to publicity rights to nondisclosure rules to broadcast rights to anticircumvention to database rights and beyond.

Laypeople are really bad at understanding how this stuff works, and it gets them into all kinds of trouble, but rarely the kind of trouble that ends up costing them millions of dollars.

For that kind of high-stakes foolishness, you need to combine crypto with copyright.

The Spice Must Bro

There’s a good chance you’ve heard of SpiceDAO, a group of crypto enthusiasts who paid its founder $3,800,000 for a rare Jodorowsky pitchbook detailing an aborted film adaptation of Frank Herbert’s Dune, which the founder had bought for $2,000,000, even though it was only valued at $30,000.

That blatant ripoff wasn’t the end of it, though. The same suckers who got rooked for the $3.8m raised another $2.2m to fund a film adaptation of Dune based on the pitchbook, despite not holding the copyrights nor having any meaningful prospect of securing them from either Jodorowsky or the Herbert estate. (For one thing, the estate had already licensed the rights for a high-budget feature adaptation that was just released a few months ago.)

The SpiceDAO bros gave every appearance of believing that buying a book describing a movie conferred the rights to make that movie. (Later, after widespread ridicule, they walked back that claim.)

What’s significant here isn’t just that they thought that buying a book conferred authorization to make an adaptation of a copyrighted work related to that book, but also that they absolutely failed to consider the possibility that they already had that right.

Fair(y) Use Tale (with apologies to E. Faden)

Copyright doesn’t just set out the exclusive rights that accrue to creators or the people who hire them — it also defines the rights that the public has to those creators’ works, without getting those creators’ permission. These rights are often shorthanded as “fair use,” but fair use is just a corner of the public domain’s territory, which encompasses all the “limitations and exceptions” to copyright.

These are an incredibly complex, nuanced subject that nearly everyone gets wrong. I took a stab at unraveling some of that nuance in a pair of Twitter threads, which I’ll excerpt below.

Note what SpiceDAO was not saying: “Fair use enables us to make fan media, even very expansive and identifiable and commercial fan media.” I have a lot of sympathy for that argument and I think the law is mostly on its side. You have SCOTUS (“Wind Done Gone”) and the most successful novel in world history (50 Shades of Grey) in support of it.

The people dunking on SpiceDAO and saying “it’s 100% always illegal to do anything with a copyrighted work without permission” are just as wrong as the SpiceDAO people. Copyright’s flexibilities are as important as its restrictions, and have been a part of the system all along.

Copyright limitations and exceptions require a factual analysis that makes it virtually impossible to rule out or rule in a specific use without taking account of its context. On the one hand, that’s frustrating for users because you don’t know if you’re going to land on the right side of the law until you argue in front of a judge. On the other hand, that’s empowering because new, unforeseen circumstances and developments can produce new limitations that redound to the public benefit.

The half-educated view of copyright flexibilities goes, “Copyright flexibilities are the same as fair use, and fair use is the same as the ‘four factors’ in the statute. Therefore, any use can be weighed on the four factors and determined without the need for a judge.”

This is obviously wrong, and the most important copyright limitation suits prove it. Take the legalization of the VCR, in 1984’s Universal/Sony Supreme Court case (the “Betamax” case).

The VCR absolutely flunks the four factor test. Sony advertised the Betamax as a way to record Hollywood blockbusters off TV and take them to your neighbor’s place. The studios, meanwhile, had blessed a rival system of single-view tapes that had to be rewound using special, secure rewinding hardware, and, notably, these machines could not record over-the-air or cable transmissions.

Every one of the four factors weighs against the VCR. They are making non-transformative, verbatim copies of the entirety of creative, nonfactual works for a non-educational purpose that directly competes with an authorized product created by the rightsholders.

The courts made up a fifth factor: “capable of sustaining a substantial noninfringing use.” This wasn’t in the statute’s black letter law — rather, it was visible in the statute’s legislative history and the common law that preceded it.

The Supremes looked at the history of copyright and said, “No, the purpose of this law isn’t to create a property right that covers all uses now extant and yet to be invented.”

They understood that every contested media technology failed the four factors: record players, radio broadcasts, cable TV…the photocopier, and the mimeograph, and even the point-and-shoot camera (and especially the Polaroid).

They understood that if Congress had meant to pass a law that says, “Every new technology must be approved by the beneficiaries of the previous technology, or it must not exist,” they would have written that law.

And they understood that the Framers explicitly rejected that law — it was there in the “progress” clause in the Constitution, which created copyright and explained what it was for.

“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 Progress clause is nearly unique in the Constitution in that it states its purpose as well as its function. Everything else in the Constitution is a “self-evident…truth.” But with the Progress clause, the framers actually took the time to explain their reasoning: They were setting up a new system that stood in contrast and opposition to the British Crown’s patronage system of exclusive rights (like patents royal) for favored courtiers and bootlickers.

They rejected the British system, where the people who became powerful thanks to their role in the last round of economic upheaval locked in that power by becoming “too big to fail” and getting the Crown to hand them the legal right to decide who could compete with them and how.

Hence the Progress clause: When exclusive rights “promote the useful arts,” Congress may grant them. Check out that “may” — everything else in the Constitution is a “shall,” but here the Framers were like, “Only if necessary.”

Truly, the Progress clause is a strange animal, with that “may” and also that explanation of purpose. Incidentally, you know what the only other non-self-evident, explained clause in the Constitution is? The Second Amendment.

“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”

(Don’t ban guns, but only to the extent needed to make a well-regulated militia. Otherwise, fire away!)

Back to SCOTUS in 1984 in the Betamax case: They created a fifth factor (“capable of sustaining a substantial non-infringing use”), but not out of thin air — rather, they looked at the context and content of the Progress clause and decided another factor was warranted because the Framers didn’t want too-big-to-fail incumbents deciding how new technology worked. Because the litigants at Universal were only in business because they’d benefited from previous waves of technology introduced over the protests of the incumbents that preceded them.

(Also, because the justices are consequentialists. There were 6,000,000 VCRs in American living rooms by 1984. Each judge drove past multiple video-rental stores on their way to court that day. They’d all watched movies with their grandkids in someone’s living room. Finding against Sony in 1984 would have made all those activities, now considered normal, illegal and illegitimate — and the court understood that this would make them seem like colossal, out-of-touch assholes.)

This doesn’t always save us from bad law, but it does work often (and it’s why the judges would rather decline to hear a controversial case than actually rule on it).

So SCOTUS in 1984 is asked by Universal to ban VCRs and they’re like, fuck no. If we do that, we will fulfill every mocking stereotype of a panel of dotards in robes, and burn the credibility that we depend upon for our legitimacy.

And so they create the fifth factor, because the fifth factor was latent in the Progress clause and in the history of state grants of monopoly under the Crown and in the republic.

Which is all to say, it’s impossible to enumerate all uses that copyright permits even when rightsholders say no. Those uses depend on which new technologies get invented, how they are used, and the social dynamics of the nation at the time they are evaluated by courts.

For example, in 2005, the Supremes substantially narrowed the fifth factor, in Grokster. They were wrong to do so, because all the reasoning that supported legalizing VCRs also supported Grokster’s case. Every strike cited against Grokster was also cited against VCRs.

The Supremes’ choice was grounded more in deference to corporate power (thanks to a still-fragmented tech sector and a highly concentrated entertainment sector) than any legal analysis. Big Content had merged to monopoly and was now too big to fail.

But the messiness was always the point. The indeterminacy was always the point. Yes, that indeterminacy creates jeopardy for those who push the boundaries of copyright, but it also creates opportunities, because they get a chance to argue for a sixth factor, a seventh, an eighth.

A Bro and His Money Are Soon Parted

SpiceDAO was all kinds of wrong: wrong about what rights they were buying, and wrong about what rights they needed. (Also, they got suckered into giving a bro a $1,800,000 payday, but whatever.) Maybe if they understood the value of a commons, the marks in this scam wouldn’t have been suckered into buying something they didn’t need to fulfill their goals in the first place.

The delusional copyright priors of people with cryptobrains are a wellspring of endless riches for people who don’t understand copyright, or who understand that their marks don’t understand copyright.

Which brings me to Color Musuem, a new copyright-related crypto scam so unbelievably, eye-wateringly stupid and offensive that I keep waiting for someone to reveal that it’s been a prank all along.

Here’s Color Museum’s pitch: They are an NFT marketplace hoping to compete with OpenSea, a fraud-riddled, multi-billion-dollar monument to tulip bulbs.

Color Museum’s plan starts off sounding as reasonable as anything relating to NFTs can sound: They will charge lower commissions than OpenSea, which means that buyers will get to keep more of the money for the NFTs they list.

A Colorful Tale

But then it gets weird. You see, the reason this exchange is called “Color Museum” is that they are “selling colors.”

I know: What the fuck?

They have minted NFTs of 10,000 colors from a standard database of different shades, and they are selling these NFTs. That may sound like a pretty standard NFT grift — after all, an NFT’s payload can be no more than an arbitrary URL pointing at anything, anywhere. Since all an NFT is at root is a message in the blockchain saying “Person X paid Person Y, and mentioned a URL in connection with it,” substituting an RGB triplet for a URL isn’t that much of a lift.

But the Color Museum is aiming higher. You see, they really want to confer property rights in those colors. They’re promising suckers that if you buy a color, then every time an NFT changes hands on their exchange, they will split the commission with you based on how many pixels in that NFT are “your” color.

Like, if someone sells one of those cultish Bored Ape NFTs on Color Museum and it generates a $1,000 commission for the exchange, and you happen to own the color “black,” and 5% of that Bored Ape is black pixels, you’ll get 5% of the $500 set aside to pay color “owners.”

A Chocolate Teapot

This plan is a real chocolate teapot — that is, a scheme that will melt into a scalding mess the minute you try to put it into action.

You see, it’s easy for the seller and buyer to avoid this whole “owning colors” business. All they have to do is sell the NFT on a different exchange.

That’s because, for all the talk about NFTs enriching artists by creating durable, transitive royalty schemes — so every time an NFT changes hands, the artist earns a royalty — this is an incredibly easy system to circumvent.

The royalty system depends on each NFT’s smart contract being executed when it changes hands. In other words, the NFTs have a small computer program attached to them that goes, “IF I am sold THEN pay x% of the sale price to the artist’s wallet.”

But how does the smart contract know its NFT is being sold? How does it know it’s not being given away, or transferred between two wallets owned by the same entity?

The thing that triggers the sale provisions of the contract is someone marking the transaction as a “sale.” If you call it a “sale_1” or even a “fooforaw,” the smart contract just ignores the transaction.

Which means that anyone can make an exchange that ignores this bonkers “owning colors” business and offer buyers and sellers the chance to sell their NFTs without having to pay royalties to someone who got duped into “buying a color.”

That’s Not How It Works

Unless…

Unless buying the color from Color Museum actually conferred a legal right to force people to pay you royalties for using that color.

But it doesn’t.

That’s not how copyright or trademark work. Color Museum founder Omar Farooq was either badly mistaken or deliberately misleading when he told Motherboard’s Maxwell Strachan that UPS’s trademark on a specific shade of brown means that his victims will own colors.

UPS doesn’t own brown. UPS owns a trademark on brown, for specific domains, which means that they are empowered to bring a court action against commercial users of that shade of brown who use it in connection with UPS’s own industry, provided they can show that the use caused confusion in the marketplace.

Understanding copyright flexibilities is hard and nuanced. But this is the foundational, most basic part of how trademark works. Farooq is either profoundly ignorant or profoundly dishonest.

Primed For Suckerdom

But he will find marks — as have the NFT grifters who promise artists perpetual royalties through smart contracts. They are pitching to people who have cryptobrain, people who think that any system they don’t understand must be a system where landlords get to own the things others use (like colors) and charge them rent for using them.

They’re not fully wrong — a huge part of our civilization has been colonized by this grotesque idea. But even the most extreme forms of copyright and trademark would not give you the right to force an NFT sale to take place though an authorized exchange that extracted and remitted royalties. Even if you tried to add a real, legal contract to the “smart contract” that required the buyer to use such an exchange in future, and to bind over anyone who bought the work to the same terms, it would be impossible to detect or prevent private sales that ignored this provision.

The cryptobrain fantasy is the creation of a world where property, rather than policy, determines what you can do — but that is a world in which there is no one to turn to when the rules are broken.

It’s a grifter’s paradise, in other words: a place where you can sell naive people on the dream of charging rents on an endless frontier, without mentioning that the frontier is a lawless place where the suckers have no one to turn to when they get played.