When Ownership Isn't Ownership: Understanding Rights in Digital Collectibles

Introduction:

The market for digital collectibles has quietly outlasted the frenzy that briefly surrounded it. When NFT prices collapsed and the speculation cooled, many commentators were quick to call the entire space a failed experiment. That conclusion misses something important. Digital collectibles, limited-edition digital art, in-game assets, virtual trading cards, branded merchandise existing only online   have continued to be bought, sold, and commercially exploited. People are still spending real money on them. The legal questions that were always present underneath the hype have not gone anywhere.

The central question is deceptively simple: when someone purchases a digital collectible, what exactly have they acquired? The answer is more complicated than most buyers assume, and significantly more limited than what the word "ownership" would ordinarily suggest. The gap between what consumers believe they have purchased and what they have actually received under the governing legal instruments is, in many cases, considerable.

This article examines that gap. It is concerned not with the technology behind digital collectibles but with the legal rights   and the legal limitations   attached to their purchase. Ownership, copyright, licensing, contractual restrictions, and resale rights are the real determinants of commercial value in this space. They deserve closer attention than they have typically received.

Understanding Digital Collectibles:

Digital collectibles cover a wider range than the term initially suggests. At one end are digital artworks   files authenticated through blockchain tokens, sold in limited quantities, and traded between collectors on secondary markets. At the other end are in-game assets: character skins, weapons, virtual land parcels, or rare items within online gaming environments. Between these sit virtual trading cards issued by sports leagues, metaverse collectibles associated with branded spaces, and limited-edition digital merchandise released by celebrities or companies as commercial products.

What distinguishes these assets from ordinary digital files is the deliberate imposition of scarcity. Issuers limit quantities, attach authentication records, and create distribution structures designed to give the asset perceived value. Whether that value is backed by genuine utility or purely by social consensus varies. But the legal architecture governing what the purchaser acquires is consistent across categories: it is almost always built on licensing rather than property transfer.

This remains commercially significant even outside speculation. Game publishers monetise virtual items through resale ecosystems. Sports organisations use digital collectibles as fan engagement tools with genuine revenue models. Luxury brands have explored digital twins of physical products. The market has matured past the point where dismissing it as a bubble captures the full picture. The legal framework governing these transactions, however, has not always kept pace with commercial practice.

The Distinction Between Owning an Asset and Owning Intellectual Property:

Perhaps the most persistent misconception in the digital collectibles space is the conflation of asset ownership with intellectual property ownership. They are separate legal categories, and the distinction has practical consequences that buyers rarely appreciate at the point of purchase.

Consider a straightforward example. A collector purchases a limited-edition digital artwork, say, a unique illustrated portrait released in a set of one hundred. The buyer acquires the token that records ownership of that specific edition. What the buyer does not automatically acquire is any copyright in the underlying artwork. The creator's copyright subsists independently and is not transferred by the sale of the digital file or the associated token unless an express assignment has been executed. The buyer owns the collectible. They do not own the creative work it embodies.

This maps onto the principle in copyright law that ownership of a physical or digital copy of a work does not confer any rights in the work itself. Buying a painting does not give you the right to reproduce it commercially. The same principle governs digital art. Ownership of the token is analogous to ownership of the canvas, valuable, transferable, and verifiable, but legally distinct from the bundle of exclusive rights that copyright vests in the creator.

Further complications arise when trademark rights enter the picture. Many commercially valuable digital collectibles are associated with brands, sports logos, team identities, or celebrity likenesses   all of which may be protected by trademark or personality rights. Purchasing a collectible featuring the logo of a football club does not license the buyer to use that logo for commercial purposes. The club retains those rights. The buyer's entitlement extends only as far as the issuer's terms allow, which is typically the right to display the item privately and to resell it subject to platform conditions.

Consumers do not always think in these categories. The language of the market   "ownership," "rare," "yours forever"   actively obscures the legal reality. This is not entirely accidental.

Do Digital Collectibles Transfer Intellectual Property Rights?

The short answer is: almost never. The longer answer requires examining what issuers actually offer and what copyright principles permit.

Under copyright law across most jurisdictions, the exclusive rights associated with a work   reproduction, adaptation, public communication, distribution, and the creation of derivative works   vest in the author. These rights can be assigned or licensed, but assignment requires formality: a written instrument signed by or on behalf of the copyright holder. A click-through purchase on a digital marketplace does not constitute a copyright assignment. Nor does minting a token on a blockchain.

What most purchases do confer is a limited personal licence. The terms governing this licence are typically found in the platform's user agreement, the collection's specific smart contract terms, or the issuer's published documentation   documents that most buyers do not read. These licences generally permit the buyer to display the collectible for personal, non-commercial purposes and to resell it through approved channels. They typically prohibit reproduction for commercial purposes, adaptation, use in advertising, merchandising, or any activity that creates a competing product.

Some high-profile projects have offered broader commercial licences. A handful of well-known NFT collections granted buyers the right to commercialise the image associated with their token   to produce merchandise, develop spin-off projects, or license the image to third parties. These cases attracted significant attention precisely because they were unusual. They are not the industry norm, and even in those cases the precise scope of rights was often disputed when commercially tested.

The practical implication is that a purchaser of a digital collectible is generally acquiring a right to possess and display, not a right to exploit. The commercial ceiling on what that collectible can be used for is set by the issuer, not by the buyer's investment.

Marketplace Terms and Contractual Control:

The rights that a purchaser actually holds in a digital collectible are, in most cases, defined more precisely by contract than by property law or copyright doctrine. This is a significant observation. It means that the commercial value and utility of the asset depends not on the asset itself but on what a set of platform terms permit.

Marketplaces and issuing platforms govern their ecosystems through terms of service and end-user licence agreements. These instruments are typically drafted broadly in favour of the platform. They reserve the right to modify service conditions, suspend accounts, delist collections, and restrict transfers. They often contain provisions allowing the platform to change the technical infrastructure on which the collectible exists   which may directly affect access and utility.

Account suspension is a particularly underappreciated risk. If a platform terminates a user's account for any reason, a violation of community standards, a commercial dispute, a change in the platform's legal environment, access to the collectibles held in that account may be lost entirely. The legal theory of ownership the buyer may have believed they possessed does not easily survive the shutdown of the platform on which the asset was issued and maintained. The token may continue to exist on a blockchain, but its displayed representation, metadata, and claimed authenticity may depend entirely on servers the platform controls.

Platform insolvency adds a related dimension. Several prominent digital collectible platforms have encountered financial difficulties. When a platform fails, purchasers become unsecured creditors at best   entitled to a share of whatever is left after secured claimants are satisfied, but with no proprietary claim over specific assets the platform holds. The distinction between holding a proprietary right over an asset and holding a contractual claim against an entity that manages the asset matters enormously in insolvency. Most digital collectible purchases fall into the second category.

Transfer limitations are another common feature. Platforms frequently restrict where a collectible may be resold, requiring transactions to occur within their ecosystem and subject to their fee structures. This is commercially logical from the platform's perspective. From the buyer's perspective, it substantially limits the practical value of the asset as freely transferable property.

Resale Rights and Secondary Markets:

One of the more interesting legal arguments made in favour of blockchain-based digital collectibles is that they allow creators to receive royalties on secondary sales, something that traditional copyright law has generally not mandated outside of specific resale rights regimes. Under the droit de suite principle recognised in parts of Europe, visual artists are entitled to a percentage of the resale price when their work changes hands in the secondary market. This right has historically been difficult to enforce, particularly across borders.

Digital collectibles offered a technical mechanism for automating such payments through smart contracts. The idea was that every resale would trigger an automatic royalty payment to the original creator without requiring any enforcement action. In practice, this mechanism proved less robust than anticipated. Secondary marketplaces began competing by reducing or waiving creator royalties to attract sellers. The smart contract encoding the royalty could be circumvented by conducting transactions off-platform. By late 2022 and into 2023, the royalty model that had been presented as a structural feature of the ecosystem was being significantly eroded by marketplace competition.

What this episode illustrates is that the commercial rights of both creators and purchasers in the digital collectibles space are ultimately determined by what platforms and markets are willing to enforce   not by the technical capabilities embedded in the underlying assets. The legal enforceability of encoded royalty obligations remains uncertain in most jurisdictions, and courts have not yet definitively addressed whether smart contract royalty terms constitute binding obligations on downstream purchasers.

Comparing digital collectibles to physical collectibles reveals further structural differences. A person who buys a rare first-edition book or a vintage trading card acquires a physical object that they can freely resell through any available market, lend to a friend, donate, or destroy. Their ownership is not conditioned on any third party's continued willingness to maintain a platform. The digital collectible buyer, by contrast, holds an asset whose value and usability are entangled with the continuing operation of the issuing platform and the stability of its commercial terms.

Commercial and Regulatory Challenges:

Digital collectibles are inherently cross-border assets. A platform incorporated in one country may issue collectibles purchased by buyers across dozens of jurisdictions, with secondary trading occurring on yet another platform based elsewhere. This creates immediate jurisdictional complexity. Which consumer protection laws apply? Which copyright regime governs the rights in the underlying work? If a dispute arises, which court has jurisdiction?

Most platform terms address this through choice-of-law and jurisdiction clauses, typically selecting the law of the platform's home jurisdiction and requiring disputes to be resolved in a specific forum. For retail purchasers, these clauses substantially limit practical recourse.

Pursuing a dispute in a foreign jurisdiction over a collectible that cost a few hundred dollars is not commercially viable, which means that many consumer rights that would theoretically apply go practically unenforced.

Fraud and authenticity represent a further structural vulnerability. The existence of a blockchain record confirming that a token is unique does not establish that the underlying artwork or content is original, that the issuer had rights to the content, or that the collection was not designed to mislead buyers about its commercial value or provenance. Copyright infringement within digital collectible markets   where creators find their work minted by third parties without permission   has been documented extensively. Buyers have sometimes unwittingly purchased infringing assets, acquiring tokens whose commercial value depends on rights the issuer did not hold.

Consumer protection frameworks are only beginning to adapt to these realities. Traditional consumer law was designed for tangible goods and identifiable service relationships. Applying concepts like fitness for purpose, satisfactory quality, or misleading conduct to digital assets held on decentralised platforms requires courts and regulators to work with frameworks that were not designed with this context in mind. Some jurisdictions have begun issuing guidance specific to digital assets. Others have not, leaving purchasers to rely on general contract and consumer protection principles that provide imperfect coverage.

The Emerging Legal Framework:

Formal legal frameworks governing digital collectibles are at an early stage. Courts in several jurisdictions have been asked to address disputes arising from NFT and digital asset transactions, and the emerging jurisprudence points toward the application of existing legal principles rather than the development of new doctrines.

Contract law is the primary instrument. Courts have shown willingness to treat the terms of smart contracts and platform agreements as binding contractual obligations, applying standard principles of offer, acceptance, and interpretation. Where platform terms are clear, they are likely to be enforced. The more difficult cases arise where terms are ambiguous, where there is a mismatch between what was marketed and what was actually offered, or where platform conduct has deviated from its own documented terms.

Intellectual property principles apply without significant modification. Copyright ownership, the distinction between assignment and licence, and the requirements for valid transfer of copyright are the same whether the subject matter is a physical painting or a digital artwork. Courts applying these principles to digital collectible disputes have reached conclusions that would have been predictable under traditional analysis   which is itself instructive. The novelty of the technology has not required the development of novel legal doctrine. What has been required is the application of existing doctrine to unfamiliar factual patterns.

Consumer rights considerations are gaining traction. Regulators in the United Kingdom, the European Union, and several other jurisdictions have indicated interest in applying existing consumer protection standards to digital asset transactions, particularly around transparency of rights and the accuracy of representations made at the point of sale. The requirement that traders provide accurate information about the nature and characteristics of what is being sold is technology-neutral and applies to digital collectibles as readily as to any other product.

Critical Analysis:

Reviewing the legal architecture of digital collectibles, what strikes me most is not any single regulatory gap but the systematic divergence between the commercial language used to sell these assets and the legal reality of what purchasers receive. The market has been built, to a meaningful extent, on a misrepresentation   not necessarily a fraudulent one, but a structural one. The word "ownership" carries proprietary connotations that the actual transaction does not support.

Ownership, in its traditional legal sense, describes a relationship between a person and a thing that is reasonably stable, reasonably immune from third-party interference, and capable of being exercised without the continued cooperation of the seller. Digital collectibles, as currently structured, satisfy almost none of these criteria. The rights held by a purchaser are contractual, conditional, platform-dependent, and revocable in ways that traditional property rights are not. Calling this ownership stretches the concept considerably.

The more accurate description is that purchasers acquire a licensed interest in a digital asset, the full utility of which depends on the ongoing performance of the issuing platform. That is a meaningful commercial acquisition   not worthless   but it is materially different from what the marketing language suggests. Whether the law should require clearer disclosure of this distinction at the point of sale seems to me a fairly easy question. The harder question is whether the current framework is adequate to deliver that clarity, and the answer is that it is not.

There is also a structural problem with the way rights are currently allocated. When a platform fails, a marketplace changes its terms, or a creator decides to withdraw support for a collection, it is the purchaser who bears the risk. They have no proprietary claim that survives platform failure, limited recourse in foreign jurisdictions, and a contractual position that the platform can usually modify unilaterally. The distribution of risk in these transactions systematically disadvantages retail purchasers relative to sophisticated commercial actors who understand what they are actually buying.

Whether digital collectibles represent a genuinely new form of ownership or merely a new marketing vocabulary applied to familiar licensing arrangements is partly a philosophical question. Legally, the answer is clearer. They are licensing arrangements, dressed in the language of ownership, operating within contractual frameworks that the buyer cannot meaningfully negotiate and frequently does not read.

Conclusion:

The long-term commercial viability of digital collectibles has always depended less on blockchain infrastructure and more on the legal clarity of what purchasers actually receive. A market built on ambiguity about fundamental ownership questions is a market with structural fragility. The technology can verify scarcity and record transfer. It cannot create proprietary rights that the legal framework has not recognised.

What this space needs is honest documentation of rights at the point of sale. Not disclaimers buried in terms of service, but clear communication about what is being acquired: a licensed interest, subject to platform conditions, without intellectual property rights in the underlying work, and without the security of proprietary ownership in the traditional sense. Markets can function perfectly well on that basis   financial licences, software, and streaming rights are all commercially valuable without conferring ownership   but buyers should know what they are transacting in.

For legal practitioners advising either platforms or purchasers, the takeaway is equally clear. The questions that matter in this space are not about blockchain validation. They are about contract drafting, copyright analysis, licence scope, consumer protection compliance, and the allocation of risk in relationships where information asymmetry is significant. Those are familiar problems. The legal profession has the tools to address them. The remaining task is ensuring that those tools are actually brought to bear.

Author: Shriyansh Tiwari, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Endnotes

1. WIPO, WIPO NFT White Paper: A Guide to Intellectual Property Issues (World Intellectual Property Organization, 2024), discussing copyright ownership, licensing, trademarks, and NFTs.

2. The Copyright Act, 1957 (India), particularly Sections 14, 18, 19, and 30, governing copyright ownership, assignment, and licensing of copyrighted works.

3. Google LLC v. Oracle America, Inc., 593 U.S. 1 (2021), discussing software copyright and the distinction between ownership of copies and ownership of copyright.

4. European Union Intellectual Property Office (EUIPO), Intellectual Property and Non-Fungible Tokens (NFTs): Trade Mark and Design Practice (2023), explaining IP ownership, licensing, and protection relating to digital collectibles.

5. United Kingdom Law Commission, Digital Assets: Final Report (2023), examining proprietary rights, digital ownership, blockchain-based assets, and the legal treatment of crypto-assets and digital collectibles.

6. UNCITRAL, Model Law on Electronic Transferable Records (2017), providing internationally recognised principles relating to electronic records, digital assets, and transferable electronic rights in cross-border commerce.