Web3 and NFT Law in Hong Kong: Rights for Creators, Collectors, and Platforms

Introduction: NFTs and the Law

Non-fungible tokens (NFTs) — unique digital tokens on a blockchain representing ownership of a specific digital or physical asset — have created a new and rapidly evolving landscape for creators, collectors, investors, and platforms. From digital art and music to in-game items, real estate, and luxury goods, NFTs have challenged existing legal frameworks around intellectual property, contract, regulation, and financial crime.

Hong Kong has emerged as an active Web3 and NFT market, with a significant concentration of collectors, creators, and platforms. Yet the legal framework governing NFTs in Hong Kong remains largely derived from general principles of property law, contract law, and intellectual property law — with specific regulatory guidance still evolving. This article examines the key legal issues affecting NFT market participants in Hong Kong.

What Does Owning an NFT Actually Mean?

A common misconception is that buying an NFT is equivalent to buying the underlying asset — the artwork, music, or video associated with the token. In fact, the NFT itself is typically just a blockchain record of ownership of a “token”. What rights attach to that token depends entirely on the terms and conditions established by the NFT creator or platform — which are not always clearly articulated.

When you purchase an NFT, you generally acquire:

• Ownership of the NFT itself (the token on the blockchain)
• Such intellectual property rights as the NFT's terms and conditions expressly grant

You do not automatically acquire:

• Copyright in the underlying work
• The right to copy, distribute, or publicly display the work (beyond personal enjoyment)
• Any physical asset depicted or associated with the NFT
• Any right to revenue generated by the underlying work

The rights of an NFT holder are contractual and depend on the specific terms attached to the NFT at the time of minting. Buyers should carefully read the terms before purchasing — a step that is conspicuously absent in most NFT transactions.

Intellectual Property: Copyright in NFTs

Who Owns the Copyright?

Under Hong Kong's Copyright Ordinance (Cap. 528), copyright in a work vests automatically in its author upon creation (subject to employer ownership in employment situations). The mere act of minting an NFT does not transfer copyright. For copyright to pass to the NFT buyer, the creator must expressly assign it in writing.

Most NFT platforms and creators do not assign copyright to buyers. Instead, they grant a limited licence — typically the right to display the work for personal, non-commercial purposes. Commercial uses, such as using an NFT as the basis for merchandise or promotional materials, require an express commercial licence.

Minting Third-Party Works Without Authorisation

A persistent problem in the NFT market is the minting of NFTs based on works created by others without the original creator's consent. This is a straightforward copyright infringement under the Copyright Ordinance. The infringer (the person who minted the NFT without authorisation) and potentially the marketplace (if it facilitates the infringement) may be liable.

Victims of unauthorised NFT minting may seek: injunctions restraining further infringement, damages (or an account of profits), delivery up of infringing materials, and — in appropriate cases — criminal prosecution under the Copyright Ordinance for commercial-scale infringement.

Moral Rights

Under the Copyright Ordinance, authors of literary, dramatic, musical, and artistic works have the right to be identified as the author (the paternity right) and the right to object to derogatory treatment of their work (the integrity right). These moral rights cannot be assigned (though they can be waived). NFT platforms should consider whether their terms adequately address moral rights, particularly for digital art sold through secondary markets.

Smart Contracts: Are They Legally Binding?

Smart contracts are self-executing computer programmes that automatically perform specified actions when predefined conditions are met. They are widely used in NFT transactions — for example, automatically distributing sale proceeds and royalties when an NFT is transferred.

Under Hong Kong contract law, a smart contract can be a legally binding contract if the general requirements for contract formation are satisfied: offer, acceptance, consideration, intention to create legal relations, and certainty of terms. A smart contract that satisfies these requirements is enforceable as a contract.

However, several practical issues arise:

• Identity: Smart contracts typically involve pseudonymous parties identified only by wallet addresses. If a dispute arises, identifying and serving the counterparty may be practically difficult.
• Governing law and jurisdiction: Smart contracts rarely specify governing law or dispute resolution mechanisms. Hong Kong courts will apply standard conflict of laws rules to determine the governing law, which may produce uncertainty.
• Code bugs: If the smart contract code does not accurately implement the parties' intentions — for example, due to a coding error — the legal position of the parties may differ from what the code does. Courts may need to determine whether the parties are bound by the code or by their underlying intentions.
• On-chain vs. off-chain obligations: Many NFT transactions involve both on-chain smart contract terms and off-chain terms and conditions. Where these conflict, determining which governs requires legal analysis.

Secondary Market Royalties

One of the most controversial issues in NFT markets is the enforceability of creator royalties on secondary sales. Many NFT creators programme their smart contracts to remit a percentage of each secondary sale (typically 5–10%) to the creator's wallet address automatically. This is a powerful mechanism for creators to participate in the appreciation of their work over time.

However, royalty enforcement has become contested. Some NFT marketplaces have moved to make royalties optional or have eliminated them entirely, arguing that buyers and sellers should have the freedom to transact without mandatory royalty obligations. Technically, if the smart contract implements the royalty at the protocol level, the marketplace cannot override it without modifying the smart contract. If the royalty is implemented at the marketplace level (rather than in the smart contract itself), it can be bypassed by transacting through a different platform.

From a legal perspective, the enforceability of secondary royalties under Hong Kong contract law is uncertain. A royalty obligation that is clearly incorporated into the terms of the initial NFT sale, and which is accepted by all subsequent buyers as a condition of the NFT's sale, may be enforceable as a contractual obligation. However, proving that downstream buyers had notice of and accepted the royalty obligation is challenging in practice.

NFT Platforms: Regulatory and Liability Considerations

Are NFTs Securities or Virtual Assets Under HK Law?

The SFC has indicated that it will scrutinise the economic substance of each NFT to determine its regulatory classification. An NFT that confers investment rights (e.g., a share of future revenue from an underlying project) may constitute a security or a collective investment scheme interest, requiring SFC licensing for its offering and trading. An NFT that is primarily a digital collectible with no investment characteristics is more likely to be treated as a virtual asset under the AMLO, potentially requiring VASP licensing for the platform facilitating its trading.

The SFC has warned that “fractionalised” NFTs — where a single NFT is divided into multiple tokens allowing multiple investors to hold a proportional interest — are more likely to constitute regulated securities due to their investment characteristics.

AML/CFT Risks

NFTs have been used as a vehicle for money laundering due to their high value, pseudonymity, and the ease of cross-border transactions. The FATF has specifically flagged NFTs as a potential AML risk. NFT platforms and marketplaces in Hong Kong that constitute virtual asset service providers under the AMLO are required to implement AML/KYC procedures — including customer due diligence on buyers and sellers, transaction monitoring, and suspicious transaction reporting.

Practical Guidance for NFT Market Participants

For NFT creators: Draft clear terms and conditions specifying what rights the buyer acquires (and does not acquire). Consider whether to assign copyright or grant a licence, and the scope of any licence. Register your copyright (while not required under HK law, it strengthens your position in infringement claims).

For NFT collectors: Before purchasing, read the terms of the NFT carefully. Understand what you are actually buying — the token, a licence, or (rarely) an assignment of copyright. Be aware of royalty obligations that may attach to future resales.

For NFT platforms: Conduct regulatory classification analysis for the NFTs you list. Implement AML/KYC procedures. Consider VASP licensing requirements. Have clear takedown procedures for infringing NFTs.

Conclusion

The legal framework governing NFTs in Hong Kong is an evolving patchwork of existing IP, contract, and regulatory law applied to novel digital assets. Clarity is increasing as the SFC issues more specific guidance and as courts begin to address NFT-related disputes. For creators, collectors, and platforms, early engagement with experienced digital asset legal counsel is the best protection against the significant legal risks that this market presents.

Alan Wong LLP advises on digital asset regulation, NFT structuring, IP in Web3, and virtual asset compliance in Hong Kong. Contact our Digital Assets team.