NFT Resales and Copyright Exhaustion: Is the First Sale Principle Relevant in Digital Tokenisation?

The first sale or exhaustion principle was originally meant for the physical world. Once a physical copy of a work is sold, the copyright owner cannot control what the buyer does with that particular copy. Even within traditional categories, this plays out differently. A book can be resold freely after the first sale, but cinematographic works like films rarely change hands through ownership. They move through licences and distribution agreements. That difference itself shows that exhaustion was never a one-size-fits-all doctrine, even before digital technology arrived.

When you move from physical goods to digital ones, the basic logic of exhaustion breaks down. The doctrine assumes that the seller parts with a copy and no longer has it. In digital resales, the seller does not lose access. A new copy is created every time unless there is a system to delete the original. That defeats the assumption of scarcity which the first sale principle is built on. So the real question is not how to apply exhaustion to digital products but whether the underlying logic still holds at all.

NFTs add another layer. In most cases, buying an NFT does not mean buying copyright. The buyer only gets the token, which may link to or represent a work, but the legal ownership of the work stays with the creator. Under Indian law, copyright passes only through a written, signed assignment. Since that does not happen in typical NFT sales, there is no copyright interest in the first place. If nothing was transferred at the start, there is nothing that can be exhausted when the token is resold.

This also shows how NFT transactions are governed by contract rather than copyright. Marketplaces and creators use terms and conditions to control what the buyer can do with the token. But that does not turn the token into a “copy” of the work in the legal sense. The blockchain record moves, but the copyright remains untouched. The contract and the copyright exist in separate spheres, and exhaustion only applies in the latter.

There is also confusion because of the way we use the word sale. In real property, a sale means the seller gives up control and the buyer takes full possession. In a digital transfer like an NFT resale, the original file does not leave the seller’s hands. The transfer is symbolic rather than physical. Without the seller losing control or access, it is difficult to argue that exhaustion is triggered.

Smart contracts complicate things further. Many NFTs are designed in a way that ensures the creator gets paid every time the token is resold. That is the opposite of exhaustion, which is meant to stop further control after the first sale. Even if those royalties come from contract and not statute, they reflect an intention to retain control rather than surrender it.

At that point the issue becomes clearer. If no copyright is transferred in an NFT sale, there is nothing that can be exhausted at resale. The first sale doctrine was created to deal with a physical copy being released into circulation. NFTs do not follow that model. The token is not the work, and selling the token does not deprive the creator of access to the work. Insisting on applying exhaustion here ignores how the system actually works.

Looking ahead, lawmakers may need to rethink how rights are treated in digital token markets. Other countries are already struggling with similar issues in online resale of books, music, and software. India has not yet addressed NFTs in legislation or case law. If clarity is to come, it will likely require recognising that token rights and copyright rights are not the same thing. Any change to the exhaustion principle would have to take that into account rather than simply extending physical rules to digital assets.

For now, the more accurate and safer reading is that selling an NFT does not exhaust copyright because copyright was never part of the transfer. The doctrine still applies to physical goods, but NFTs fall outside its logic. It is not that the principle is outdated, only that it was never meant for transactions where the underlying work does not move at all.