Non-Fungible Tokens: Indonesia Regulatory Overview

Interest in non-fungible tokens ("NFTs") continues apace. People in Indonesia and around the world are or are interested in creating, investing in, selling and owning NFTs. An NFT is categorized as a digital asset, such as art, music, in-game items and videos, that is stored on a blockchain.

In Indonesia, despite the interest in this new kind of asset, the regulatory regime for NFTs is uncertain. There is as at this writing no specific regulation on the NFT industry and how NFTs should be created, purchased, collected, minted, etc.

NFT Marketplace in Indonesia

Despite the lack of regulatory clarity, there are a number of NFT platforms operating in Indonesia, such as TokoMall, owned by Tokocrypto, and other platforms that are still under development. While NFT platforms are not yet specifically regulated, they are subject to the provisions on Electronic System Providers ("ESPs") contained in several regulations, as follows:

• Law No. 11 of 2008, dated April 21, 2008, regarding Electronic Information and Transactions, as amended by Law No 19 of 2016, dated November 25, 2016 (the "ITE Law");
• Government Regulation No. 71 of 2019, dated October 10, 2019, regarding the Provision of Electronic Systems and Transactions ("GR 71/2019");
• Minister of Communication and Informatics ("MOCI") Regulation No. 20 of 2016, dated December 1, 2016, regarding the Protection of Personal Data in Electronic Systems ("MOCI Reg. 20/2016"); and
• MOCI Regulation No. 5 of 2020, dated November 16, 2020, regarding ESP in the Private Sector, as amended by MOCI Regulation No. 10 of 2021, dated May 21, 2021 ("MOCI Reg. 5/2020").

Business actors intending to create and operate an NFT platform shall be subject to the requirements for ESPs as stipulated in the above regulations. Their business activities will fall under Indonesia Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha Indonesia or "KBLI") No. 63122, which includes web portals and digital platforms with a commercial purpose. The KBLI, the most recent of which was issued in 2020, classifies economic activities in Indonesia by business sector. These classifications are then used, for among other things, to determine the required business licensing for a specific business sector.

Under the Indonesian regulatory regime, ESPs are subject to various requirements and obligations related to, among other things, the (i) cross-border transfer of personal data; (ii) storage of electronic data overseas; (iii) general personal data processing and the consent of personal data owners; (iv) electronic data deletion; (v) encryption and data storage; (vi) data retention; (vii) privacy policy; and (viii) registration requirements.

NFTs and IP

Intellectual property rights are a key consideration when it comes to NFTs because they contain art, music, videos, pictures and other creations. Provisions of intellectual property law will be applicable to NFTs.

Additionally, pursuant to Article 25 of the ITE Law, electronic information and electronic documents formed into an intellectual work, internet site or intellectual work contained therein are protected by intellectual property rights. Accordingly, several types of intellectual property rights need to be considered in connection with NFTs.

a. Patent

Blockchain-related inventions can be protected as patents. Article 19(1) of the Patent Law (Law No. 13 of 2016, dated August 26, 2016, regarding Patents, as last amended by Law No. 11 of 2020, dated November 2, 2020, regarding Job Creation) stipulates that patent holders have the exclusive right to exploit their patents and to prohibit other parties, without their consent, from:

1. making, using, selling, importing, renting, handing out, or providing for sale or rent the patented product;
2. using the manufacturing process protected by the patent to manufacture goods or other activities stipulated in No. 1 above.

Article 143 of the Patent Law provides patent holders recourse to file claims in the Commercial Court if the rights under their patent are infringed by another party.

b. Trademark

NFTs may also be protected as a trademark.

Article 1(1) of Indonesia's Trademark Law (Law No. 20 of 2016, dated November 25, 2016, regarding Trademarks and Geographical Indications, as last amended by Law No. 11 of 2020, dated November 2, 2020, regarding Job Creation) defines trademark. It is a sign that may be displayed graphically in the form of a device, logo, name, word, letter, number, color arrangement, in two dimensions and/or three dimensions, sounds, hologram, or a combination of two or more of these elements in order to distinguish goods and/or services that are produced by individuals or legal entities in the trading of goods and/or services.

Article 83(1) of the Trademark Law provides the grounds for the owner of a registered trademark and/or the licensee of a registered trademark owner to file a claim against any third party that unlawfully uses a mark that is similar in principle or in its entirety with similar goods and/or services. They may file a claim for damages and/or for the cessation of all conduct relating to the use of said mark.

c. Copyright

NFTs are closely related to artworks that are the subject to copyright and related rights protection.

Article 9(3) of the Copyright Law (Law No. 28 of 2014, dated October 16, 2014, regarding Copyright) stipulates that any party without prior authorization from the copyright holder is prohibited to copy and/or commercially use copyrighted works.

And Article 10 of the Copyright Law provides that anyone who manages business premises, including online platforms, is prohibited from allowing the sale or reproduction of goods resulting from copyright and/or related rights infringements in the business premises under their management.

Cryptocurrency as a Payment Instrument for NFT

Cryptocurrencies are as at this writing not recognized as a payment instrument in Indonesia. Pursuant to Bank Indonesia Regulation No. 17/3/PBI/2015 of 2015, dated March 31, 2015, regarding Mandatory Use of Rupiah in the Territory of the Republic of Indonesia ("PBI 17"), as implemented by BI Circular Letter No. 17/11/DKS, dated June 1, 2015, regarding Mandatory Use of Rupiah in the Territory of the Republic of Indonesia ("CL 17"), all transactions conducted within Indonesian territory must use Rupiah.

However, if an NFT transaction is made on a foreign NFT platform, the transaction can be seen as occurring outside Indonesian territory if the entity and staff operating the platform are based abroad and the platform server is maintained abroad. PBI 17 and CL 17 provide those transactions classified as international trade are exempt from the obligation to use Rupiah. Such transactions include the online trade in services beyond state borders, as in the case of an NFT platform provided by a foreign entity to customers in Indonesia. In such case, the use of cryptocurrency as a payment instrument on the foreign NFT platform shall be allowed. 

Conclusion

The lack of clarity around the regulation of NFTs in Indonesia has not stopped people here from investing in, selling, buying and trading in NFTs. We would therefore anticipate the Government of Indonesia to issue specific regulations on NFTs to provide clarity for the NFT industry and everyone in Indonesia involved in the creation, sale and purchase, minting, etc. of NFTs.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user's own risk. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.