Non-fungible Tokens (NFTs) had a good year in 2021, with significant commercial value. The creators of Cryptopunks, an NFT project with a trading volume of over $2 billion, have secured an agreement with a prominent Hollywood talent agency to pursue a variety of commercial projects.
Music producer Timbaland, distribution label Universal Music Group, and consumer products business Arizona Iced Tea, among others, have all commercially exploited the NFTs they purchased for marketing and merchandising activities. To kick off their push into the Metaverse, Adidas also released a film on their collaboration with BAYC.
Ownership of the intellectual property (IP) rights or access to the commercial rights regulating the underlying digital asset is required for NFT purchasers and creators to leverage and monetize their NFTs. Depending on the project, there may be restrictions on how a buyer can commercialize the NFT asset, such as revenue caps, restrictions on the rights to develop derivative works, and/or royalties payments to the NFT authors. In this article, we examine the various approaches to intellectual property rights used by prominent NFT projects, as well as the commercial rights and benefits offered to customers and producers as a result of these approaches.
Licensing of commercial rights to purchasers while retaining IP rights for creators
Some NFT projects have embraced the NFT License, which was designed for the CryptoKitties NFTs and intends to specify the rights of both customers and makers of NFTs. Under the NFT License, the purchaser of the NFT obtains a limited right to use, copy, or display the art underlying their NFT “for the purpose of commercializing [their] own merchandise”, to generate up to $100,000 in gross revenue each year. All legal rights to the underlying art, including all intellectual property rights, remain with the NFT’s creator. Several well-known NFT projects, such as CryptoPunks and Meebits, have accepted the NFT License.
The Forgotten Runes Wizard’s Cult NFT project has taken a more innovative approach to licensing their Wizard-themed NFTs in order to create a balance between the demands of NFT authors, consumers, and the larger fan community. These NFTs grant purchasers a non-exclusive, royalty-free commercial license to the underlying work for up to $5 million in revenue per organization, after which a 20% blanket royalty is imposed.
The non-exclusive license permits the artists to profit from the art’s intellectual property rights as well. Individuals who are neither makers nor buyers can use the art that underpins the Wizard NFTs under the Creative Commons non-commercial license8, which is a popular open-source license for online creators.
Assignment of commercial and intellectual property rights to purchasers
The authors of the BAYC collection took a strategy that aims to give purchasers of their NFTs limitless commercial rights, with ownership of the NFT mediated “entirely by the Smart Contract.” According to the terms and conditions, “when you purchase an NFT, you own the underlying Bored Ape, the Art, completely”. Purchasers also get an unlimited, worldwide license to create derivative works based on the underlying Art, with no restriction on how much money they can make.
However, buyers should be aware that, while the Smart Contract handles all aspects of ownership, it makes no mention of who owns the intellectual property rights that regulate the NFT art. From a copyright standpoint, this means that there is no copyright assignment in place, hence copyright may not immediately vest in the owner upon purchase of a BAYC NFT. To finalize the copyright transfer, a written assignment is required.
A purchaser of a trademark would normally not acquire any trademark rights, because trademark rights only arise when a trademark is used in commerce or when the mark is registered. Instead, the purchaser acquires authorization to pursue trademark rights in the NFT, but the purchaser is solely responsible for determining whether the mark is available for use with the goods or services they want to sell and for obtaining trademark protection for it.
The World of Women NFT project goes one step farther than BAYC by assigning to purchasers all of the project’s intellectual property rights, title, and interest. The project specifically addresses trademark rights by providing that purchasers may use the terms “World of Women”, “WOW’, or “WoW” when using the underlying art for non-commercial purposes only. All rights must be passed to subsequent purchasers upon resale of these NFTs, and the original inventor is entitled to compensation based on a commission decided by the NFT marketplace.
Intellectual property rights in the public domain – the Creative Commons license
Unlike the NFT initiatives mentioned above, other developers have chosen to go completely open-source by using the Creative Commons license, which dedicates the underlying copyright to the public domain. For example, the CrypToadz project, whose website states that “to the extent possible under law, [the creator] has waived all copyright and related or neighboring rights to CrypToadz by [the creator]. Similarly, the Nouns NFT project, which aims to auction “one noun, every day, forever”, provides that “nouns artwork is public domain”. The project does, however, recompense the team behind it by allocating every tenth Noun NFT created for the first five years of the project to the original members.
NFT developers should carefully examine an appropriate intellectual property strategy and approach for transferring the intellectual property rights underlying their product to purchasers and the general public. Traditional licensing models are used by creators who want to keep control of their intellectual property rights in a project; those who want to give their community limitless commercial rights can assign these rights; and projects without a business focus can use the Creative Commons license.
Companies and brands interested in purchasing NFTs for commercial usage or marketing programs should be aware that the intellectual property and commercial rights secured will vary depending on the creators’ approach to intellectual property and licensing.
Buyers should read the terms and conditions, licenses, and Smart Contracts that govern the NFT project carefully. Purchasers should additionally obtain professional legal assistance to ensure that a project delivers a proper copyright transfer upon Smart Contract execution, as well as to clear and preserve the underlying trademark rights required to commercially use the NFT as a brand or marketing tool.
You can see a list International IP firms here