NFT’s and Digital Rights

Non-Fungible Tokens or NFT’s are a new class of assets that live on the blockchain, essentially creating a new and tradable form of property for anyone holding any asset or file that can be digitized.

The process of creating an NFT requires the blockchain “minting” of a digital file into a token that is by itself unique and non-fungible.

Whilst NFT’s have been around for some years

image credit Leonidas

they have recently exploded in popularity as pop music stars, sporting celebrities, actors and social media influencers jump on the bandwagon to either purchase or release their own NFT’s. Despite all the noise, not all artists are interested minting NFT’s as they are simply doing more of their art.

How do artists actually earn money from NFT’s?

This can happen in two ways: via direct sales and also royalties from sales.

When an NFT is minted using a smart contract, the creator can specify a sale price for the NFT plus also an ongoing sales royalty for that NFT, at a given percentage for every time that NFT is sold, in perpetuity, to be sent automatically to a specified wallet address.

This gives the sellers of NFTs, opportunities to make income up front, if their collection is popular, plus an ongoing source of royalty income into the future if it continues to sell.

The payment of royalties is automatic and permissionless, meaning that NFT artists and creators do not need to chase up the sellers and buyers of future transactions to try and recoup their resale royalties that are instead paid straight to their wallet.

An innovation, that has been life changing for some NFT creators

source

and also beneficial for many community organisations and projects.

source

Despite these positive outcomes, not all is smooth sailing with the NFT industry as presently anyone can copy any image or file, make an NFT with it and publish it for sale to an NFT platform.

NFT’s and Digital Rights

Essentially, it is up to the buyer of an NFT to assess what they are buying, whether it is authentic and also whether the creator of the NFT has violated the rights of another party. Information that may or may not be easy to find. Moreover, such time-consuming investigation and research is not even compulsory.

If the buyer feels the NFT is appealing and likely to appreciate in value, then they may decide to purchase it anyway because they have priced the risk into the profit they expect to make from the sale of the NFT later to someone else, regardless of the NFT’s IP status.

If an artist or organisation you know finds that their IP has been appropriated by someone who has created NFT’s without their consent, then they can commence legal action, but sometimes the relative anonymity of NFT creators can make this a challenging exercise.

On the other hand, if the IP owner is fortunate enough to identify or “dox" the offending NFT creator who has used their property without consent, it is not yet black and white about exactly what legal redress they have. Mainly because NFTs are still such a new industry and are mostly without the legal precedent and case law that judges depend on to make consistent decisions.

Hermes and MetaBirkins

Luxury goods brand Hermes, who produce an expensive line of high fashion handbags called Birkins, discovered in December 2021 that their Birkin designs were being appropriated by digital artist Mason Rothschild and sold as digital NFT handbags called “Metabirkins”.

Rothschild has a disclaimer on his website that says

We are not affiliated, associated, authorized, endorsed by, or in any way officially connected with the HERMES, or any of its subsidiaries or its affiliates.

But this didn’t stop people from buying Rothschild’s Metabirkin NFT handbags, earning him as much as 250 Ethereum or around $1million USD at the time of the sales.

Hermes claim that Rothschild created and sold the Metabirkin’s without their approval and has therefore diluted and profited illegally from their brand property.

Whatever the outcome of the case, there is no practical way for Hermes to recall Rothschild’s Metabirkins NFTs, much less destroy them. Effectively narrowing the potential legal remedies that might be available.

Nike and StockX

Also in the courts, are Nike footwear and online marketplace StockX - who have been selling NFT Nike digital sneakers for thousands of dollars each without Nike’s permission.

StockX are selling the Nike NFT sneakers from their online NFT “vault” that provides a way for buyers to digitally verify that they own a certain pair of StockX-bought sneakers.

source

According to our source, the NFT’s, apart from being redeemable for the physical Nike sneakers, also provide access to special events and offers within the StockX ecosystem. A store, that is a major seller of physical Nike items with more than 70,000 Nike products in their online catalogue.

From the information available, it would seem that StockX feel that they are merely running an instore elite NFT footwear club that is based on physical shoes the store is legitimately buying and paying for from Nike.

Whilst from Nike’s point of view, the additional thousands of dollars captured by StockX’s unapproved Nike NFT sneaker commercialization “free-rides” on the Nike brand and reputation, representing a clear breach of their rights and “confuses customers”.

Whatever the result of the court case, Nike are continuing to stockpile their “virtual goods” trademark classes that they have been registering since Nov of last year, whilst StockX are also getting in on the act by registering their own virtual goods trademarks in Jan of this year.

Having touched on pain points for Nike and Hermes regarding IP theft, what sort of lessons can we take from NFT projects themselves whom have struggled with IP?

Cryptopunks

Cryptopunks, a collection of 10,000 pixelated and computer-generated beings, were invented by Matt Hall and John Watkinson back in 2017. The original 10,000 punks were given away for free to people as one of the earliest NFT projects on Ethereum. Today, their historical value and street appeal has made the Punks NFT collection one of the most famous around the world that commands very high prices and are routinely sold at auction houses Sothebys and Christies.

source

When first released, punks creators Matt Hall and John Watkinson didn’t imagine how popular punks would become. So, not surprisingly, there was no guidance on how punks owners could use or commercialise their punk’s IP. Frustrating for some who decided to sell their punk(s) to send a message to the founders that they need to provide a clearer IP rights framework.

Amidst a growing trend of NFT buyers seeking more commercial utility from their NFT’s, the previously untouchable Crypto Punks found themselves overtaken by a much younger project, Bored Ape Yacht Club (BAYC), created by YUGA labs that sells each of its NFT Bored Apes with a clear IP assignation and “freedom to commercialize” for owners.

Key Take-Aways

If you are an IP holder that is licensing your property to NFT creators, then you could consider writing agreements that clearly define their rights as NFT creators and also the sublicenced rights of NFT purchasers with the regards to your IP, including their freedom to use it commercially or in the creation of derivative works.

If you are an NFT Creator, then you could consider clearly communicating exactly what rights you are granting to purchasers of the NFT’s you are selling.

*the above work are conclusions from research and not legal advice

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The Long View

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Damian Amamoo

The Long View

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