2021 was a big year for non-fungible tokens (“NFTs”) resulting in significant commercial value. The creators behind Cryptopunks, an NFT project with over $2 billion in trading volume, signed a representation deal with a leading Hollywood talent agency to pursue a range of commercial projects. Purchasers of the Bored Ape Yacht Club (“BAYC”) NFTs, including music producer Timbaland, distribution label Universal Music Group, and consumer products company Arizona Iced Tea, have all commercially exploited the NFTs they purchased for marketing and merchandising efforts. Still yet, adidas released a video on its collaboration with BAYC to begin its push into the metaverse.
The ability of NFT creators and purchasers to leverage and commercialize their NFTs is contingent upon ownership of the intellectual property rights and/or access to the commercial rights governing the underlying digital asset. Depending on the project, there may be limitations to how a buyer may commercialize the NFT-tied asset, including limits on revenue, limits on rights to create derivative works, and/or requirements to pay royalties to the NFT creators. There are, nonetheless, various approaches that popular NFT projects have taken when it comes to intellectual property rights, and the resulting commercial rights and benefits afforded to purchasers and creators. Here is an overview …
Licensing of Commercial Rights While Retaining IP Rights
Some NFT projects have adopted the NFT License, a license originally created for the CryptoKitties NFTs, which aims to define the rights of both NFT purchasers and creators. Under the NFT License, the purchaser of an 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. The creator of the NFT retains ownership of all legal rights to the underlying art, including all intellectual property rights, such as copyright and trademark rights. Since its initial use in connection with the CryptoKitties NFTs in 2018, the NFT License has been adopted by several prominent NFT projects, such as CryptoPunks and Meebits.
Elsewhere in the market and in an attempt to strike a balance among the needs of NFT creators, purchasers, and the wider fan community, the Forgotten Runes Wizard’s Cult NFT project, for instance, has taken a more unique approach to licensing their Wizard-themed NFTs. Purchasers of these NFTs obtain a non-exclusive, royalty-free commercial license to the underlying art for up to $5 million in revenue per organization, after which a 20 percent blanket royalty is applied. The non-exclusive license also allows the creators to exploit the intellectual property rights governing the art. Meanwhile, individuals that are neither creators nor purchasers can also use the art underlying the Wizard NFTs under a Creative Commons non-commercial license, a popular open-source license for online creators.
Assignment of Commercial & IP Rights to Purchasers of NFTs
Yuga Labs, the creators behind the widely-known BAYC collection, took an approach that aims to provide unlimited commercial rights to the purchasers of their NFTs, with ownership of the NFT being mediated “entirely by the Smart Contract.” According to Yuga’s terms and conditions, “when you purchase an NFT, you own the underlying Bored Ape, the Art, completely.” More than that, purchasers obtain an unlimited, worldwide license to create derivative works based upon the underlying art with no cap on the revenue that a purchaser can generate or earn.
However, purchasers should note that although ownership is mediated entirely by the smart contract that serves as the foundation for each individual NFT, the BAYC smart contracts do not include a specific provision speaking to the ownership of the intellectual property rights governing the art tied to the NFT. What this means – from a copyright perspective – is that there is no executed assignment of copyright, so copyright may not immediately vest to the owner upon purchase of a BAYC NFT. A written assignment is required to perfect the copyright transfer.
From a trademark perspective, a purchaser would generally not receive any trademark rights, since trademark rights only arise upon use of a trademark in the course of commerce or upon registration of the mark. Instead, a BAYC NFT purchaser obtains permission to pursue trademark rights in the NFT, but the purchaser is fully responsible for assessing whether the mark is available to be used with the goods or services they plan to offer and to pursue protection for.
The World of Women NFT project goes a step further than BAYC and assigns all of the rights, title, and interest to the intellectual property underlying the art to the purchasers of the NFTs. 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. Upon resale of these NFTs, all rights must be transferred to subsequent purchasers, and the original creator is entitled to compensation upon resale in accordance with a commission determined by the relevant NFT marketplace.
IP Rights in the Public Domain: The Creative Commons License
In stark contrast to the NFT projects above, some creators have opted to take a fully open-source approach by adopting the Creative Commons license and dedicating the underlying copyright to the public domain. An example is the CrypToadz project, the website for which 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.” However, the project compensates the team behind the project by dedicating every tenth Noun NFT minted for the first five years of the project to be shared among the founding members.
NFT Creators and Purchasers Should Take Due Care
With the foregoing in mind, NFT creators should carefully consider an appropriate intellectual property strategy and approach to manage how the rights underlying their project will be treated and/or transferred to the purchasers and the public. Creators that wish to retain control over intellectual property rights in a project may adopt a traditional licensing model, while those that wish to provide their community with unlimited commercial rights may assign these rights. Still yet, projects without a commercial focus may adopt the Creative Commons license.
Companies and brands looking to purchase NFTs for commercial use and marketing programs should be aware that the intellectual property and commercial rights obtained upon purchasing an NFT will vary depending on the approach to intellectual property and licensing taken by the creators. Purchasers should carefully examine the terms and conditions, licenses, and the smart contracts governing the specific NFT projects. And purchasers should also seek competent legal advice to ensure that a project provides a valid transfer of copyright upon execution of the smart contract, and to clear and protect the underlying trademark rights necessary to commercially exploit the NFT as a brand or marketing tool.
Daniel Anthony, counsel in Smart & Biggar’s Ottawa office, specializes in all aspects of trademark and copyright law, with a particular emphasis on enforcement issues.
Akiv Jhirad is an articling student in Smart & Biggar’s Toronto office.
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