Why would you need an NFT license?

Everyone is talking about non-fungible tokens (NFTs). Whether it’s about their unique properties that introduce scarcity into the digital domain, their price, their effect on the environment, or the numerous other polarizing debates they spark, they’ve been a hot topic for over a year now.

However, the thing not many people are talking about is what you are actually selling when you sell an NFT, and what you actually own when you buy one. There are many claims as to how NFTs enable true ownership of digital assets, but the problem is, these are really nothing more than claims and the true meaning of “ownership” is still subject to several discussions. Copyright and intellectual property (IP) law are well established fields, and many NFT enthusiasts have yet to realize that they take legal precedence over ideological assumptions about web3.

In their recent article on The Verge, the preeminent IP lawyers James Grimmelmann, Yan Ji, and Tyler Kell lay out the difference between owning a copyright and a copy of something, and illustrate several cases where people buying NFTs later found out the hard way (through legal battles) that what they had purchased was not what they had thought. In short, owning a copyright allows you to make copies of the work you have purchased (hence the term copy right), but owning a copy only entitles you to use the work for your own personal use. NFT owners thought that by purchasing an NFT, they were automatically purchasing the copyright to the work, and were unpleasantly surprised when it turned out they had only purchased the rights to use their copy of the original.

So why is there such a lack of clarity surrounding IP and NFTs? Because the legal rules specifying what exactly NFT purchasers are buying have yet to be established. There is no common framework that lays out the rights implicitly associated with NFTs, so unless these rights are explicitly stated in a license, there’s a huge gray area that’s ripe for misinterpretation.

We’ll repeat that one more time for emphasis:

Unless the terms specifying rights of NFT holders are explicitly stated in a license, there’s a huge gray area that is ripe for misinterpretation.

Some of the most well-known and successful NFT collections such as CryptoPunkz and Bored Ape Yacht Club (BAYC) have recently implemented official IP licenses, and as IP legal specialists ourselves, we'd highly recommend all collections start following suit.

With and without NFT licenses

Let’s take a look at how this plays out in practical terms with some real-life examples.

Example 1

Without:

• Jan sells his digital image as an NFT with no license.
• Martha buys it, starts making copies of it and selling them as her own.
• When confronted, Martha says it’s her copyright now because she is the NFT owner, and it is pretty clear in her opinion, so she can do whatever she wants with it.
• Since there is no explicit license to clarify this, Jan has no other choice than bring it to court.
• It takes a year to resolve, and with what result?

• Though Jan as the original creator was in the right, he had to go through the hassles of a legal battle and prove that he is the original author.
• Court could decide in his favor but it could decide on a compromise of both using the NFT legally as well
• Martha was ordered to pay damages and legal costs.

With:

• Jan sells his digital image as an NFT with an embedded IP license explicitly stating that the NFT is only licensed for personal use.
• Martha buys it, starts making copies of it and selling them as her own.
• When confronted, Jan shows Marta the embedded license and threatens legal action which would be easy to lead.
• Martha realizes she’s overstepped and backs off.

Example 2

Without:

• Paula sells her digital image as an NFT with no license.
• Derek starts adapting it (adds some more layers) and using it for his own business, which is something Paula doesn’t like.
• When confronted, Derek says it’s his right to use it because he is the buyer and hence the only one who can decide how to use it, so he can do whatever he wants with it.
• Paula tries to resolve the issue with Derek, but he is not cooperative. Since there is no explicit license to clarify this, Paula has no other choice than bring it to court.
• In the end, it takes years to resolve, and what is the result?

• Though Paula, as the original creator, was in the right, she had to go through the hassles of a legal battle and prove that she is the original author.
• The court could have decided in favor of either party depending on several copyright aspects.
• Both of them could be ordered to pay damages and legal costs.

With:

• Paula sells her NFT with an embedded license explicitly limiting adaptations and permitting use for economic benefits.
• Derek wants to start adapting it (adds some more layers) and use it for his own business, but he sees in the license that it would be something against Paula’s copyright.
• Derek realizes the potential legal implications and changes his plans.
• Moreover, if Derek wanted to start adapting the NFT and use it for his business he could contact Paula and agree with her because the license can be changed.
• The result?

• Since the rights transferred with the sale of the NFT are clearly laid out, any misinterpretations or lengthy disputes have been avoided, and both parties can proceed in a courteous and civil manner.

How Artiffine can help

As founding members of the Harvard NFT Task Force, our legal team is uniquely qualified to create solid, enforceable NFT licenses. Every NFT minting website we build includes our Standard licenses by default. These licenses explicitly specify how the NFTs can be used:

• use for personal, non-commercial purposes (no merchandising)
• use for resale on secondary marketplaces (OpenSea, etc.)
• use for interactions on third-party websites / applications / metaverses
• no modifications allowed (adding / deleting layers, changing metadata)
• no trademarks or other IP registrations allowed
• usage restrictions to prevent association with violent, hateful, or inappropriate content and behavior

Since the usage and restrictions of the work associated with the NFT are clearly laid out, they are legally enforceable and can serve to avoid and/or speed up any disagreements.

Our Standard licenses are prebuilt and can be embedded automatically with any NFT collection. In addition, we can create custom licenses to specify different usage and restrictions upon request. To find out more or get a tailor-made license for your requirements, please get in touch with our legal team at legal@artiffine.com

Start building today

If you have an idea for an NFT project and need a studio to cover the legal, technical, and design aspects of your launch, reach out to us at sales@artiffine.com and let us know what you're building. We can take care of everything from start to finish, from custom smart contracts to advanced NFT reveals and web3 wallet integration, or help guide you through any stage of the process.

And if you've ever found yourself in a similar legal situation to the ones we described, feel free to reach out to us at legal@artiffine.com and we’ll be happy to discuss!