Enrico Schaefer - January 26, 2022 - Non-Fungible Tokens (NFTs)
Today, we will be talking about NFT non-fungible token licensing. There was a recent story that is an instructive lesson in copyright law that has application to the NFT market. The article titled “Cryptobros spent $3 million on Dune book, believing it gave them copyright. Congratulations, you played yourself” is a cautionary take for NFT investors. (See article below).
Learn more about NFT Copyright Issues here.
NFT are ERC-721 tokens. The token goes onto the blockchain, indicating ownership rights and potentially royalty rights for future transfers of the NFT, but not the underlying digital asset. The NFT is a smart contract coded into the NFT. THE NFT smart contract does NOT include the licensing terms for the underlying digital asset (i.e. the Bored Ape or CryptoPunk). Without a separate licensing contract (typically a web page) for the underlying asset, an essential part of the NFT transaction is unaddressed. We have written about this NFT / Digital Asset distinction and risk previously in this article.
An NFT group called TheSpiceDAO bought a copy of the book “Dune” believing they had purchased more than just the book. nThe book and the copyright ownership are two distinct things. Buying the book – or NFT- does not mean you own the copyright. This is a prevalent mistake that has been rampant in the NFT space.
The essence of the news story is that TheSpiceDAO bought at auction a rare copy of “Dune” that was being auctioned off by Christie’s as just a book. The investment entity bought the Dune book for 2.6 million EURO despite an estimated value of 30,000 EURO. The NFT investment group that purchased the book paid a premium believing they were purchasing more than they received. For instance, the investors wanted to create NFTs from the characters in the Dune book and thought purchasing the book gave them those rights.
All NFT purchasers should carefully review the copyright license agreement attached to the NFT to see what rights they are receiving. On the fundraising page for TheSpiceDAO on a Twitter post by the same group, they say that now that they’ve purchased the book, they will:
None of these rights were included in the book sale. The group’s fundraising page states that they will create an NFT of the book and create an NFT of the characters by simply buying the book. The investor pitch indicated they wanted to produce an original animated limited series inspired by the book. So the NFT group, which accepted over a million dollars in investor money, overpaid by millions of dollars because they thought they would be able to monetize the work, and the characters in it.
What the NFT investors were buying was a copy of the book itself, not the copyright. You buy a rare copy of the book and you have the right to read it and put it on the shelf. You can resell it and transfer the same limited right to read it. The copyright owner retains full copyright ownership and all of the rights bundled with the book, including for instance:
When you purchase an NFT, the buyer typically does not receive the copyright to the underlying work. Often, the NFT owner is only allowed to use and display the NFT in a non-commercial way. The NFT buyer also receives the limited commercial right to transfer the NFT and accept a profit for that sale.
See the video “How to create an NFT copyright license agreement.” You’ll find it on our NFT channel which is Traverse Legal, PLC, and it talks all about what it is that you’re selling with an NFT. The digital asset. What are you buying, the NFT? But the license is separate and copyright law is going to control what you get with the license.
We created an open-source NFT Copyright license here, which you can find at the NFT License Project, www.nft-license.weebly.com. This would be a classic license that would go along with an NFT. It would include the license-seller to use the NFT. That’s typically what you’re getting. The right to use it. The digital piece of art or the digital work.