Anatomy of an NFT Fail: Trademark License Expires on F1 Delta Time.

Enrico Schaefer - April 6, 2022 - Non-Fungible Tokens (NFTs)

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This is a story of an NFT project which got off to a great start but was built on a weak foundation by the game and NFT company Animoca Brands, blockchain game company which brands itself as “Driving digital property rights via NFTs and gaming to build the open metaverse.”

F1 Delta Time lost its trademark license to use F1 / Formula One as part of the F1 Delta Time game. The brand licensing deal apparently had a ‘term’ that expired. F1 did not renew the license. Since the game title and NFTs were based on the use of F1, the game, the NFTs, the website, and the social media channels using ‘F1’ all had to be shut down. NFT buyers obviously bought their NFTs, in part, based on the access to the F1 game, and association with F1. The value of the NFTs was also tied to the F1 brand.

Will NFT Owners Sue F1 & Animaco Brands?

While NFTs – aka token contracts- last forever on the blockchain ledger, the linked digital asset could be taken from you or have its value/utility diminished or extinguished. It is also a valuable and hard lesson for all NFT projects, brands, and IP owners. If the intellectual property of your NFT project is not established by contract, not properly licensed or assigned, or subject to termination, your entire NFT project could flame out on lap 5. While NFT owners have not yet sued F1 Delta Time, there is little doubt that viable legal claims exist. Regardless of whether lawsuits are filed against F1 or Animaco, the legal risks of NFTs are highlighted by this unfortunate but unavoidable license termination.

What Legal Claims Might Be Viable And Against Whom?

For the Against F1 Delta Time, the Licensor (Formula 1 Group/Liberty Media Acquisition Corporation), and Licensee (Animaco Brands) by Sub-Licensees (NFT Buyers)? This article will explore the real and hypothetical legal liability of the F1 Delta time NFT project so that other projects can avoid these mistakes. What many NFT projects forget, is that they can be sued in court by NFT owners. Securities law, contract law, consumer protection laws, and causes of action for fraud and misrepresentation are all possible legal claims. NFT buyers who paid hundreds of thousands of dollars for F1 Delta Time NFTs are not likely to go quietly down the road. A lawsuit would be needed to obtain copies of key documents which are no longer publically available.

Possible causes of action include:

  • Breach of Contract: Because the website for F1 Delta Time and other online uses have been removed as a result of the loss of license from Formula One, it is unclear what Animaco Brands told NFT buyers after minting. It is also unclear whether Animaco Brands even linked to a separate contract on their website which included disclosure of the Formula One license. Did the initial NFT buyers even know their NFT license was subject to an upstream license that might expire? There are still some things we don’t know.
  • Fraud and Misrepresentation: If any of the marketing materials to sell the F1 Delta Time NFTs made false or deceptive statements then a fraud claim may be available. Any statements made by Animaco Brands that suggested that they owned perpetual rights in the F1 brand and trademark license, or that they were the rights holder as licensor, rather than a licensee looking to subcontract could be considered deceptive. Again, most of the information about this project has been removed. We can still see the listing on OpenSea. The OpenSea listing does NOT disclose the Formula 1 limited license or a website link to a linked digital asset agreement which would disclose terms outside the token contract.
  • Violation of Consumer Protection Laws: Deceptive trade practices are actionable under many state consumer protection laws.

Which Companies Might Get Sued for the F1 Delta Time Trademark License Fiasco?

There is no question that any civil liability could be against the two parties to the NFT purchase, the NFT project itself, and the initial NFT buyers. Subsequent buyers of the NFTs also have potential claims against the project owner.

There could be a liability against the trademark licensor who clearly knew the purpose of the F1 Delta Time Project, that NFT buyers would be relying on that license and may have reviewed materials as part of their license agreement. It would be interesting to ee the license agreement between Formula One and Animaco Brands. Stay tuned for a more thorough analysis in the coming week. In the meantime, here are some articles about the F1 license fiasco.

F1 Delta Time NFT News Articles & Resources.

  • F1 Delta Time’ Cease Operation due to inability to renew License with Formula 1. The first sports league that entered the blockchain space in its infancy was Formula 1. It had joined hands with Animoca Brands to launch the Ethereum NFT game ‘F1 Delta Time’. Unfortunately, the game will no longer be on the network after today. In 2019, F1 Delta Time’s “1-1-1” NFT became the most expensive NFT and virtual car of that year after selling for 415.9 WETH. The existing player of the game now shifts over to the “REVV Motorsport ecosystem” to use their utility from F1 Delta Time such as Revv, SHRD tokens.
  • F1 Delta Time, one of the first major NFT games, has shut down. The reason behind the shutdown is that this officially licensed Formula 1 game has lost its official license. This would be a major blow to any game, but especially so for one where the license is wrapped up in the sale of blockchain-based digital items. Animoca announced the shutdown via its REVV Motorsport Twitter account. As for what’s happened to all those precious NFTs, well, for all intents and purposes they no longer exist. It’s worth noting the developers are attempting to compensate owners of those now-worthless NFTs with replacement tokens for one of the company’s other blockchain-based racing games.

Animaco Brands Tries to Placate NFT Owners.

Owners of F1 Delta Time NFT Assets will supposedly receive the following surrogate value from Animaco Brands to pacify NFT owners.

  • F1 Delta Car (NFT) owner will get a replacement car with the same property and rarity level
  • F1 Delta Car NFT also can be swapped for Race Pass, which will be used in staking. It will also be used in future minting and airdrop
  • Staking V4.0 will come with the largest reward pool of 20 million REVV tokens
  • Event Segment owners will receive 6 months of rewards and the option to swap for Track Vouchers
  • 2019 Crates and 2020 Keys can be bridged and staked into an SHRD earning pool on Polygon
  • The remaining assets can be swapped for Proxy Assets, which will use in the future NFT project on the REVV Motorsport ecosystem

It is unclear if this will be an adequate surrogate for the value of NFTs and associated tokens moving forward. In the meantime, NFT owners have taken a hit on NFT value, resale, and market demand.

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