Enrico Schaefer - January 29, 2022 - Non-Fungible Tokens (NFTs)
My name is Enrico Schaefer, and I am a Tech Law lawyer, specializing in BlockChain and NFT issues. Today we are going to talk about NFTs or non-fungible tokens. One of the big problems with the NFT marketplace, where NFTs are both sold and purchased, is that the platform doesn’t provide any licensing language for the digital asset that the owner attaches to the NFT.
If you’re selling a digital rendition of a piece of artwork, you will mint an NFT, which will then attach to that particular piece of digital art. The token will go onto the BlockChain, and the buyer will get that token proving that they are the owner of that NFT. The NFT will link to what the owner is licensing: the actual digital work, the piece of artwork, the image, the video, the audio file, etc.
“These platforms are not providing any license language for the actual asset attached to the NFT. If you’re selling an NFT, you need to know what you are selling. If you mint an NFT, you are selling the NFT itself. The person who buys that NFT becomes the owner, and they can transfer ownership later, and that person becomes the new owner, and so on”.-Enrico Schaefer, NFT Attorney
NFT lawyers who specialize in copyright licensing understand the distinction between the linked digital asset and the token contract. The NFT identifies all the transfers and events that are related to the digital asset. Typically, the NFT links out through a URL embedded into the smart contract that goes into the Ethereum blockchain (to a website, database, group of servers, or peer-to-peer servers) to offer up that digital asset and identify what is associated with the NFT.
You’re licensing that digital asset. You’re going to grant rights, and you are going to limit rights. Let us look at a project that I created in one of the highest volume marketplaces: Open Sea. I have minted a photograph of myself as an NFT. In this example, I am showing you how to get this free copyright license to attach to the NFT. I am also showing you how to modify and embed that license into the sale. This process can ensure that the purchaser knows what they are getting in terms of rights. Lawyers with expertise in blockchain and NFT technology can help you get the copyright license agreement right for your project. Avoiding copyright infringement in the non-fungible and smart contract space is going to become more important as the NFT market matures.
On OpenSea, the details section is where you’ll put the information concerning the license you attach to your digital asset. You will see on the website a link to access a free, open-source copyright license for use with your NFT listing.
The types of licenses for digital assets linked to NFTs are infinite. You can slice and dice the rights and limitations however you want. You can give broad rights, and you can provide limited rights. You’re going to need a lawyer who understands NFTs and copyright licensing if you have an NFT that is of any significant value or if you want to do it right.
Take a look at the example in the video above. We’ve got one standard license. We are developing some more licenses that you’ll be able to use freely, modify, etc.; as long as you provide attribution to Traverse Legal, PLC is part of that modification of the license. If you want to bid on or buy this digital asset here, you can buy it. We are not encouraging you to do so as this is for illustration purposes.
We will add a link to the license here, what we call the NFT Nonfungible token license, version 1.0. Before we get to that license, there is another spot on this platform where you can include license information: in the property section. When you are creating your NFT, you will have the ability to develop properties, and you are going to put whatever words or information you want on the website. You can even customize those items to attach to this NFT.
In this example, you are not purchasing the copyright to this photo, as the website says, “Copyright ownership remains with the owner.” You’re going to see that there are several tags that I have placed on this. It will tell you about any further grants, this license, and what you cannot do with that digital asset or photograph; it will also tell you that you may not modify that photograph. Lastly, the website tells you that you need to provide attribution. You should know what your licensing rights are and the scope of those rights.
You will also find a summary on this page. You’re getting a license to use, copy and display this item. As a seller, you’re trying to tell the buyer there are license rights bound to this NFT, and this section is a summary of some of those license rights.
Let us click on the license that is going to be attached to this NFT sale. You’re going to see a hyperlink that you can add to your NFT as a hyperlink when you do your markup, and it is a straightforward license.
I am not saying that this is the license that will work for your situation; it certainly is just one version of a standard license for an NFT sale. You can take this and modify it. Our license to this copyright-protected work is outlined in the creative comments, and it now tells you that as long as you provide credit to Traverse Legal and link to Traverse Legal, you can use and modify this license.
“The license rights will tell the buyer that they are buying the NFT, but they are getting the license to the associated digital asset, which we will define as the works. We refer to the NFT sellers as the granter or licenser. The NFT buyer is the grantee of the license”.-Enrico Schaefer, NFT Attorney
OpenSea states that the copyright owner of the works shall remain the copyright owner. The person selling is not assigning you the copyright. They are retaining their copyright ownership. The buyer is receiving certain limited rights set forth herein.
Upon confirming the NFT on the blockchain, the buyer becomes the grantee and immediately receives a worldwide, nonexclusive transferable license to the works. You might want this to be an exclusive license in some instances, or you might want it to be non-transferable. All the variations of this process can be identified in the bundle of rights. This is a typical transaction for an NFT.
The owner can grant the grantee the right to use the works or image and copy that image. Copying an image happens every time that image is uploaded to Instagram or Facebook because a digital copy is created when the image is uploaded on these servers.
You don’t necessarily have to provide the right to copy as the copyright owner, but the standard is to give that right and the critical item to display the works. In the illustration above, the grantee may not modify the work in any way. Additionally, the grantee cannot create derivative works, which means they cannot take this digital asset and turn it into something else by attaching it to another type of asset (digital or non-digital).
Referring again to the illustration, per the details section, you cannot transform the work. You’re only getting the work as the owner provides it to you. Furthermore, you cannot perform the work (that will not apply in this situation, but that is one of the rights we discuss when we talk about copyright licenses). Lastly, you may not make commercial use of the works except to resell the copyright license in this example.
If you were to sell your NFT to the next person, they would get the similar or the same bundle of rights unless you have made some modifications to the license downstream, which further limited the next person’s rights. This means you cannot take the photo from the example above and put it on a cereal box, in a commercial, or on your website in a way that would be a commercial use of the works.
Suppose you are a buyer and are looking for an NFT to use in a commercial (like you would get if you were on a copyright site that allows you to access photographs with built-in licenses that are variable that some you can use on the web). Whether or not you can use the work for commercial purposes depends on the scope of rights granted to you. You need to check the license for a “you may not use for commercial activities” clause. Some NFT licenses allow limited commercial use of the works.
The illustration above states that, “you may not use the works in any way associated with hatred, intolerance, violence, cruelty, or otherwise”. As an NFT owner, you do not want your photo, digital art, or digital asset being used in a way to disparage someone else or engage in bigotry. If you are the copyright owner, this is a necessary clause. If you have a beautiful piece of digital art, you do not want anyone to use that for hatred or intolerance, or perhaps you do. You can customize that. Avoiding NFT infringement, copycats or digital art theft is important. Your IP protection is a key part of protecting your works from theft and infringement.
In the example above, any exercise of the rights granted therein requires attribution to the copyright owner and creator if listed in the NFT sale. In this illustration, I listed myself, Enrico Schaefer, as the owner of the NFT. If you are going to exercise your right to display my works, you need to identify Enrico Schaefer as the copyright owner.
If there is nothing in the sale that identifies the copyright owner or creator, no action would be required of you. This is another clause that a seller may include or may not care about. You want to look for this type of clause if you are a buyer to see whether you must provide attribution to the copyright owner as you continue to use the works down the line.
Listed in this example is a key provision. This provision is one that you want to be careful about if you are the seller. You can copy an image from the internet, but that does not mean you can create an NFT and put it for sale or license it on Open Sea. You are warranting under this license and any other different NFT sales that you are the owner or authorized to license the work consistent with the terms herein. I am certifying you as the seller. As the buyer, I am warranting that I am allowed to do this transaction because I own the bundle of rights that I am giving to you. Many sellers mess this up. They have a photograph that does not belong to them but that they have, and they think they can offer up as an NFT. You cannot.
The copyright owner in the works is the one that can control whether an NFT can be created and attached to that copyrighted work. If you want more rights, you can contact the grantor, and any further rights need to be in writing. A standard clause to make sure that nothing is implied, and nothing will come back later as a “he said she said” situation is critical.
The license in this example only addresses the rights and works attached to the NFT transaction, not the NFT itself, but there may be additional terms on the NFT listing page. You can use this license and add different terms to the description to modify this to the extent there is a direct conflict between this open-source license and the NFT listing description or other license information the listing information will control.
To recap, if you are going to create and mint an NFT and attach a digital asset to the NFT, you must tell the buyer what rights they are receiving in the digital asset. Nothing on the Open Sea platform provides any licensing information.
Please note that you must create a license as the seller, which is why you typically want to get a copyright attorney involved who understands NFTs, especially if it is a high-value transaction. The detail section on Open Sea is a place where you can put a link to a particular license, create a license, put it on your webpage, and link to it. You can provide the full license information in this detail section.
Suppose you want to help the buyer understand the license without going to the outbound link. In that case, you can create some properties that are going to attach to the NFT and then allow you to determine what the license is in a summary fashion.
That is a good starting point for all of us to upgrade our approach to NFT transactions. Your digital asset must have copyright licensing language attached to it as part of a transaction and provide you with an accessible, open-source starting point for your particular NFT license agreement.
We will be adding more NFT licenses to NFT/license.weebly.com. The NFT license project.
My name is NFT Attorney Enrico Schaefer; we will see you next time.