Ten years ago, non-fungible tokens (NFTs) did not even exist. Now, they have captured the public’s imagination. Billions of dollars are being made in this marketplace. Where there is money, regulators will follow. There are numerous legal issues involved with NFTs. If you are involved in this space, you will need the expertise of an attorney, especially given the new and always-changing legal landscape.
Creators want to monetize their NFT portfolio. There is a vibrant market, and collectors are willing to pay large amounts of money for an NFT. At the same time, someone who is spending hundreds of thousands, or millions of dollars on an NFT, also wants to protect themselves.
If you are buying or selling something that could have significant value, there are always legal issues. Any high-dollar transaction requires legal expertise to protect your own interests. You would not enter into a large transaction without a specialized review of potential legal issues.
NFTs could involve issues of:
At its core, an NFT involves a sales contract. Each contract may have different terms, depending on your individual situation. The more valuable the NFT, the greater the need for a customized contract. The particular sales contract will be binding, and every word and comma has an effect. Any mistakes or oversights could affect your legal rights.
One of the major legal issues that market participants will face is how federal (and state) securities laws will apply to NFTs. If an NFT is legally considered to be a security, the offering would need to be registered with the Securities and Exchange Commission. If someone sells an unregistered security, they could face federal enforcement action. The primary test that you need to be aware of is the Howey test, which considers something to be a security if:
Those who sell NFTs want to avoid having to register their offerings with the SEC. An NFT lawyer could help you structure the transaction where registration is not necessary.
NFTs often involve images or other types of intellectual property that belong to someone. One cannot simply take someone else’s copyrighted work and sell it as an NFT because that would be infringement. Instead, the intellectual property owner either sells or licenses their rights. If you are involved in the creation of NFTs, you would need to negotiate a licensing agreement with the holder of the rights. These rights could be either assigned or licensed. If you own intellectual property rights, you may need to take action if your rights are being violated.
Those who buy NFTs may be surprised to know that they do not fully own the rights, even if the NFT is in their digital wallet. The NFT is not yours to do with it as you wish. You cannot make it available to the general public, nor can you recreate it and sell it. The owner of the intellectual property could still take action against you, even if you have paid a large sum of money for the NFT.
However, the buyer and seller of an NFT could reach their own agreement that dictates how the owner can use it. The agreement could allow them to make a limited amount of money from owning the NFT each year. Everything depends on the provisions of the specific contract between the parties.
An attorney can be of help to you by identifying legal issues that you may face. With such a new and shifting area of the law, being able to anticipate future challenges provides you with significant value.
Here are some of the functions that an NFT attorney would perform for you:
Traverse Law PLC works at the cutting edge of emerging technologies, bringing our expertise to the table to help our clients navigate new situations. We understand the technology and the market, and we contribute to your transaction. You can speak to an attorney by sending us a message online or calling us today at (866) 728-2197.
The Attorneys at Traverse Legal have been globally recognized for their experience and results. We can provide legal expertise for a variety of industries and practice areas such as Complex Litigation, Internet, Trademark, Copyright, Patent, Cybersquatting, Drone, AirBnb, NFTs, Metaverse, Blockchain, Trade Secret, Non-Compete, and Business Law. Contact our team today!