Unchained - Excited About Your Bored Ape or CryptoPunk? Make Sure You Understand Your IP Rights - Ep.340

Starting point is 00:00:00 Hi, everyone. Welcome to Unchained. You're a no hype resource for all things Crypto. I'm your host, Laura Shin. Author of The Cryptopians. I started covering crypto six years ago, and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the April 12th, 2022 episode of Unchained. This episode of Unchained is brought to you by Beefy Finance, the multi-chain yield optimizer. Beefy is the easiest way to earn more from your crypto. Deposit funds into Beefy's secure vaults to auto-compound yield across 12 blockchains. Got crypto? Choose Beefy. Welcome to a new world of crypto-friendly banking with Cross River Bank. Request your Fiat-On-OffRamp solution now at crossriver.com slash crypto. Galaxus.

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Starting point is 00:01:22 Link in the description. Today's topic is the intellectual property rights of NFTs, and what the owners of Board Aves, Cryptopunks, Mebits, and other NFTs should know. Here to discuss are Stuart Levy, partner and co-head of technology transaction and intellectual property group at Skaddenarps, and Marta Belcher, General Counsel at Protocol Labs and chair of the Final Coin Foundation. Welcome, Stuart and Marta. Thanks, Laura. Great to be here.

Starting point is 00:01:53 So let's just start talking about how Yuga Labs, the creators of Board Apes, recently acquired Cryptopunks and Mebeths from their creators, Larva Labs. At that time, it was really big news and seen as a victory for the model in which the creators give some of the intellectual property rights to the buyers of those NFTs. However, Stewart, you reached out to me to say that you felt that there are actually a lot of misconceptions over what rights the owners of these NFTs actually have. So that's the premise for the show. But before we actually dive into that story and this full topic,

Starting point is 00:02:31 let's just make sure everybody understands all the definitions. So let's just go over terms like trademark and copyright, commercial rights, etc. So just between the two of you, why don't you just explain, what are the different kinds of intellectual property rights that are or could be associated with NFTs? Marta, do you want to take that or do you want me too? You can go first and then I will follow up on that. Okay. So there are a couple of different rights.

Starting point is 00:02:57 rights that percolate around NFTs. So the most commonly discussed and probably the most important prevalent is copyright. Copyright is a body of law that protects works of authorship. It includes visual images, moving images, text, music, content like that. So that's one category. So you can imagine how in an NFT, piece of digital art, piece of music, a video clip all comes under the rubric of copyright law. But closely related to that in the world of intellectual property and NFTs is trademarks. And trademarks is a, as its name implies, sort of a mark that indicates a source of origin. So Nike, well-known trademarks, you see a brand name and you associated with the originator of those goods or services. So that's trademark law.

Starting point is 00:03:58 The other piece that doesn't come up with every NFT, but is important to keep in mind, particularly if you're doing anything with celebrities or athletes or personalities, is rights of publicity that attached to that. Just being able to use someone's name, image, likeness is a right that you need to get. But I think for the main, when we talk, about NFTs, we're mostly talking about copyrights and as we'll talk about today, trademark rights as well. And I would add to that, a couple things I would add to that. I thought that was exactly right, Stu.

Starting point is 00:04:36 And I think a couple things that are of interest to NFT creators and NFT holders, one thing is that you get a copyright in a work automatically. So if you scribble down a doodle, you will automatically have a copyright in a work. in that work. You can go register a copyright and you'll get some additional sort of protections, but anyone who's created a work will automatically have a copyright in that work. And those copyrights, those rights, that copyright in that work, those rights can be transferred to others.

Starting point is 00:05:13 So if you have a copyright in a work, you can, using a contract, transfer those intellectual property rights to someone else. or you can also license that work to others. So what you can do is you can say, well, you know, so-and-so can use my work in the following way, but not this other way. And that's all governed by contract law. So that's really just whatever you write, you and the other party agree to, you can transfer rights or give others rights in your work that way. And that's a really important piece that comes into play when you're thinking about NFTs and copyright. Okay, so now let's talk about the backstory to the recent Board A slash Yuga Lab news,

Starting point is 00:05:59 which sparked this episode. Before the most recent acquisition, we had kind of seen this evolution in the way NFTs and their intellectual property rights have evolved with, you know, starting with NBA TopShod and like kind of some of these other projects that have come out. So why don't you just talk about that evolution and how different crypto projects have treated or different NFT projects have treated this issue? Yeah, Lord, it's a great question. So I feel sometimes if you're at a law firm, you're almost like the canary in the coal mine because you see everything that people are thinking about, projects that are happening from a lot of different vantage points, a lot of different kinds of clients. So we see a wide range of different projects. But what's been interesting,

Starting point is 00:06:47 over the past, you know, call it year to 18 months or so, which I feel like is an NFT time, but feels like, you know, decades or much longer, but it's been really not that long. There's been this really interesting evolution in how people perceive what commercial rights they should get or intellectual property rights in connection with the NFTs they purchase. So what I mean by that is, you know, you alluded to NBA Topshots. And that's still the model for a lot of what I sort of look at as iconic brand type NFTs, which is when I buy the NFT, I own the NFT itself, but I just have a limited license to the intellectual property,

Starting point is 00:07:31 to the graphic, to the video, to whatever it might be, that's the NFT that gets displayed. And most of the terms of use say pretty clearly you have no commercial rights. So I have the right to display it. I have the right to show it to my friends. I have the right to display it in order that I can sell it, but they're pretty clear that I have no commercial rights to that as well. And that existed, again, in NFT time for just a few months.

Starting point is 00:07:58 But then as projects started to come out, especially the profile picture projects, but some other projects, there was this groundswell within the community, you know, a term we often use in the NFT space to find that as you will. People saying, well, I don't know, I feel like I'm part of the project. The whole idea was we're building community here.

Starting point is 00:08:19 That's the whole idea of Web 3 of decentralization. If you hold all the intellectual property rights at the issuer or mentor of the NFT, you're not building community. I should therefore have some commercial rights with the NFT that I purchased. And we now see a trend. So I think there's a couple of different streams out there. So one stream is the stream that's always existed, which is you don't get any of those right.

Starting point is 00:08:43 You just get the personal enjoyment right. But there's definitely this stream that's evolved of providing the owner of the NFT with some type of commercial rights. And where it gets really tricky, and this is, you know, part what spurred this podcast, is people lump together. People look at it as very binary. I either have no commercial rights or I can do it whatever I want. And the second category is dramatically more complicated than sometimes people,

Starting point is 00:09:13 who describe the space talk about. So that can range from you've got full commercial rights, but no right to use the name of the project when you use your NFT. So we'll get back to board apes in a second, but that's a model. So I can put the picture of the NFT on a T-shirt, but I can't put the name of the NFT project on the T-shirt. Some commercial rights limit how much you can spend,

Starting point is 00:09:40 or how much you can earn, sorry, on an NFT, And I think Punk 6529, when he was on your podcast, made the really good point that it's not even clear how that model works, unless you're really just doing something for a few friends. You know, no one sets out to build a commercial enterprise thinking, I'm only going to make this much money. And even if you had that in mind, what if all of a sudden, I don't know, you're doing notepads or, you know, or physical trading cards and all of a sudden it becomes the hottest thing, you know, how do you shut it off because your commercial rights only allow you to make a certain amount of money? But that's an interesting issue in and of itself. But then there's some that just limit what kind of commercial rights you have. Maybe it's physical merchandise, but you can't do an animated series. Or maybe you can do certain kinds of physical works, physical objects, but not others.

Starting point is 00:10:30 So the commercial rights are really complicated and really get down into what that license grant is within the commercial rights. and then we have to get into the whole morass of where does that license even appear and how does it even apply to you. But at the main, there's this evolution again from no commercial rights to commercial rights. But what that means is really complicated. And Marta, did you want to add anything on that? Sure. Yeah, absolutely. So I think just to really underscore what Stu said there, there's really a lot of misunderstanding about what you're buying when you're buying an NFT. And really the headline here is that ownership of an NFT is not the same thing as ownership of the

Starting point is 00:11:21 copyright in that NFT. So you certainly can transfer ownership of the copyright to an image along with an NFT, but you don't necessarily need to do so. Similarly, when you buy a copy of a book, That doesn't necessarily mean that you've gotten the copyright to the book itself, right? And so what you're buying when you buy an NFT is sort of to be, to put it pretty simply, is that you're being publicly associated with a particular file that's reported on a particular ledger, right? And so along with that, as Stu is saying, you can get certain IP rights. And that's really entirely dependent on the contract. that goes along with that NFT.

Starting point is 00:12:11 So often that will be in the terms and conditions of the platform where you actually bought the NFT. So I guess to put it another way, when you buy an NFT, you're getting a token that shows ownership of a digital asset that's reported on a ledger. And then you're also getting any other rights that are explicitly given to you. in the terms and conditions of that platform or in what other contract you effectively have entered into with the creator of the image that is associated with an NFT. So if the terms and conditions of a platform say that the seller transfers the copyright to a

Starting point is 00:12:59 particular image to the buyer. And if the buyer and the seller agree to those terms and conditions, then the seller, the copyright will be transferred to the buyer. But if the terms and conditions say that the buyer gets a license to display the image only in certain circumstances, but the copyright in that image doesn't transfer to the buyer, then that's what the buyer gets. And that's what Stu's talking about with all these different ways that you can be licensed to, you know, all these different things that you can be licensed to do.

Starting point is 00:13:34 You know, it's not just either you have the copyright transferred to you or you don't. As suing, it's not binary. You also could have very specific rights that are laid out in a contract. So just to give you an example, you know, Laura, you asked about sort of how this has evolved over time, right? And so, you know, sinking back to, you know, some of the earliest super popular NFTs that were, I think, in many ways ahead of their time. CryptoKitties, right? So CryptoKitties, if you buy a particular crypto kitty, you don't actually get the copyright. You don't own the copyright in that image of that crypto kitty, but you actually do get a license to use it in certain ways. So you can display it on social media,

Starting point is 00:14:21 and you can even use it in certain commercial ways, but only for commercial purposes that net up to $100,000 per year. And so you can see it's highly specific what rights you're getting, and it's entirely dependent on the contract. And, you know, I think that gets particularly important when you're talking about things like, you know, NBA Topshots, right? Which was, you know, extremely popular in the middle of last year, is if you're the NBA, you want to make sure that when you're selling an NFT of a particular moment, that doesn't mean that you're going to be giving the rights to someone to be able to advertise

Starting point is 00:15:02 or market or sell things using that, you know, that moment of, you know, NBA history. And so, in fact, you know, when Dapper Labs created NBA top shots, they limited that ability. And so just to add on here, the headline here really is transferring ownership of an NFT is not the same thing as transferring ownership to any intellectual property rights. And that can happen separately and is entirely governed by what you want to put in the contract. So now let's talk about the recent news, the acquisition by Yuga Labs of Cryptopunks and Mibets. So what are some of the misconceptions that you've heard that some of the, either the owners of these NFTs or just other people commenting on this acquisition have?

Starting point is 00:15:56 and then how does that compare to the reality? Sure. So this is where a couple of different issues sort of come together. And it's really sort of a reaction to, you know, people say, well, you can do anything you, you know, board apes, you can do anything you want to without exception when you own one. And I will say that Ugal Labs announced as part of the acquisition that they were going to grant everyone the same rights,

Starting point is 00:16:22 but they also said they're working with their legal teams to draft new terms and conditions. conditions and are going to share those with the community. So what I mean by a couple of different issues coming together? So one, and I alluded to this earlier, is that if you go to the BoardApe Yacht Club website, scroll to the bottom, there's the BoardApe Yacht Club terms and conditions, and that grants you full commercial rights, but is silent on whether you have any trademark rights. Interestingly and importantly to remember, you know, this is what Mardi was also alluded.

Starting point is 00:16:56 to, if you don't get rights granted to you, and this is true for copyrights and true for trademarks, you don't have them. So the fault is you get nothing unless someone explicitly gives them to you. So saying that I have the commercial rights to use the artwork in board apes or into a lot of NFT projects that do the same thing, means I now have the copyright right to do that. And Yuga Labs in the initial board apes terms and conditions, very broad about the copyright piece, all good so far. In the mutant ape, yes. Club terms and conditions, which is right underneath those terms and conditions. Same commercial rights grant that looks, look identical. But there's an extra paragraph that says you have the right

Starting point is 00:17:37 to your art, enjoy it, commercialize it. We're not going to stop you from doing that. But you don't have the right to use any of our marks, including Bord Ape Yacht Club, Mutant Ape Yacht Club, Bort Ape Knoe Club. You have no rights to any of those trademarks. So that means it's would seem that I can use my board apes. I can get together with four other board ape owners. We could put all four of our apes on a sweatshirt. There's a lot of different things that we could do, but there's probably good argument that I don't have the rights. And again, we'll see what happens with the new terms and conditions they might do, that I might not have the right to use any of those brand names, which could impact a lot the value of what I'm offering out into the marketplace.

Starting point is 00:18:23 Like part of the appeal might be that it says, you know, B-A-Y-C across the top and it's got some cool artwork on it. So that remains to be seen, but at least that's an unknown out there. So that's one issue. But the other issue is, and this is the one, you know, we as lawyers think about all the time, and we'll talk about secondary purchasers in a moment because it only gets worse there, is, okay, well, how did those rights actually get conveyed to me or not? And in this area of the law, as opposed to some other areas where, you know, we often feel as lawyers

Starting point is 00:18:58 were it's square peg, round hole to try to apply legal principles to the world of, you know, Web 3, here the law pretty much matches up and works, which is there's a lot of case law that talks about how do you get someone in an online context to agree to terms and conditions? And there are courts that have said, if I click on something that says, I agree, you know, I've read the terms and conditions, click, I agree. Courts have said pretty consistently the counterparty, the person using the site, has agreed to their terms. They can't say, oh, I clicked on I agree, but I didn't really agree.

Starting point is 00:19:34 You're pretty much agreeing to those terms. But if I just put the terms and conditions somewhere on the website and don't say you have to click on them, I don't even say by using this website, you've agreed to these terms. It's not even clear if you do that, that that's good enough. but just sticking terms somewhere, there's a lot of cases that say you haven't created a binding agreement because the user might say, wait a second, I didn't know how to scroll all the way down to the bottom here with all the fine print that has things about applying for a job, has some other information about the company, and realize, wait, buried in there is like a terms and conditions thing I'm supposed to look at,

Starting point is 00:20:11 and that's going to limit what I can and can't do. So that's one issue. Again, we're just going to now about primary purchasers for that secondary purchase in a few minutes. That's one area that commercial rights are granted. Not so clear in all those cases you've created a binding agreement with the initial purchaser. But it gets worse, again, if you're a lawyer, an IP lawyer. Some of these projects grant you the rights on Discord or Twitter. Like they literally will post out and say, hey, everybody, you've got, you know, commercial rights to do what you want to, you know, with our property.

Starting point is 00:20:47 You could argue, yeah, well, they're not going to come after me if they've said that. So maybe. But you definitely haven't created any sort of binding legal agreement. And again, we'll talk about a little bit what the impact of that is. But you also might not know who posted that. We've definitely seen projects out there where someone posted that on Discord or on Twitter and had no authority within the company to have said that. you know, they themselves didn't have the rights.

Starting point is 00:21:18 They themselves maybe weren't even employee. They're like a mod. And they heard that you get commercial rights and now they've said you get commercial rights. So there's a lot of ways that people feel that commercial rights have been conveyed. But it's being done in a very backwards way for something that conceivably will be incredibly important if people look to commercialize the rights they're getting in the future. Like it's hanging by a very thin thread in a lot of cases. and in some cases, maybe no threat at all.

Starting point is 00:21:48 So just to be clear, so what can the owners of Bordaves, Cryptopunks, and Mebitts, NFTs actually do? So it would seem, and I think there's some ambiguity here, because I think, again, why they're probably looking to clear it up a little bit. The commercial rights themselves, I think you could argue, are pretty broadly stated. I don't think there's any dispute about that. but I think it's far less clear whether you can use, you know, as we sit here right now, the trademarks and names and logos of the board ape, you know, the Yuga family of Marx.

Starting point is 00:22:28 I think there's a reasonable argument that you can't. But again, it's pretty unclear just as the way it's been, you know, presented. Again, it's just in the, as of now, in the mutant ape yacht club terms. It's just, you know, a link at the bottom. We'll talk about what all that means for secondary purchasers. But I think that's the big uncertainty out there. When people say you can do whatever you want to, well, maybe, but maybe with some limits. So you can do whatever you want, but you can't use the name board apes.

Starting point is 00:22:58 So you could have a line of like T-shirts or backpacks or I don't know, snack pouches or whatever using the image of your board ape or your Cryptopunk. But you cannot call it a board. or a Cryptopunk? Yeah, so I'll put one tweak to that because there's an exception to that, but it would probably not apply to the way you'd want to commercialize it. What I mean by that is, if I've purchased a Bored Ape and I want to talk about that board ape, I can use that name in a descriptive sort of what trademark lawyers would call a non-trademark sense.

Starting point is 00:23:41 In other words, I'm not trying to sort of glom on to the value in commercial rights of the Board Ape Yacht Club and Yucal Labs. I'm just describing my Board Ape. I'm not required to say, you know, my ape that is an NFT that's really popular, that looks disinterested. And, you know, you connect the dots and realize, oh, you mean Board Ape Yacht Club. I can describe what it is. But the idea of, let's say, you know, doing a set of sweatshirts and calling it the Board Ape Yacht Club, Club sweatshirt collection. Probably, again, as of now, this is where I think it's unclear, that there's a good

Starting point is 00:24:18 argument that you couldn't do. I would add, I think, I think Stu's making some, like, made, I think several really important points here. I think one really important point that Stu's made is that there's a total distinction between copyright and trademark rights. And those are things that, I think. think as companies, you think about really differently. You know, if you're a company, you know, so for example, everything that we do is open source and we are deeply committed to making sure

Starting point is 00:24:59 that we're open sourcing, you know, all of our code. And, you know, I think, you know, for me personally, I'm very dedicated. I'm also special counsel at the Electronic Frontier Foundation and very committed to the sort of copy left world, thinking about making things open, freely available, part of the public domain, available for others to use, right? And that's really important in a copyright context for me. When it comes to trademarks, it's a little bit different. Trademarks are not about protecting the artist or the creator. What trademarks are about is protecting consumers.

Starting point is 00:25:39 Trademarks are about when a consumer buys a product and it's labeled with Clorox, they know it's from Clorox, right? And they are, you know, they are able to sort of associate the qualities of a Clorox product with this thing, right? And so when it comes to trademark rights, even as a sort of open source ethos, there actually is an important place for trademark rights and for trademarks to be protected to make sure that people understand that when someone says that something originates in a particular place, it actually originates from there. And that's important for consumer protection. And so the fact that a particular NFT platform has super open rights with regards to what you can do when you buy an NFT and you have gotten rights, you know, contractually had rights given to you about copyright is just totally distinct from what you can do with the trademark for that company. Similarly, in the open source context, you'll often have open source projects that, again, everything is open source. They've open sourced all of their code. The open source is at the core of the ethos of what they do, but they'll say about their trademark, this trademark needs to represent that this is the authentic code from this authentic project.

Starting point is 00:27:23 And so if you're going to take this code and use it in a different way, you can use this trademark only to refer to sort of the authentic project. So I think all of that is just to say that I think what Stu's saying is really important around the distinction between how copyright is used and how trademark is used. Yeah, that's super fascinating. I find that distinction actually really helpful that you described. So one other thing that Steve mentioned before we started recording was that there are a bunch of NFT creators that are trying to do the impossible, where they'll say that they hold the trademark, but at the same time they also say that people in their decentralized community can use that trademark. So, Stuart, describe what you're seeing there and what the issue is with that. Yeah. So I would say it's not limited to the NFT world.

Starting point is 00:28:20 I'd say it's an issue that is endemic in the Web 3 world today, which is that there's from an intellectual property perspective a pretty big tension point between decentralized projects where the creators want to hold on and control the brand name and the trademark, but at the same time want to freely allow anyone who wants to to use it. in the ethos of Web 3. And here is the tension point, and it goes exactly to what Marta was just saying. The whole idea behind trademark law is that someone sees the mark

Starting point is 00:28:57 and can associate with that a certain quality of good and service. High end, low end, whatever it might be, they see a trademark, I'm protected because I know that brand. Because of that, trademark law requires you to go out there and have some sort of quality control and policing of your brand in order that the consumer is protected and, you know, this whole scheme kind of works. If I have a trademark and say anyone can use it, I run the very significant risk that I've now lost my trademark protection because I'm not protecting it as my own mark. I'm letting everyone use it. So there's no quality control. There's no policing of the mark.

Starting point is 00:29:37 There's nothing everyone can use it, which would be fine if you want to give up your trademark rights and just say, look, here's a great name, but we want everyone in the community to be able to use this writ large. That's fine. But if on the same token you say, but I still kind of want to own the name for, you know, the founders group wants to own the name, it's hard to really, really hard and maybe even impossible to balance those two. You have to sort of, you know, do one or the other. It doesn't mean you can't broadly allow people to use it, but you still have to have some, again, quality control, some limitations so you can protect the name. Again, if you want to continue to own it as part of the developer group, founder group, creators, etc. So in a moment, we'll talk about some potential solutions to these issues as well as look into how the marketplaces are handling them.

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Starting point is 00:33:16 With the crypto.com visa card, you can spend your crypto anywhere. Enjoy up to 8% cash back instantly, plus 100% rebates for your Netflix, Spotify, and Amazon Prime subscriptions, and zero annual fees. Download the crypto.com app and get $25 with the code Laura. Link in the description. Back to my conversation with Marta and Stewart. So I know a lot of people have actually brought up the Creative Commons license as a potential good option here in the NFT space. Why is that? What is it exactly? What problems would it address and how might it resolve some of these issues?

Starting point is 00:33:57 Yeah. So, you know, I think Creative Commons was such a huge step forward for copyright in general. What Creative Commons does is it allows you to basically take any work that you've created. And again, as I mentioned earlier, you know, anytime you even scribble down a doodle, you automatically get a copyright in that work as the creator of that work. And so if you want to be able to share that work broadly with the world, and you want other people to be able to do things with that work, you have to contractually somehow give them the right to do that. And you have to make it clear what exactly it is

Starting point is 00:34:38 that they can do with the work, right? So you may create a drawing and you may genuinely want people to be able to use it in their films, or you may genuinely want people to be able to remix it with other things. You may genuinely want people to use it in a variety of ways. Or, you know, for example, you might take a photograph and really want that news organizations are able to use it. So how did this happen sort of pre-creative Commons or in a world without Creative Commons? It has to happen on kind of an individual-by-individual basis, really hyper inefficient. And what Creative Commons lets you do is have this sort of standard set of licenses that sort of you can very easily associate with the particular work. So for example, when I write papers that I want to put out there, I will just put a little stamp on it that says CC, Creative Commons and then the specific Creative Commons license that I want to be able to use, that I want to be able to use for this particular work.

Starting point is 00:35:46 And so Creative Commons, you can go to their website and you can see they have these standardized licenses. And then, so just to give you one example, one is CCBY. CCBY is basically you're licensing this work in a particular way, but they need to give you attribution. So anyone can use, let's say I took a photograph, anyone can use this photograph as long as they give me attribution as the photographer. And there are a bunch of these standardized licenses, and you can just pick the standardized license you want to use and clearly label your work as CCBY or, you know, some other license that you want

Starting point is 00:36:29 to use. And then people know that what they can do with that work. They know that they can take it. And as long as, you know, they've given you attribution, if you're using CCBY, then they can actually, you know, use the work in the ways that the license says. And it's this really lovely human, they're really lovely human readable versions of the contracts. And so this was a really important step forward in the sort of world of, I think, ensuring that creativity can be shared and that, you know, when you're creating these works, others can use them in a way that's really easy. So one of the things that's been really, for me, interesting in the NFT space, from the beginning, I've been, you know, I've seen this idea that when you transfer,

Starting point is 00:37:21 ownership of an NFT, right? Like, let's say I've created an image and I create an NFT of it. You don't have to transfer the intellectual property rights to that particular image, right? And you can retain them. And what that means is, in addition to being able to retain them, you can license them any way you want, which includes potentially licensing it under creative comments. So it's this really lovely thing, because what that enables is if you're an artist, you can sell an NFT of your work without selling the intellectual property rights, and you can make money from it. And then in addition to that, you can Creative Commons license your work, and it will be out there licensed in a way where others can use it and sort of part of the Creative Commons, right?

Starting point is 00:38:17 And so I think that Creative Commons has been really underutilized in this space. And what we've been seeing is not necessarily a lot of people using Creative Commons or other similar standardized licenses. What we've been seeing is, you know, what we were describing earlier, which is typically what happens with NFTs is it's really all governed by the terms and conditions of that particular platform. The particular platform where you're buying and selling is, you know, will have some sort of, you know, standard of what the buyer is selling and what the seller is

Starting point is 00:38:54 buying. And that's really what happened. And I really have been advocating for, let's use creative comments. We don't need to reinvent the wheel here. And if you're a creator, how cool that you can sell an NFT, make money, and at the same time contribute your work to the world in an open source way. Right. So, you know, I swear, but I want to just add one point to that. I hate to come back, the trademark law yet again. But the interesting thing is that even the Creative Commons license, which was really designed to put sort of copyrights into the public domain, says within the Creative Commons license itself, this does not give you any trademark rights or impact any trademark rights that people have. And usually when people think of creative works, there's not like a trademark

Starting point is 00:39:42 attached to it, like a brand. You know, it's a piece of art. It's a piece of art. It's a piece of music. But with NFTs, as we've seen a lot of them, have brands attached to them, trademarks attached to them. So if you see a commercial project, which says, this is the public domain, see Creative Commons license, you know, click here to see the license. And now you want to commercialize it. You're left in this limbo world of, yeah, but can I use the name of the project as well? And how lucky do I feel building potentially a big commercial enterprise to commercialize my NFT, sort of, you know, worrying as I go to sleep at night, but could I use the name of the project the way I've used it? I never really got the license

Starting point is 00:40:20 to do that. And so Marta did bring up how currently it's all governed by the marketplaces, but I was wondering if he's been suggesting creative comments, have other people been interested in that? Have you seen any NFT projects go that way or at least discuss it? So what I've seen is there have been a bunch of different efforts at creating a sort of standardized NFT license. So sort of like recreating the wheel here where they're sort of trying to create an NFT-specific, almost version of Creative Commons. And so there have been a bunch of these efforts, you know, some examples. Dapper Labs created the NFT. the NFT license. There was a wearable NFT license. There was a project called the NFT license project.

Starting point is 00:41:22 There is a license agreement called the NFT art licensing agreement. So there have been these on Creative Commons? None of these are from Creative Commons. No, these are all basically attempts at solving the same problem that Creative Commons is trying to solve, right? So, you know, you have this problem of we want a really easy way to convey a set of rights. And so there have been a bunch of NFT people in the NFT space, you know, either the platforms themselves or other stakeholders who basically are saying we need a standardized license for NFT. right that we can use and so what I the ones I just listed are all um sort of platforms or

Starting point is 00:42:14 stakeholders who are trying to create um standardized licenses for NFTs that can be used and and you know I think I think the vision there is very similar to the creative commons vision which is this idea that there's some standard license everyone uses it you know there may be particular um different types of licenses. I will say one thing that I think has been underappreciated about, so, you know, I think all of these are awesome efforts. All of these efforts to create standardized licenses for NFTs will go a really long way in making sure that there's a lot less confusion in the space in the future if any of these get sort of broadly adopted. One thing I think these licenses have done, have not really thought through fully is how important it is for a license to have

Starting point is 00:43:16 many different options and to be kind of modular, right? So the thing that's so cool about Creative Commons is it's not like there's one Creative Commons license and you're out there and you say, you know, I'm licensing this under Creative Commons, period, end stop. And that, you know, that's just the license. There are many Creative Commons licenses. And when you license a work, you say, I'm licensing this under this particular Creative Commons license.

Starting point is 00:43:47 So the example I gave was CCBY. I can just stick licensed under CCBY, you know, or just there's a little Creative Commons image. I could just stick on my work. And everyone knows you, okay, you're using the specific attribution license. and they can go to the Creative Commons website and see exactly what that license is. And so that I think is what's been missing

Starting point is 00:44:08 or something that I think the licenses in this space should really try to adopt in the future if they're going to be widely adopted and used. So, Laura, I think that brings us to probably the biggest issue that's lurking out in the world of NFTs and contractual rights today, which is so far what we've been focusing on

Starting point is 00:44:30 is the primary purchaser. So I go, there's a drop, I go, I go to a website, I buy the NFT. Maybe I've clicked on, I agree to these terms and conditions. They're put in front of my face in order to be able to mint or secure my NFT. Now the NFT enters the resale market. And the big, big missing link in NFTs today and something that, you know, every major rights holder is talking about is how does that initial line? license grant travel with the NFT.

Starting point is 00:45:04 And today, using terminology, our engineering friends would use, every solution is suboptimal at best. So, you know, to talk through with some of the solutions out there we're seeing, and again, none of these really, really works. So one solution is, and you see some of the major rights holders with iconic, incredibly valuable intellectual property doing, is their NFTs are only available within a walled garden. The NFT cannot be moved to your own custodial wallet, non-consularly a wallet, off-chain, anywhere else,

Starting point is 00:45:36 because, and this is one of the principal reasons they're doing this, they're very concerned about this issue, that they never want their IP out there without someone having seen and agreed to a license. And so they know if they're within a walled garden ecosystem, the buyers and sellers had to click on, I agree to these license terms when they get the NFT. It's definitely the safest approach, one could argue, but that's not consistent with the Web3 ethos

Starting point is 00:46:01 because now we've just created these centralized little islands of where you can get NFTs. But the fact that they are so prevalent, I think shows you why that's such a big issue. So that's solution one. Solution two is you go to the different marketplaces and say, look, you can list my NFT, but if you're going to list my NFT,

Starting point is 00:46:25 you need to provide some sort of link to my license term, so that the downstream purchasers in your marketplace are presented with these. So two problems with that. Again, everything's suboptimal. It means going at every marketplace. You'll never get to all of them because if your NFT goes from wallet to wallet to wallet, you'll always be chasing it. And a lot of these marketplaces are not set up to do customized, you know, sort of treatment

Starting point is 00:46:54 that way. So, again, I could easily buy an NFT and not realize that there's, terms and conditions out there. Another solution we've heard is, we'll put the link to the terms and conditions in the metadata of the NFT. So it's there. So when I buy the NFT, the metadata said, hey, when you bought this NFT, it's subject to these terms and conditions. That sounds sort of interesting in theory, but no one's looking at the metadata, like a lot of engineers. I'm sure even buying NFTs are not going to study the metadata. And remember those cases I talked about from earlier, courts say if you're going to get someone to agree to something, you've got to put it in

Starting point is 00:47:29 of them have a reasonable likelihood they've seen it and that they've somehow manifested assent to that. The fact that is buried somewhere in the metadata unlikely to solve the problem, same issue for, we've heard that some people want to put the entire license terms in the metadata. Let's put aside the logistics of doing that, the cost of doing that. It's the same thing. No one's going to be looking at the metadata in order to do that. Another solution out there, again, all these sort of suboptimal, is, you know, most marketplaces do suck in some of the metadata when they list an NFT. So you could have a solution where you put the language that says, I agree to these terms and conditions, you know, click here to see them. And that will always get

Starting point is 00:48:13 sucked into the presentation page for the NFT project. And that could work, except A, in every marketplace works a little bit differently, pulls in different metadata. Again, you have the issue of having to always, you know, chase, chase the platforms and the marketplaces to do that. So nothing works well, and a lot of people are buying NFTs out there, in fact, almost maybe in just about every case, except these wall gardens, where they're not seeing the underlying terms and conditions. And just to finish up on one point, so the risk you run is, so now I want to commercialize my NFT, I go to a streaming service.

Starting point is 00:48:56 and I want to do an animated series or something with these NFTs, you know, all of these distributors, licences, they're all very big on rights clearance, and they're going to say to you, okay, so show me where you got the rights to use these NFT characters in this project and saying, well, okay, when I got the NFT, you know, there was nothing, but, you know, there's a Twitter post that says,

Starting point is 00:49:24 you know, all commercial rights are fine. And that's just not going to do it in a lot of distribution methods. But finally, taking a much more important point, imagine if the NFT tied to a real-world experience. And when I bought the NFT, the terms and conditions said, you have to be over 18 to claim it. You can, you know, you have to live in the continent of the United States. You know, whatever the terms and conditions might be, if that license doesn't travel, those terms don't travel with the NFT, the downstream purchaser is buying an NFT, not knowing that all those terms attached to the NFT they just purchased.

Starting point is 00:49:59 So it's a huge issue out there. There are definitely people working towards technology solutions. But as we sit here right now, it's almost like, you know, there's a missing rail on the track of, you know, NFT commercialization, and this is it, and it's a really big one. So I think... And Stu is... Oh, go ahead.

Starting point is 00:50:19 Oh, sorry, Laura. Do you want to... No, go ahead. Jump in there. Yeah, I think Stoo, So I think Stu is touching on two points that are so super important and really key to clearing up a lot of the confusion in this space. And I think everything Stu said about this problem of how do you have the rights travel with an NFT from both a licensing legal perspective, but also from a technical perspective, is super, super, super important stuff. And, you know, I got thought you did an awesome job talking through

Starting point is 00:51:00 various different ways that you can accomplish that. But really being able to associate the licensing terms directly into, you know, a particular work. And being able to achieve that is, I think, absolutely key. One of the things that's going to make that from a legal perspective super easy and lightweight is to have really standardized licenses, right? For it to be really easy to say, this is CCBY, right, licensed. And to just be able to put that into the metadata or in some other way, you know, maybe record it on the ledger, right? Record that it's CCBY on the ledger.

Starting point is 00:51:45 But having that quickly accessible standard is going to make this much, much easier. just to give you sort of an anecdote on that. So my, my boyfriend took a picture when he was in law school of a gavel, and he put it up on Flickr, and he just put, this is, you know, Flickr makes it really easy to say, how is this licensed? And they say, well, it's CCB, he said it's CCBY licensed, meaning, you know, it's a Creative Commons license as long as you give me attribution. And that photo, so I have, I made the mistake of setting up a Google alert for his name once. And I suddenly just inundated, this photo is all across the web with his name, because he CCBY licensed it. It was really easy for journalists who were writing a story about some legal thing to go into Flickr and search for things. it, you know, check the box? How is this licensed? C.CBI licensed and search for gavel. And again,

Starting point is 00:52:56 this, you know, gavel comes up. And it's on, you know, this unbelievable range of stories across the internet of, you know, about legal things. So the headlines are all like atrocious. And like, I immediately turned off the Google search, the Google alert, right? But just sort of giving you an anecdote about why being able to license something in a way that is really, really clear, and is attached to the metadata of a particular, of a particular, you know, in this case, photograph, but, you know, any kind of image or file. Why that's so important and why that actually is so enabling. And the other thing that I think Sue said that was really important here is, you know, this idea of, okay, you need to, if you're, if you're getting an intellectual

Starting point is 00:53:50 property right, you know, regardless of what you do with it, you want to know that you really have the rights you think you have. And this is a problem in many ways because, you know, one of them is, okay, well, how do I know that the person who minted the NFT had the rights that they are allegedly given to me and were authorized to give me the rights that they are allegedly giving to me, right? And being able to follow that sort of chain of title effectively of the intellectual property as it changes hands and being able to verify like, yes, this person was the creator of the image that was the NFT. Yes, they, you know, used this particular license to give it to this person on this platform and then that person sold it to this person. And being

Starting point is 00:54:39 able to see that chain of title is something that's sort of, you know, one of the things that people talk about is so cool about, you know, being able to use blockchains, right? And so I have a lot of hope that we're going to be able to figure out technological and legal solutions to make that really clear. But I do think that this is one area, this is another reason that it's so important that we have these modular and clear licenses. And we don't have to, every time we see a, you know, chain of title passing hands, we don't have to literally go read the terms and conditions of each platform where it changed hands to see how those rights changed hands. And frankly, we would be lucky if they're interoperable, right? So, you know, also a plug for ensuring the interoperability

Starting point is 00:55:30 of these standardized licenses so that if you change hands on platform A and then the buyer sells it on platform B, that you can follow those rights across platforms. So why this is so important. Yeah, I may have been one of those journalists that did such a search that resulted in your boyfriend's image being used because I have saved on my computer different Creative Commons licensed searches on Flickr and other sites because I used to use these images all the time. But one thing I wanted to ask, so we've been talking about how the terms and conditions of the different marketplaces are really important. At the moment, do you see that the platforms are trying to converge on something that's standardized?

Starting point is 00:56:16 Or is it just all over the map? Like, I don't know if you want to talk about what you're seeing on like OpenC or Super Rare or any of these platforms. But like, do you feel they're kind of trying to get things, you know, bring things to a better place? Or do you just see that there's not much movement? So it's a great question. I think it's really important to distinguish between the terms and conditions of the platform and the terms and conditions of the project NFT is being sold on the platform. So all the platforms have their own terms and conditions, but they govern your interaction with that platform.

Starting point is 00:56:48 So OpenC has, you know, the OpenC terms and conditions, but that relates to buying and selling on OpenC and what happens if there's an issue and, you know, what you can and can't do. That's separate and apart from the terms and conditions that an individual NFT process. project might have, which says, for example, you can sell commercial merchandise, but only up to $100,000. How do I even know that, you know, if I'm buying something on OpenC? In fact, in our group, we did this study where we looked at a variety of different, we've thought we've done this deep dive into commercial rights on a lot of different popular

Starting point is 00:57:24 NFT projects, and at least for the ones we looked at, not a single one when you go to OpenC to buy it. And it's not the fault of OpenC, but when you go to OpenC to buy, one, never would you know that there's commercial terms attached to that NFT, again, separate from, you know, the commercial terms you have just dealing with OpenC as a platform. Yeah, I think, I think everything's due saying is exactly right. I think the platforms and I think also the projects are doing a really good job of trying to converge on some sort of standard. So, you know, I mentioned the NFT license of Dapper Labs.

Starting point is 00:58:03 you know, that's something that's been relatively, I think, widespread, has had relatively widespread adoption. And so that, you know, there definitely have, and there have been, you know, I mentioned a couple of others, Rarable and the NFT Art Licensing Agreement and the NFT license project. So this is definitely something where there are, there's a lot of work in this space and a lot of it is really excellent work. And I will say, you know, like there's a little aster. on that. There's this XKCD and it's like

Starting point is 00:58:37 there are, you know, it's like someone who's saying like, well, there are 14 you know, competing standards. And we really need to develop one universal standard that covers everything. And then it says, so there are now 15 competing standards, right?

Starting point is 00:58:53 So, you know, I think that's like, there is definitely this, you know, like, it's sort of this funny thing because I'm, you know, advocating for, you know, well, we need the universal standard. And like, I think each of these projects is like, yes, we are the universal standard, right? And, you know, that problem has been, I think, solved in the, you know, by Creative Commons,

Starting point is 00:59:17 like in the sort of general copyright arena previously and really was, like, it really is, like the one standard for copyright licensing. But I think what we're seeing right now is a bunch of projects, a bunch of projects coming together saying, well, we're going to be the standard. You know, we're going to, we're going to solve this problem. So I think a lot of great work is happening, but I definitely, definitely continue to advocate for use of the already existing standard, i.e. creative problems. Yeah, but it seems to me that one additional problem is not just what the, what the standard is, but then making sure that that standard travels every time there's a resale. Is that right? So like, do you, what do you think

Starting point is 01:00:00 are good technological, because I imagine that probably is a technological solution. So what do you think could resolve that? Yeah, I don't know what the best technology solution is. I mean, there's two models that we've seen out there. I'm sure there are many more that, you know, we're just not seeing quite yet. One is that the NFT itself is coded in a way so that it, the smart contract sort of brings in a another NFT, that's the legal contract that the original issuer minted, and you can't access the content of the NFT you want, the digital work of the NFT you want, without that legal contract

Starting point is 01:00:46 NFT sort of popping up and you signing it, you know, with your metamasker-a-mastriot or whatever and agreeing to it, and then you can access the NFT. So that's, you know, one, let's say, flavor of solution out there, that there's something like that. The other flavor of solution is to do something with the metadata and try to standardize that in a way so that every time the NFT appears, that metadata comes up, even if it's two lines that says, by purchasing this NFT, you agree to the following terms. You know, not ideal in terms of that being binding, but you're probably, you know, within the area of feeling more comfortable that have you created a binding agreement.

Starting point is 01:01:27 But that's another stream to do something with the metadata in a universal. standardized fashion, and hope that gets widespread pickup. All right. Well, so as we discussed earlier, Ugal Labs will be releasing updated terms and conditions. Is there anything in particular that you're looking for there? And in general, like, what kind of new developments or new trends are you going to be watching out for over the next few months or years as this plays out?

Starting point is 01:02:01 Marty, going to go first? Oh, no, all used to. Okay. So I think the most interesting development, again, you know, in NFT time over the last few months, has been, you know, I think there are projects out there that really feel like I just created something. I want everyone to enjoy it, use it, the community to run with it, and I'm just going to go walk away and do something else. But I think, you know, there are a lot of, and we see this, you know, every day in our practice, a lot of really creative people out there doing really interesting, creative and innovative things. And in some cases, you know, all or all of a sudden realizing what they've developed and how valuable that is. And I think there's this tension between openness, let everyone use it. And, well, I thought the whole part, you know, part of the world of NFTs was empowering the creative community. So now I've created this incredible creative work. I should be able to benefit from it, even though I'm not a, you know, household name entertainment company.

Starting point is 01:03:00 And I don't want to just give it out into the world and let everyone use it. I want to, monetize that. I want to finally be able to benefit from my art the way I've wanted to for many years. So I think there's this tension we're going to see over the next couple of years between projects that are torn between a very vocal community saying you should give us the rights to what we purchased and the creators of that work who are, well, I'll give you some rights, but I kind of developed this and built this and I want to see what I can do with it and run with this and monetize it for my own benefit. And I think that's coming fast. I think that's going to be an interesting issue to evolve. And it'll be interesting to see how Yuga Labs walks that line. I think they're in a

Starting point is 01:03:44 very good way trying to sort of be in both camps, but it's going to take some maneuvering, I think, to stay down that sort of middle path. I would add, I think one of the things that is so cool about NFTs is that it gives artists and creators the ability to monetize their work while also offering the underlying work intellectual property rights, you know, up to the world in a way that is, you know, open and allows others to use the work in their own creative works, right? And to use the works in all sorts of ways. You know, it's not that you have to you can only monetize your work if you are, you know, either selling physical copies of it or if you are literally like selling the IP rights or licensing the IP rights, you can actually

Starting point is 01:04:42 Creative Commons license something in a really open way and then at the same time sell an NFT of it and monetize it, you know, as long as those two things are not, you know, in conflict. And one of the cool things about the fact that, you know, selling an NFT has actually nothing to do with selling the IP to that, you know, underlying file is that you can do both of those things simultaneously. You can monetize your work while also licensing it openly, which is one of the things that I'm so excited about in this space. All right. Well, this has been an absolutely fascinating conversation. Hopefully some of the different NFT owners that maybe had some of those misconceptions that we talked about earlier in the

Starting point is 01:05:27 show now have clarity or at least know what questions to ask of the lawyers in their lives. Obviously, nothing here is legal advice without knowing your personal situation. But this has been so illuminating. Thank you both so much. Where can people learn more about each of you and your work? Marta, aren't you a first? Yes. So you can learn about me, I guess, on, I have a Twitter.

Starting point is 01:05:56 I tweet a lot. And I think one of the things that... What's the handle? What was that? Sorry, Laura. What's your handle? I'm at Marta Belcher on Twitter. And definitely, I'm definitely tweeting a lot about this topic. One of the things I didn't mention is that a very large percentage of NFTs are stored on IPFS,

Starting point is 01:06:16 which is one of the technologies that I work on. So thinking a lot about this and working on these issues a lot. and definitely excited to be here talking to you about it, Laura. And Laura, thanks also for me for your time. This is a great conversation. Thanks, Marta. Yeah, I think the Scadden website where we post a lot of things that we've written in this space, that's probably the best way to get information about me

Starting point is 01:06:43 and sort of what we're thinking about in this area. And we continue to think about it and write about it as we see issues popping up all the time. Perfect. Well, thank you both so much for coming on Unchained. Thank you. Thanks so much for having me. Thanks so much for joining us today to learn more about Stuart, Marta, and Intellectual Property Rights of NFTs.

Starting point is 01:07:04 Check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Youne, Daniel Nuss, Mark Murdoch, Shashonk, and CLK transcription. Thanks for listening.

Unchained - Excited About Your Bored Ape or CryptoPunk? Make Sure You Understand Your IP Rights - Ep.340

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