Unchained - What Exactly Do You Get When You Buy an NFT? Three Lawyers Discuss - Ep.224

Starting point is 00:00:00 Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. Indexed finance allows you to buy passively managed indices for crypto and defy's hottest markets. P passive portfolios at your fingertips. I-N-D-X-D-D-FINance. The crypto.com app lets you buy, earn, and spend crypto all in one place. Earn up to 8.5% interest on your Bitcoin and 14% interest on your stable coins. Paid weekly. Download the crypto.com app and get $25 with the code Laura. The link is in the description. Today's topic is legal issues around NFTs. Here to discuss are Ulta Andoni, Fintech and IP attorney at Slatkin Wong,

Starting point is 00:01:00 an adjunct professor at Chicago Kent College of Law, Tanya Evans, visiting full professor of law at Penn State Dickinson Law School, and hosted the podcast Tech Intersect, and Stuart Levy, co-head of the intellectual property and technology practice at Skadenarps and coordinator of the firm's blockchain and digital asset practice. Welcome all to Tanya and Stuart. Thank you for having us. Thank you.

Starting point is 00:01:26 Let's start with the basics. And since there's multiple speakers, I'll just actually call on one person to begin so we can get acquainted with your voices. Alta, what would you say NFTs actually are in a legal sense? I think that's a great question. And it's hard, I think, to get a straight definition about NFTs in a legal sense. But first of all, what do they digitally mean? And for myself, I think despite the fact that there are many definitions out there, to me, they represent. just a digital asset in a serial form.

Starting point is 00:02:00 And the way how that serial number kind of addresses that digital assets and what is included in that code, that kind of raises a lot of more legal questions that probably are going to talk about in this podcast. And Tanya or Stewart, do you want to add anything to that? Well, sure. Definitely. I certainly agree. And when I think of NFTs, they are a way to prove ownership.

Starting point is 00:02:27 of an underlying asset. And it is a record that points to the underlying asset as well. And so it's helpful for people to understand that the NFT, in addition to evidencing ownership, also points to where the content is at the time that the NFT was created. Yeah, and I think those are, I totally agree, those are great points. And I think, you know, sometimes conceptualizing it the way we might ask, if I had a piece of paper that indicated some sort of owner,

Starting point is 00:02:57 ownership rights in some sort of work, you know, what is what is the legal piece of paper mean is a good way to look at NFTs as well, even though obviously there's some clear differences in terms of what rights they're attached to. And so actually I did want to ask Tonya about that, you know, this ownership idea. So because I did see online that someone was saying this was on the Techno Lama blog. And they were saying that there's a misperception that an, an NFT is a digital title to the original, like that, then that's an actual claim of property. But this person was saying that actually an NFT is more like a receipt that you own a signed version,

Starting point is 00:03:38 but maybe not the actual thing itself. Is that what you meant? I guess it depends. I hate to give you a lawyerly answer. So, you know, by default, when I think, and it also in some sense depends on what the underlying asset is. So I absolutely understand the emphasis or the nuance in ensuring that it's not an ownership of some original things, but it truly does depend. And, you know, when I think of an analog complement to that, and I think of what's, you know, physical art or I've heard other rough analogies to Stewart's point, some evidence of, let's say, real estate,

Starting point is 00:04:21 that my deed is not the property. but it is my ability to exercise control and to exploit, not in an exploitative way, but to actually transact with that physical property the same way I think of some type of title of ownership to a physical piece that I might have in my home to that specific physical asset. So not, and we'll certainly get to this later,

Starting point is 00:04:49 about the underlying intellectual property, the intangible aspects of ownership, but literally the representation or that unique file, that unique digital asset, that unique physical asset. So that's in the way that I understand it. So I don't know if it's necessarily contrary point of view, but a bit of a nuance. And so before we dive into the meat of today's discussion, I actually also wanted to ask you, Tanya, can you briefly describe what problems exist for creators in the internet age that NFTs or blockchain technology can resolve? I notice you've written about this before.

Starting point is 00:05:26 Yes, they're a host. I'm really excited about so many different ways where when we think of the end of the last century and the run-up, when I think of peer-to-peer technology and Napster and Napster and all of the challenges to copyright-intensive industries that relied on some type of ability to say, if I have a copyrighted asset that someone can't duplicate it. And what Satoshi did, whoever he, she, or they are, you know, this idea of solving for the double spend in the cryptocurrency space is the same idea of protecting the ability of someone to not only have a perfect digital copy of something, but then to allow 100 or 1,000 of their closest or not so close as friends

Starting point is 00:06:17 to actually copy it as well. And interestingly, the same technology that was a great challenge in copyright-intensive industries. Now, because of the nature of blockchain technology and the persistence of that information and a quote-unquote immutable form, that might be a way for creators

Starting point is 00:06:36 to actually protect with the very same technology in a different form that they weren't able to do at the end of the 20th century and the ramp up of the 21st. Yeah, as a creator, it's something that I am personally excited about. All right. So while it is true that obviously NFTs could help creators with a number of these issues,

Starting point is 00:06:58 it's also true that right now it's kind of like a little bit of a wild west out there. And it's also creating problems for creators or at least questions. And so let's just start with like some of these basic ones that I feel like are kind of occurring a lot now that there's all kinds of different ways that these NFTs are being created. So just like from the beginning, what rights are required for anyone person to create or mint an NFT, if any? I'll jump in on that one.

Starting point is 00:07:31 So it's a great question. And it's one that I think is going to take a little bit of time to shake out in a variety of different industries. So the reason for that is that for some artists, be they musical, digital, other, they have all the rights to their work. So they don't have to worry about whether they have the appropriate rights. They're the sole creator. They hold the entire, what we know in the

Starting point is 00:07:55 intellectual property world, the entire bundle of rights. But for a lot of works out there, the rights have been allocated amongst a number of different parties. So it could be that some party owns the distribution rights, some party owns the display rights, some party owns the performance right. Some party contractually has a right to commercialize. And so if you've got all those parties together and said, now we want to create an NFT of that work, which rights holder has the appropriate rights to do that? And can they do that unilaterally without the other rights holders is something that I think is going to take a little bit of time to shake out. I think what we're seeing already, and if he's been around for a while, but this wave is pretty

Starting point is 00:08:38 recent, is in a lot of different industries with libraries of very valuable intellectual property, is already building into their contracts to make explicitly clear who has the right to mint an NFT of a work and what exactly that means. And I think we're going to continue to see that, just as other new technologies as they've evolved, people started folding them into the litany of rights that are granted or withheld. And I agree with Stuart. I think the biggest confusion that I see right now in the space is that it's not only about the rights that creators are giving away, or buyers are buying with these NFTs. I think the misconception is what do this rights include?

Starting point is 00:09:23 And I think like the analysis gets even more complicated, especially when we're talking about copyright ownership that, let's say, it includes multiple copyright authors. So if you are dealing with multiple copyright authors for a single work, my question is, or we call this joint work authorship, So I think the analysis is going to be slightly different. I mean, I think it's much easier when you're dealing only with one copyright owner because then you can determine whether or not, I mean, majority of this platforms,

Starting point is 00:09:57 I hope they're doing their legal work or they're putting a good due diligence when they build this platforms. But I think it gets more complicated when we're dealing with joint authorships of this works. And especially even when companies are owners of this copyright, You have many companies out there with big IP portfolios. So it would be interesting to see if we see the impact of the NFTs or how they're going to kind of translate into protection of that, of those IP portfolios for these companies. That's a good point because when I think about certainly we have NBA Top Shot as an example, but also what has recently happened with DC Comics and having their independent contractors kind of stand down while they flesh out exactly the precise nature of what's going on with their works. And so it will be very interesting to see what these companies do because oftentimes

Starting point is 00:10:57 when we have a company and an independent contractor or an employee for that matter, creating this creating on behalf of the platform, generally speaking, we're always talking about work for hire, but that can be very narrowly construed and what was the intention of the parties at the time of contracting. These new rights, are they any different? Are they just a new base on what already existed? Or is this something that wasn't contemplated by them? And it has the potential for quite a bit of revenue. So time will tell how this all shakes out.

Starting point is 00:11:33 Yeah. And just for listeners, work for hire is when even if it's an independent contractor doing work for the company, the company retains the copyright or intellectual property and the freelancer doesn't have any claim to those things, which I, as a freelancer, know a lot about. So I'll touch on this briefly, but so, you know, at these times when NFT purchasers are buying NFTs, what rights are they actually buying? Does it just depend on what platform they're on? or like, you know, is there something that's sort of agreed upon that is transpiring so far? So I'll continue since I started this sort of topic. So when the buyer of the NFTs is buying these NFTs, I always like to put the analysis that

Starting point is 00:12:24 we are sort of dealing with three parties. So we're dealing with the author of that work. We're dealing with the creator of the NFD and then we're dealing with a buyer. I mean, probably we're going to have more buyers, even in other. market, secondary markets, etc., which probably is going to complicate this analysis, but under U.S. copyright law, the buyer of the NFD is just purchasing that NFD. They're not getting ownership of the underlying asset or underlying work. And I have to emphasize this because I think there is a lot of misconception out there. So you are just getting, if you were to get the ownership of that

Starting point is 00:12:59 underlying asset or work, you need a license from the author of the work. And one of the distinctions or probably exceptions are if you are dealing with a creative common copyright license, and under this Creative Common Copyright license means that it's one of the several public copyright licenses that means that the owner of that work or the copyright owner, they are allowing for this copyrighted work to be distributed publicly. And usually, a creative copyright, a Creative Commons Copyright license is used only when the author truly intends to give away other people the right to use that particular work. So for now, the owners of the NFD, they are not getting ownership of the underlying asset of the author's work, but they're just

Starting point is 00:13:50 getting the ownership of the NFD. And I think it's very important for the platforms that are listing these NFTs for them to specify the terms under and by the terms, I mean, hopefully they're going to be included in their smart contracts and in order to define what are those rights that NFD purchasers are getting from the NFT creators. Yeah, I mean, I think what's interesting to think about is you're not only not getting ownership of the asset itself, but you're also. not getting any ownership of the intellectual property rights with that work. And in this respect, it's really no different from the physical art world. So if I buy a painting at auction or

Starting point is 00:14:38 otherwise, that does not, that gives me the ownership of that physical painting to hang on my wall. But I don't have the intellectual property rights in that painting, unless they were separately assigned to me. I can't make posters of the work that's hanging on my wall. I can't create pictures on coffee mugs, t-shirts. I have no intellectual property rights. in the work. I just own the physical work itself. And in a way, that's sort of the corollary here. And the other key point, and this is why, as I also saying, what the terms of use are in the marketplace you're buying from are so critically important is that silence on the conveyance of intellectual property rights means you don't get them. So if the assumption is, well,

Starting point is 00:15:17 it didn't say anything, so I'm assuming I'm getting the IP rights along with that work. It's actually the contrary. You don't get the intellectual property rights with the work. Most marketplaces are very explicit to tell you that, just to eliminate any ambiguity, doubt, protect themselves. But you really are just getting the NFT rights, the ownership rights of that, the bragging rights, that you've got some connection to that work, but not a deeper intellectual property right to use that work, which means not the right to copy it, distribute it, perform it, display, of things like that. And what about like if you wanted to kind of create a remix or some other derivative? Can you do that or no? So there, the analysis would be very similar to what it would be if there wasn't an NFT. So there's the concept of the fair use doctrine in the United States, which gives you certain rights to be able to use the work of someone else in a transformative way.

Starting point is 00:16:17 It's very, very case specific. So it's hard to set hardline guardrails or rules. to what you can and can't do. But the NFT would not give you greater or lesser rights than someone else who's making what we would call in the IP world as their use of that work. And then, so these are actually pretty restrictive, I guess, rights that purchasers are getting.

Starting point is 00:16:41 And so this question that I had actually maybe is just going to elicit the same answer. But I was also wondering, when you own NFTs in like a very specific world, such as real estate and decentralized land. Is that even more restrictive in terms of what you own, or is it pretty much what you guys have been explaining so far? The best way to describe it is there's nothing unique or specific about this measure of exercising ownership and control

Starting point is 00:17:09 over some type of asset that is so radically different that we can't reasonably analogize what already exists. But that's not to say that the technology is not challenging as we kind of sort through these issues. And the point that Stewart makes is really important when we talk about the various factors that a court is going to work through in order to determine whether,

Starting point is 00:17:33 ordinarily when I hear the fair use factors apply, oftentimes artists are asking me, I'm appropriating something that already exists in order to create something that I intend to mint as an NFT. And that's more likely, at least for me, when I hear about concerns over, can I appropriate this without the acquiescence of the owner of that copyrighted work? And that depends. And it's really, really challenging for artists. But that has always been the case, not just in the NFT space, about how much is too much. Because certainly not all

Starting point is 00:18:07 unauthorized use of some copyrighted work is going to be actionable as a matter of law, even if it's technically an infringement. The problem is, you're not going to know until you're in court. You're not going to know until after the fact someone has challenged you and you have to make a great guest with a great lawyer, the ones that are on this podcast now about whether or not you've made some transformative use. And so it's really, really challenging to kind of unpack the fair use factors there. And so when you give that example, are you talking about how maybe a creator wants to mint an artwork that has some ubiquitous cultural icon in it, for instance, painting a room, a child's room, and then there's like a stuffed Mickey Mouse in there, and they want to make an NFT of that.

Starting point is 00:18:57 Is that an example of that? It is particularly because even if the artist is right, and in your example, I think that would be completely fine, that you're capturing a room that happens to have a copyrighted work there, but the artist is using it for what Stewart said earlier about a transformative purpose, and that goes to the heart. of the first factor or factor analysis.

Starting point is 00:19:23 But that doesn't mean you won't be sued. So we do want to support artists in understanding how a court might actually work through the fair use factors, see what is militating towards fair use and against. And so, yes, artists are bringing this up a lot. You know, the bankruptcy example is something that's interesting and related. There's some distinctions to be sure. But what happens if an artist is appropriating something that, already exists and using it for some type of creative output. I would argue that that is comment,

Starting point is 00:19:56 criticism, you know, sometimes we see parody or satire. Those are certain types of purposes that the law actually prefers. And just for the audience, can you remind them of the Banksy NFT and what happened with that? Absolutely. So a group buys a Banksy piece of art and actually burns it down to the ground. And then from that creates a new type of art that it then mints as an NFT. And the question is, one, whether they have the right to do that. And that takes us to something that we might also talk about in terms of moral rights that are not in most instances protected in the United States in a way that they are in European nations. But the reason I say is a slightly different issue is because if I have a book, I have the right to burn the book.

Starting point is 00:20:46 I don't have the right to prepare derivative works or create copies or publicly perform or display or distribute, but as to my actual ownership over that particular property, I have the right to do what I want to. So I don't see that as a problem unless there is what we call moral rights that attach to it that have basically two things. One is the right to attribution that the author or the creator is always attached to the work no matter who owns it. And the second part is the integrity of the work, which gets to this fundamental point, that no matter what, you don't have the right to destroy it unless there's some other agreement to the contrary. So there are stronger rights to actually protect the integrity of the work outside of the United States. It's a very limited exception here in the United States for certain types of visual art. But that is something that is difficult to understand as well.

Starting point is 00:21:37 I think that's a great point. And I would like to add a little bit more about the moral rights because I think we're missing that distinction. about, as as Tanya mentioned, there is a strong distinction between the way how we protect moral rights of authors here in United States and moral rights, how they are protected in Europe. Here in United States, we use the Visual Rights Artists Act, if I'm not mistaken. And under, it's called VARA, under VARA, it protects only one group of authors. And here are included the visual artists. And probably I have to be. be a little bit more accurate here because usually they protect those who create this works

Starting point is 00:22:19 of visual arts. And this works include the paintings, they include the drawings, they include sculptures, et cetera. But they exclude specifically this act excludes the posters, the maps, I think the globes, if I'm not mistaken, all electronic publications, et cetera. So there is a strong distinction even about the timeline of how we protect this rights here in United States. States versus how they are protected in other countries. Let's say in France, they are perpetual, meaning that, I mean, they last forever. And in United States, they are protected. I mean, they expire upon the death of the author. And then I think Canada, pretty much they protect this rights, even 50 years after the author's death. So when we're considering this decentralized platforms,

Starting point is 00:23:08 because we're dealing with decentralized platforms, of course we have to keep in mind, even the jurisdictional approach and how much this jurisdictional approach is going to impact these platforms, meaning what laws are going to apply. And we're not talking here only about United States copyright laws, because these are definitely completely decentralized platforms, which probably for now we're not considering so much the legal issues. I mean, we're concentrated mostly on the hype. Yeah, and I think the point that Elsa just made is really critical. We sort of You know, backed into the jurisdiction issue a little bit on the moral rights side, because that's an example where the rights of an artist might differ from country to country.

Starting point is 00:23:52 But it really is critically important that if you are a marketplace or a purchaser, or in some cases just the creator of the NFT, knowing the law of the, which country's laws jurisdictionally apply to that work is really important and really could make a difference. You know, as also saying when you and Tanya's well when you go to Europe, moral rights, which is sort of the right of an author, besides their economic rights. They have sort of rights in their work is very different than here. And could include very conceivably an artist saying, I know that you own my work, you bought my work, but I don't want my work associated

Starting point is 00:24:30 with an NFT. I just don't want that to happen. I don't want my name associated with NFTs. I don't like, you know, energy consumption and blockchains. I don't like cryptocurrency. I don't, I don't just like this whole feel. You know, there's a million things. they could say, and they possibly have a strong argument that their moral rights are being violated by you creating an NFT of a work that you purchase of them in ways that, again, might be different from country to country depending on where the artist is from. Absolutely. So then the jurisdiction that applies is the one where the original artist resides? Is that kind of the general way it goes? I think this is going to depend. I mean,

Starting point is 00:25:13 I think from the work that I have done in the space, I would say that the jurisdiction is pretty much the one that applies between the platform and the creator of the NFD. But I predict that probably we're going to see a lot of more jurisdictional issues coming up, especially if we are dealing with infringing. I mean, if you have this authors of, I mean, not only paintings or musical work, because we have seen NFTs also in the gaming industry, So if we are going to see more infringement actions, then I predict that these jurisdictional issues are going to come up and be a little bit more dominant in the industry and probably are going to determine even what sort of remedies of plaintiffs are going to have.

Starting point is 00:26:01 And do you think it would be possible in the future for an NFT to somehow, an FTA creator to somehow embed into the NFT, which jurisdiction would apply in case of a dispute? I would hope so, but I think that that would be a great burden on the platforms. I think that's true. And think about the fact that you have to contemplate and kind of foreshadow all of the things that might happen on the front end. Because once you meant it, it's minted. And so it presents interesting concerns. If you're thinking about smart contracts, programmable tokens, that's the beauty of the technology. but the reality of once it's minted, it is what it is.

Starting point is 00:26:42 We're likely to see and really test how smart contract code and NFTs are more fully integrated with plain language contracts as well. I think we're asking a lot of artists who generally speaking don't like to involve themselves at this level, but I'm seeing a real sophistication emerge among artists who are kind of taking off their artist cap and really thinking through some at a bare minimum of technology. issues that are driving some of the legal questions that we are grappling with today. The ScoreBet app here with Trusted Stats and Real Time Sports News. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking.

Starting point is 00:27:26 I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or? The score bet. Trusted sports content, seamless sports betting. Download today.

Starting point is 00:27:38 19 plus Ontario only. If you have questions or concerns about your gambling or the gambling of someone close to you, please go to conicsonterio.ca. With Amex Platinum, $400 in annual credits for travel and dining means you not only satisfy your travel bug, but your taste buds too. That's the powerful backing of Amex. Conditions apply. What's also interesting on the jurisdiction front is that all the marketplaces have a governing law.

Starting point is 00:28:07 There's a jurisdiction section. A lot of them have arbitration sections. But that probably only relates to jurisdictional issues or, you know, what jurisdiction would apply, what governing law would apply with respect to issues that you have with the marketplace itself. If there's a dispute with the marketplace, it probably does not then wash over to mean, well, the rights of the artists are covered by that governing law or the rights of the purchaser as the NFT moves around or still back to what that marketplace initially said.

Starting point is 00:28:35 it probably be interpreted to just mean issues vis-a-vis the marketplace and the buyer and the seller against the marketplace. And I think it would be interesting to also see now that I'm kind of thinking more about this because we do not have any precedence right now in United States. So I think, and I'm not wishing that we see more infringement action, my point is that probably we're going to see a little bit more from the courts later on because the courts are going to determine or kind of establish probably that framework that is going to be applicable in case we have these questions about jurisdictional issues that these platforms probably should integrate

Starting point is 00:29:15 into their metadata into their smart contracts and the way how they're going to structure, as I said, especially when it comes to the legal terms and terms of services that they would include. So unless we have some precedent in regards to the NFDs, maybe, I mean, we're just sort of brainstorming right now. And it's a good question. but it's a very hard question to answer. Yeah, I agree. In a moment, we're going to discuss more about the different rights associated with NFTs as well as the different marketplaces,

Starting point is 00:29:45 but first a quick word from the sponsors who make this show possible. With over 10 million users, crypto.com is the easiest place to buy and sell over 90 cryptocurrencies. Download the crypto.com up now and get $25 with the code, Laura. If you're a hodler, crypto.com earn pays industry-leading industry-leading. interest rates on over 30 coins, including Bitcoin, at up to 8.5% interest and up to 14% interest on your stable coins. When it's time to spend your crypto, nothing beats the crypto.com visa card, which pays you up to 8% back instantly and gives you 100% rebate for your Netflix, Spotify, and Amazon Prime subscriptions. There is no annual or monthly fees to worry about.

Starting point is 00:30:30 Download the crypto.com app and get $25 when using the code, Laura, L-A-U-R-A, the link is in the description. Want to get exposure to the top defy and crypto projects but don't know where to start? Indexed finance allows for users to buy indices that represent automated and passive tokenized portfolios, such as the D-5, an index of the top D-Fi projects which re-weighs and re-indexes autonomously. Indicesies such as D-5 enable you to get exposure to the growing, defy and general crypto markets by holding one simple token, and you'll always be holding the top assets for that market. D55 has been the best performing DFI index available with over 400% growth since its inception

Starting point is 00:31:16 in December. Get D55 in others, such as the new NFT index today at indexed.finance. That's I-N-D-E-X-E-D dot finance. Back to my conversation with Alta, Tanya, and Stewart. So we were discussing the different rights. And one thing that I'm curious about is who has the rights to the revenue stream from an NFT? Well, it's interesting. My research assistants and I have been pouring over. I know the others on today are also doing the same, pouring over the terms of service to see how things are shaking out. We started kind of from a best practices point of view.

Starting point is 00:32:00 Well, I won't use the term best practices. But one of the most forceful, comprehensive, and complete comes from NBA Topshot for, but it's a purely centralized environment. So you kind of roughly use that by analogy to look at the open sea and the nifty gateways of the world to see how they are categorizing the revenue split there. One of the powerful components of programmable tokens is the ability to participate, not just at that initial purchase, but also for downstream revenue as it continues to flow, automatically to various addresses.

Starting point is 00:32:35 And each platform is offering a different split. We really first saw this in the context outside of the nifty space with, I think, of like, Imogene and what she was doing in music, like music, and some of those platforms that were testing out this idea of shared revenue both for the platform, for the artists, any other artists who may participate or have the right to receive royalties, both, you know, for each and every sale. And so we see that now in the NFT context as well. And it's a powerful way to empower artists.

Starting point is 00:33:11 This is one of the other things, to your earlier point about how to meaningfully empower artists in the way that currently has traditionally been missing in the entertainment industry. So at this moment, there are a number of works or a number of artists that have been finding that their works have been stolen and minted as NFTs without their consent. her knowledge. So what recourse do artists have in a situation like that? It's complicated. And it's mostly gets to their ability to, who is it that they can go after. So, you know, at the first instance, if there's a marketplace that offer that, the artist has recourse against, you know, an approach towards the marketplace to get them to take down the work. So there's under the Digital Millennium

Starting point is 00:33:58 Copyright Act, the idea that, you know, you can go to a platform that's not vetting works, that's just sort of agnostic and putting things up and say you're offering for sale my work and that there's infringement out there and I want you to take it down. They have an obligation to go to the other party and see really who has the rights,

Starting point is 00:34:19 but assume you were successful in that so the DMCA take down and all the marketplaces, the NFT marketplace, at least the mainstream ones, provide you with how to go about doing that as they're required to do. So that gets your work off of the marketplace. What's not then clear, so what does that really mean? So now, you know, there's no longer the image of your work on that marketplace.

Starting point is 00:34:40 It's not available. They won't allow it to be available for sale. But there are a couple things. One is it doesn't mean you necessarily have now stopped the NFT holder, although maybe you take some comfort in the fact that they now own an NFT to a work that's been taken down. So maybe there's less value there. but it does not also protect you from the fact that your work might be out there in the world on different platforms, and you might need to go out on a case-by-case basis and try to get it taken down there as well.

Starting point is 00:35:13 The IPFS, the intraplanetary file system, a lot of people don't realize, actually also has a DMCA take-down provision, so you could reach out to them and say my work on there and it's being infringed and I didn't authorize it needs to come down. So enforcement in this area is going to be difficult, and it's a great concern to the large rights holders out there who have large intellectual property and valuable intellectual property portfolios and libraries of this is yet another area they're going to have to go out and police as people try to monetize their works without permission. I agree with Stuart, and I think they're all great points. The other issue that I see right now, especially when it comes to the remedies and the course of actions that potential plaintiffs are going to have in the future, I think the biggest issue is, first of all, how you are going to identify, as Stuart mentioned, but how are you going to authenticate who is the creator of the work?

Starting point is 00:36:15 Because we're dealing here pretty much only with a blockchain address. And I mean, how can you determine who is the owner of that blockchain address? And the other thing that kind of worries me is that some of these platforms, they are, if you read that their terms of service, you see that pretty much they are, I mean, they're stating there that you, all the participants in these platforms, they are at their own wrist. Only some well-c curated platforms, I see that they're doing a great job at establishing those terms of service and probably providing for some. some limited liability for the participants in that platform. Unless we see this terms of services very well structured, I think that this is going to be a big issue when it comes to what sort of remedies or course of action plaintiffs are going to have in the future. Yeah, can we actually dive into that? Because I want to just lay out for the audience what the different terms of service are in these different NFT marketplaces, because I do see already,

Starting point is 00:37:23 just this early on that there is kind of a range. So what are, you know, maybe just name some of the more popular ones and the ways that they're addressing these issues? Well, you look at something like OpenC. So I think it's the first and certainly the largest for user-owned digital goods and collectibles, gaming items, domain names, and the like. And so basically they're saying that there are specific rights to royalties and they have a laundry list of what that actually means.

Starting point is 00:37:58 When they get to the terms of service for intellectual property rights in particular, where they begin is they talk about user conduct and that you agree that you will not violate any law, contract, intellectual property, other third party right, that you are solely responsible for your conduct while accessing or using the service. And then it has a list of what that means. And so they've gone into great detail. Nifty Gateway is pretty much the same as well. It too has its own focus on intellectual property. And it says outside of Nifty Gateway content, all other trademarks, product names, logos on the site, etc, etc., etc.,

Starting point is 00:38:37 are the property of the respective property owners. And so there's constant limitation of liability and indemnification language. Some platforms are not as well evolved, but I think that is changing now because there's so much attention. And all of us know that the ERC 721 and that standard is not new, but it's new to so many people in a way that is forcing platforms to reassess this because everyone's being asked. Rareball has similar terms. And again, as I said earlier, although NDATOP shot is a separate. I view that as separate because it's centralized notion and the underlying rights. That language that they use is interesting as well.

Starting point is 00:39:19 Yeah. And can you just say a little bit how something like NBA TopShine? is different from the marketplaces? Absolutely. So the marketplaces are, and I hate, I know we hate this word in the blockchain and crypto space, but an intermediary between, or let's say, a facilitating transactions, right? Bringing buyers and sellers together. We'll say it that way, not intermediate, very bad work.

Starting point is 00:39:42 But that's very different than NBA TopShop that says, we see a really great opportunity here. And we own a lot. And people really want it, right? And so they are leveraging the technology. in a way that bridges the divide from traditional collectibles and the basketball collectible cards and their packs, but their language is very specific. We own all of this.

Starting point is 00:40:05 When you purchase a nifty in this space, you are getting the right to this pack and the ability to collect. You can only buy it from this platform. There is no protection for you if you buy it in the secondary market. They have a whole other list of things that are prohibited activities. So obviously you're not going to see that for like a super rare or something like that because they just function in different spaces where super rare doesn't own any of the underlying properties. They're facilitating transactions. You know, I was going to say I think that, you know, the market as we go forward, because it's a lot of questions that we get are where's this all going. I think the market's going to divide between, at least within the creative workspace, between things like NBA Topshots, which is owners of proprietary content opening their own.

Starting point is 00:40:51 store. Maybe they use, maybe they build their own platform. Maybe they rely on a third party provider, you know, sort of a buy versus build analysis. And then marketplaces where, like you're saying, it's sort of this intermediary to match buyers and sellers. And they're going to, they're going to look very different in terms of the terms of use in terms of what you're getting. Obviously, the proprietary rights holders going to want to be much more restrictive in terms of it's their property and what they're allowing you to do and not do with it, as opposed to the intermediate marketplaces saying, look, we're kind of washing our hands with it.

Starting point is 00:41:27 We're protecting ourselves. Buy or beware, here's rights you're getting, here's rights you're not getting, but we're just sort of the platform to address that. One thing I just back to on sort of enforcement, which is interesting, Super Rare has a provision in there that if it turns out that you're an artist and you've posted something,

Starting point is 00:41:46 and it turns out there is, as I was, referring to earlier, a DMCA take down, and that work comes down. You're responsible to refund the EF that you made on that sale either to the purchaser or this is and or super rare. So how that works out in practice, I don't think is yet clearly if I hopefully have not had too many use cases like that. But at least they've built in the concept that if it turned out, you didn't have those rights. You're giving the money back, which is a little bit unusual, but an interesting way that they curate a little bit more what's on the site, as opposed to just being an intermediary, and I think that's an interesting model we might see as well.

Starting point is 00:42:22 Yeah, I think that's good for creators. And I would imagine that a lot of creators probably would flock more to platforms like that. That's just maybe my personal opinion as a creator myself. But that kind of leads me to another question. So are some of these platforms doing more to verify that the mentors of these NFTs actually do have the rights? Or are they all pretty much you know, kind of like scouts honor type situations. I think right now what we're seeing, because even working with clients in the space, it's been interesting to see how this platforms are approaching, especially, of course, the legal questions.

Starting point is 00:43:02 And I think right now, and I don't want to say that we're dealing with a bubble because probably people are not going to like this. But I think we are dealing with a bubble. And while you're dealing with a bubble, especially in the crypto industry, then I don't think anyone is paying attention to due diligence and to to provide, I'm not saying the best rights to the participants in the platform, but I do see not only misconception, but I do see a lot of abuse from some of these platforms. And I think the more we start working altogether, not only as legal professionals, but even to kind of deliver a little bit more knowledge out there about

Starting point is 00:43:42 this misconceptions and kind of to raise some. higher standards for the platforms to apply, I think definitely this is going to be helpful to the NFD industry because there is so much potential. And as I always like to say, if there is potential, then we really have to be smart to use this potential. I want to also touch on two to my mind related issues. One is the first sale doctrine. Can you define that and explain how that would apply to NFTs? And then I think that leads us into the topic of licensing as well. So if you could maybe also describe how, you know, what licenses do and how they're different from rights? Well, when I was, we were talking about the Banksy issue earlier. That is a

Starting point is 00:44:29 great example of the first sale doctrine when I use the analogy of purchasing a book and I'm not purchasing the underlying copyright to copy, distribute, prepare derivative works, publicly perform, publicly display. But I am acquiring a property interest to use and enjoy the physical book that I've purchased or the electronic asset that I have purchased. And so I have the right to do with it what I want to do as long as I am not otherwise infringing on any underlying rights. And that includes the right to just, you know, burn a painting or resell my casebook or something of that nature. And so that is the first sale doctrine that protects my ability to, you know,

Starting point is 00:45:15 exploit the copy of a work that I purchase to further distinguish between that copy and the actual underlying rights that the copyright holder has. It was interesting in the NFT space is, so what does that allow me to do? So I suppose you could, you know, create, and if you could convince someone to buy this, but let's say you were a famous person and you had a physical copy of a book and you said, And this is, I don't know, the first book I read on whatever and, you know, people want to buy an NFT and sort of own rights in that. So, you know, maybe, you know, you could do something like that. What's interesting in the digital space is it's not clear NFTs aside whether you have this sort of first sale concept applied to digital work.

Starting point is 00:46:01 So if Tonya's saying, you know, I buy the book, it's my book, I can resell the book. I don't go back to the author and say, okay, if I resell this book to my friend, it's not as clear. So if I have purchased a digital work, I might think, well, same thing. I blessed this digital work. I own it now. I'll create an NFT from my copy of it. It's not so clear from the copyright office and from a couple of court cases whether you have the actual right to do that, whether first sale applies to digital work.

Starting point is 00:46:31 Can I create an NFT because I went out and bought something and now it's mine to go do with it what I want? Yeah, yeah. I was wondering about that because even when Tom, was describing the NF, the bank seat when I thought, oh, but then they did kind of create a derivative work, right? And then they sold it. So then is that commercial use? And I, but yeah, it's probably not quite clear yet. I think some of the ways that some of these different platforms are kind of tackling this is to offer these licenses instead. So when a user gets a license as opposed to, you know, getting the rights, which they're generally not when they're getting an NFT.

Starting point is 00:47:14 What are they getting when, you know, they have this license? That license is definitely going to define the term, so it's difficult to answer that question. The power is in the hands of the license or to define the terms to ensure that there's certain uses that are within scope and that means that anything that is not, I can't remember how it's specifically phrased in some of the, the cases, the other attorneys help me out here. But anything that might be outside the scope, there's some latitude for what might be reasonably contemplated. But clearly, if you are creating a well-worded license that defines the specific terms,

Starting point is 00:47:56 the idea is, if any, they may also include language that says anything not expressly provided for is hereby reserved and in some way that creates perhaps a brighter line, even though we shy away from bright lines in the space. And one final thing about the point that you made before with the Banksy example, what immediately comes to mind and Alta and Stewart, I wonder if you feel the same. I think of some of those cases with the Annie Lee cases when there were transforming and the question was, and it depended on the circuit.

Starting point is 00:48:31 That you could have basically the same facts of someone who buys an Annie Lee and whether it was a mounting or whether it was a derivative work, completely differed jurisdiction to jurisdiction, and less than until the Supreme Court here in the United States says one way or another. It's interesting to see how – that's why it makes it so difficult but so interesting to you. I agree with you, and I think that probably that is going to complicate this a little bit, because if we see, like, different interpretation from different courts when – I mean, it's about time to address this legal question.

Starting point is 00:49:05 But going back to the licensing, I think that it's, I see that for people who are in the space, I'm sure they understand what the license include or what rights should be included in that license. But this license actually has to be in writing. And another misconception that I see is that they think that only by recording this license on that blockchain ledger, that will do it. So it's not only the recordation. It really is important what sort of. of rights, the author, the original author of that artwork or other underlying work is giving away. So even if you were to have this license and recording on the blockchain, you really have to

Starting point is 00:49:48 understand what rights you're getting with that license. I was going to say, I think that when you look out at the licenses today, so generally today, when you buy an NFT, the marketplace is defining the scope of your license through their terms of use. And they tend to be pretty detailed in terms of what you're getting. As an example, they won't allow you to make a commercial use of the work. They won't allow you to take that work and embody it in something else. The Dapper Labs folks came out with this NFT 2.0 license, which is a form of license that people could use that actually allowed commercial use up to $100,000 just as a sample. So you could do that if you chose to do that. But most marketplace

Starting point is 00:50:30 license grants are very specific. You know, you can display the work in connection with selling it. You can enjoy it for yourself, display it for your own personal use, but then usually have a list of prohibitions to make clear what you can't do with the work. You could argue that even if it was silent, you wouldn't have those rights, but I think to eliminate any ambiguity, they're pretty clear in terms of what you're getting and then a fairly robust list of what rights, license rights you're not getting with the work. And for that Dapper Labs, NFT license template, are a lot of people using that?

Starting point is 00:51:07 Like, do you feel like that will become pretty commonly used through the industry? So it's interesting. It's hard to say, I think the limited commercial use probably concerns people because it's not clear how you'd even police that. And I think there'd be a lot of concern by creators, artists, rights holders,

Starting point is 00:51:29 of large intellectual property libraries that once you open the door for some commercial use, then how do you police the fact that they went up to but didn't pass whatever the dollar threshold is? How are you going to count that? How are you going to enforce that?

Starting point is 00:51:43 I think most rights holders today and creators are much more comfortable with a flat. You have no commercial right to the work at all. Enjoy the NFT. Enjoy however you're going to describe the NFT to people that your friends and family that what you have,

Starting point is 00:51:58 but you can't go make a commercial use of my work. I think it's going to still be that sort of binary for a while. And I think I'm okay with that binary for now because I think definitely kind of facilitates the industry a little better because, I mean, as Stewart mentioned, if we are opening that path about commercial use, I would be more worried about not only policing it, but even enforcement especially. And I mean, how do you enforce it, which definitely it's going to raise many other questions. And so at this moment in time, how would you all recommend that artists protect their rights

Starting point is 00:52:36 through, you know, when it comes to NFTs? Look, I think there's a couple of things that are going on out there. I think that, and Tanya mentioned earlier, the DC Comics example of, you know, pushing out to their creative, you don't have the right to create NFTs for work that you created for us. I think a lot of the big rights holders are looking out to push statements out into the marketplace to say we have not authorized any NFTs of our work. If you're buying one, it's infringing, it's unauthorized. I think you're going to see some of that in terms of protecting work.

Starting point is 00:53:14 The big rights holders who already have enforcement divisions built into their company for sure are looking at this space and figuring out a strategy for how they're going to go after and protect their work. For the individual artists, it's hard. You know, that they have had this issue historically with any digital work that that issue has always existed. I think NFTs while providing tremendous upside and benefits to artists has also unfortunately created, like with everything, piracy, infringement and unauthorized use, and has now created a headache for them to go out and police their work in ways where they might not have the capabilities, just the time and resources to be. able to do that. I think it's going to be a little bit of a challenging time for artists who are just working alone and not part of a large organization with that infrastructure built in. I agree with Stuart. And I think it's a good word of advice for all the artists and especially

Starting point is 00:54:12 businesses because we're going to see way more businesses and, I mean, other participants coming up in this industry. I think that it's very important for that not only to consider very carefully and to be mindful of the risks that are associated with NFTs per se, but especially the ownership of the intellectual property. And I think when it comes to developing a IP strategy or incorporating that IP strategy when you're dealing with NFTs, definitely this requires a lot of more due diligence and a lot of more other considerations. So you really have to, first of all, I know that everybody is in the space right now because, of course, everybody wants to monetize and it's this fear of missing out.

Starting point is 00:54:57 My point is that definitely we need to be super, super careful understanding, first of all, that IP strategy that we would like for these platforms, especially participants in the platform, to integrate. So in terms of empowering artists, I really want to encourage them to take their time that FOMO is real and the craze in the market is real. But if this space is to have longevity, and if you are to have longevity as an artist, you need to take care of business.

Starting point is 00:55:32 This is an exciting time, I think, in particular, for underestimated and traditionally marginalized artists as well. And so for women and people of color, when I think of the black art movement in the space and the power, there's a lot of excitement around it. Micah Johnson, Corey Van Loo, so many are doing some great things in the space. You have to take your time and learn the business and the legal sides before you jump in because this isn't a world where you can't easily undo things.

Starting point is 00:56:03 So you have to be mindful and protective of your art and the space. Yeah, that's a good point. All right. So we're going to switch to one unrelated topic before circling back to this. because I couldn't really figure out how to fit this into the discussion, but many in the NFT communities, such as Medicovin, the founder of MetaPers, who are, or, you know, this organization bought every day's, which was the Christie's auction NFT piece for $69 million. So a lot of these people get excited by the fractalization of NFTs, but I wondered, how does that

Starting point is 00:56:40 intersect with securities law? I am not the securities lawyer. I mean, I do have a very good understanding of securities law and securities laws. And, of course, I mean, I work with other attorneys in the space. But my understanding is that SEC has already made clear that everything fractionalized is going to be a security. So I am not sure how this is going to translate to the NFDs right now. But I think that it's very much high risk. And I think there is just a small gap, as I like to say it, when NFT can become from, I mean, can cross that line between a non-security to a security.

Starting point is 00:57:23 And of course, there are many factors that need to be considered and especially the way how these platforms, how the creators are marketing these platforms. And I don't want to go into details into the Howie test. But this is something that is interesting about fractionalizing everything that is fractionalized. I mean, per the guidance so far from the SEC may be a security. Yeah, and just to add to that, like also not a securities lawyer. But I think, you know, it sort of goes to sort of the scheme of how the NFT is being sold. And so just on its own, breaking up an NFT into, you know, 10 different pieces and saying, instead of having one NFT owner of the work, the piece of music, whatever it might be,

Starting point is 00:58:11 they're going to be 10. They're 10 entities attached to that. That in itself probably is an issue and having for sure just a one-off NFT tied to an asset is not an issue. But we've literally had people described to us, and this is where you start to see how you can quite innocently trip over securities law is someone saying, well, how about I sell an NFT as sort of an investment? And they literally use this word with us.

Starting point is 00:58:35 You know, sell it as an investment. I get different people to invest in this digital installation. that I want to do and I'm going to then type it and market it and will together increase the value of it and then everyone will be able to sell it as a profit. You're not realizing that they're potentially describing what could be, you know, turning an NFT innocently enough into a security. So I think that while there's, you know, in ways too much about security laws, you know, tied up within the space generally, I think you could, as I said, quite innocently create something that you'd have to get some security law advice,

Starting point is 00:59:14 just thinking, what I was doing was getting people to invest in my art and we were going to hype it together, or I was going to hype it for them, and try to increase the value and let my fans make a profit. It's something you have to be mindful of. All right. So let's wrap up with a look to the future. In a column for CoinDesk, blockchain lawyer Preston Byrne wrote,

Starting point is 00:59:34 quote, My suspicion is legally enforceable copyrights and hard-coded on-chain monetization mechanisms. will be a valued feature for NFT platforms. And the platforms with the most effective monetization schemes will attract the most in-demand content creators and therefore the best content. And I wondered, did you guys agree with that? And do you think that enforceable copyrights will be embedded in the NFTs themselves?

Starting point is 01:00:00 And in general, how do you think NFTs will change the current business landscape for content creators? I agree with Preston. And I think he made some great points in that our declaration. Personally, I remain very optimistic about NFTs because I think it's a great, it's a very good mix of emerging technologies, and I really like the subculture or the cultural also included here. But I think that non-fungible tokens definitely are a very strong, powerful, I mean, a form or type of tokens that are representing this non-fungible assets on a blockchain. But when it comes to the monetizing aspects, as I mean, press and mentions in the article, something that I would like to add is that, For now, it's kind of hard to understand the goal or the reasons why people are getting involved.

Starting point is 01:00:46 Of course, is the monetization part. But for some of that may be even a little bit more cultural or it's just the idea like why this person can buy the NFTs. And I see this a lot even from my clients and why can I not buy. So are we here right now for the experience? Are we here for the, I mean, for the monetary part? or are we here just because we have been going through all this quarantine and it's very much more convenient, you know, as we always like to say, to see these digital images, et cetera,

Starting point is 01:01:21 because we're not getting the real-life experience. My point is that it depends. But definitely I think that the NFTs, if we are careful with addressing the legal questions, are here to say, but probably, I mean, we are going to see a lot more coming up as the space kind of clear. out from some projects that probably are not there yet. I definitely understand Preston's point.

Starting point is 01:01:48 I'm concerned about it, though, particularly because from a United States point of view, this idea of the economic incentive is going to drive culturally valuable properties is concerning to me, and it's because of the traditional gatekeepers in the art space. predominantly white art institutions, museums, historians, they serve as the gatekeepers and also the ones that deem something valuable. And if we are only looking to the economic value, that that's concerning to me. But it's still the technology certainly has the potential to allow more voices, more perspectives and empowerment of those, again, that have traditionally been marginalized if we don't adopt the same traditional structure that assesses what value is that

Starting point is 01:02:40 therefore drives access. Okay, and Stewart, go ahead. Great. Well, first I'll agree to everything Tanya said, even though I couldn't give what you saying. But I also, I agree that Alta is saying as well, I think what's so interesting is I think that, you know, the hype and sort of the silly things that are going on out there with people just, you know, overpaying probably for digital artists because they want to be of the experience. I think that's going to wash away. I think that the reason NFTs are here to stay and are going to be so dramatically important is the number of rights holders with significant and valuable intellectual property rights who are looking at this market incredibly seriously

Starting point is 01:03:23 is actually astonishing to me because it's happened so quickly. We get around in our group that for a lot of these companies, I'm sure back at the end of 2020, the business plan for 2021 did not include like an NFT division and NFC revenue stream. And here we are in mid-March. And they're all like building them out and thinking of whether they should have a platform, you know, by Q2 to sell these. And I think that's really, that's really going to happen. So I don't think that's, I don't think that's going to go away.

Starting point is 01:03:52 I think even if all the other, you know, people spending a lot of money on digital art that no one kind of gets why you spent money for, even if all that washes away, I don't think it all will, but some of it will. I think that's going to remain. And what will really, really be interesting to see is for years, all of us in this space have talked about, you know, what is the moment where people start to pay more meaningful attention to blockchains and cryptocurrencies? And, you know, maybe this is it.

Starting point is 01:04:19 You know, the number of people who know today what a Metamask is, who didn't know three months ago, I would bet you this has been the event that's really changed that probably in the most dramatic way. Look, part of it is the spike in, you know, Bitcoin, but I think a lot of it is this. And this really could turn out to be a watershed moment writ large for this space. Yeah, I agree. Fred Ersson tweeted some variation on the notion that it was something like, it turns out a lot more people care about music and culture than they do about finance and technology.

Starting point is 01:04:58 And I was like, yep. You know, I just that I think the dapper labs folks have said for a while, not to misquote them, that, you know, games and entertainment is what's going to bring people to this space, you know, exactly, maybe more so than financial instruments. Yeah, yeah. All right. Well, this has been a fascinating discussion. Where can people learn more about each of you and your work? So I am on Twitter. My Twitter handle is Andoni Ulta.

Starting point is 01:05:27 I'm also on LinkedIn. And I also write for Coindas. or decrypt, happy to answer any questions? You can find me at advantageevens.com, and also I live on Twitter, so I'm happy to engage there and keep the conversation going. I'm at IP Prof Evans, IP Prof Evans. Yep, so also on LinkedIn and accessible through the Scad and ARP's website. Perfect. All right. Well, thank you all so much for coming on Unchained. Thank you.

Starting point is 01:06:01 Thank you. Thanks so much for joining us today. To learn more about Ulta, Tanya, and Stu, and their respective organizations, check out the show notes for this episode. Don't forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to YouTube.com slash C slash Unchained podcast and subscribe today. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Ness, and Mark Murdoch. Thanks for listening.

Unchained - What Exactly Do You Get When You Buy an NFT? Three Lawyers Discuss - Ep.224

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.