NFT Intellectual Property Explained
Today’s post was written in partnership with Eric Swartz at Lowenstein Sandler LLP. Thanks to Eric for his contributions, and be sure to reach out to him if you are looking for an attorney for your web3 project.
A big question when buying an NFT collectible is the ownership of the intellectual property (“IP”) of the character you are buying. When you buy a Mickey Mouse or Marvel T-shirt, there is no question that Disney is retaining the IP for their own use and monetization. Ownership of an Iron Man collectible does not convey any rights to do anything new with that name, image, or likeness. When you buy a Disney collectible, you get the lowest level of license called a personal, non-commercial license. Disney isn’t going to let you create your own Iron Man comics or shows. They tightly control their IP and will come after you if you try to use it in a way they don’t like.
Some popular NFT projects have taken this approach, most notably Gary Vaynerchuk’s VeeFriends. Gary Vee has been vocal that he plans to grow VeeFriends into the next Disney, and he needs to control the IP and its uses to accomplish that goal. He leaves no doubt in the Terms of License by saying “solely for their personal, non-commercial purposes”. If Gary Vee successfully grows VeeFriends into the next global content powerhouse, holders of genesis VeeFriends characters will undoubtedly benefit, but they cannot create their own media properties or spinoffs.
Many projects in the NFT space have taken a different approach to Disney and Gary Vee, one of collaboration between the creators and their community. As such, several NFT projects have shared or even ceded the IP to the holders of their collection. There are a couple of different approaches that creators have taken to IP, which we will review here. A creator details the license terms on their website and purchase documentation to make clear what a holder can and cannot do with their NFT characters.
Many projects choose to share a limited use license with their NFT owner communities while retaining the overall IP to be monetized by the creators. Boss Beauties is a good example of this approach. Boss Beauties created 10,000 NFTs with a goal of “empowering girls and women at the forefront of technology, leadership, and creativity”. The group has partnered with Marvel, Barbie, Hugo Boss, Neiman Marcus, Rolling Stone and more. The Boss Beauties NFT license allows holders “the right to copy, display, remix, and do other creative things with the character linked to… [a] NFT, with minimal restrictions.” Holders can monetize their NFTs but cannot use their “NFT character(s) for economic activity that generates more than $50,000 in gross revenue per 12 months”. Basically, you can put your Boss Beauty onto a T-shirt or mug and sell it, but you cannot earn more than $50K annually from doing so.
On a limited use license project, the creators retain the ability to negotiate overall deals for the project and NFT characters, which they can do by negotiating a deal with a mega talent agency like WME as Boss Beauties did this month. Boss Beauties is going to work with WME to monetize their IP in the “film, TV, and gaming industries”. The proceeds of this will flow to the creators, not the NFT owners. However, anything that gets the Boss Beauties to a larger audience presumably will increase the overall value of the NFT collection for all holders. This type of NFT licensing is probably the most popular at this time, and we will certainly see more projects offering NFTs in this manner for a long time.
Several high profile NFT projects have taken a much more open approach and have given their NFT holders full commercial licenses to their NFTs. The best example of this is the wildly popular Bored Ape Yacht Club (“BAYC”). Their license terms convey “an unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works”. BAYC holders have created comics, are working on TV shows and music bands, opened restaurants with their apes, and much more utilizing the rights granted under the license. A few apes have even signed individual deals with talent agencies to be repped for projects.
This didn’t stop BAYC creators Yuga Labs from signing an overall talent agency deal with legendary agent Guy Oseary, who repped Madonna and U2. BAYC controls the brand and can create projects across it. The individual NFT holders have only licensed the rights to monetize their individual apes. Yuga Labs earlier this year acquired the IP for the popular CryptoPunks and Meebits projects. These projects initially retained the commercial rights, and BAYC quickly moved to grant similar licenses to holders, a move cheered by their communities.
The final IP approach we are increasingly seeing with NFT projects is called Creative Commons Zero (“cc0”). The Nouns NFT project was one of the first big groups to go cc0. With cc0, the rights to the IP are put into the public domain and can be used by everyone with no restrictions. Anyone can make any derivative work from any Nouns NFT, not just the holder of the NFT or the project creator. cc0 fits well with the Crypto decentralized ethos, and this has been embraced by popular projects like Cryptoadz, Goblintown, Chain Runners, and many more. A16Z published a good article on why cc0 can be good for NFT holders here. The basic argument is that by making the art open source, lots of creative people can use it and increase the eyeballs, thus pushing up the value for all NFTs of a project.
If you are working on a new NFT project, how should you approach your IP licensing? Think about what type of community you want to build and how you want them to engage with your artwork and project. Different licensing can attract a different type of buyer. Think about what happens if your project gets big and look at how the IP of other popular projects has been used under the different license types. It also makes sense to discuss license types with an attorney and strategize for a few different versions of your roadmap given different levels of project success.
Wow, this one ran long. Hope you enjoyed this deeper dive into intellectual property rights. Please follow me on Twitter for more frequent updates. Also check out Eric Swartz on Twitter or LinkedIn.
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