NFTs & IP - Intro and Current Events/Legal Considerations
NFTs have been all over the news lately. You have likely heard about them but do you really understand how they work and the intellectual property issues that can arise with their use? This program will provide a clear explanation of what NFTs are and the underlying technology so you can more fully understand how they work and what you need to know to provide NFT-related legal advice. This program will also cover key issues with IP protection and enforcement, NFT license and partnership agreements and provide a summary of real world examples of IP-related legal disputes with NFTs and practical advise for avoiding such disputes.
Hello everybody, and welcome to today's presentation on NFTs and IP. It's a fascinating area of the law. We're gonna cover a lot of topics today, and hopefully we'll provide some clarity on many of the misconceptions that are out there on these topics. Briefly about my background. So I'm a blockchain and fintech team leader at Sheppard Mullin. I also head up our games team, and do a lot of work in interactive entertainment. And through this have gotten very involved with NFTs. My initial introduction into the crypto and blockchain realm was back in 2012. One of my clients became general council of the Bitcoin Foundation, got me involved in this whole world. And for the last 10 years, I've been deeply immersed in having a great time practicing law in this fascinating and evolving area. So first before we get into some of the legal issues, I think it's important to cover some of the basics. There's a lot of misconceptions out there about blockchain technology. There's a lot of ways you hear people describe things, a lot of adjectives, but not a lot of clarity as to what those terms mean. And so I'm gonna try to break this down for you. So basically when we think about a blockchain, it's a form of what's referred to as a distributed ledger technology. When you think about ledgers, you can think about these old leather bound books that had pages with lines on 'em, and on each line of the page, there'd be transaction information for a particular transaction. It might be the name of the purchaser, what they bought, the date, the price, or whatever other information. And when the page got filled, you would turn to the next page of the ledger and you would repeat the process. Blockchain is somewhat like that, but instead of pages there's blocks as we'll see. So in some respects, distributed ledger technology is like a database 'cause it stores transaction information, but it's different in a number of key ways, which we'll take a look at. One of the key differences is that with blockchain technology, typically the transactions are stored not in one place like a single ledger, but rather they're stored on multiple, what's referred to as nodes. And nodes are just different computers in the network that run whatever the blockchain protocol is for the particular blockchain of interest. And so one of the differences is that by having these multiple nodes, each maintain a current copy of the blockchain, in this way, it said that the blockchain is distributed. Right? And by distributed here, we mean that there's multiple copies and that they're under control of different entities. Typically nodes are run by different entities. The other thing then is that, so anytime there's a change in the blockchain, that change is broadcast to all of the nodes. And typically depending on the blockchain protocol, and there's many different ones, there must be a validation of any proposed change by a certain number of the nodes. So the next thing we wanna talk about is blocks. So I mentioned that as opposed to pages, blockchain use blocks, and mentioned that blocks are analogous to pages. So what happens is there's a group of transactions that are stored in a block, just like there's a group of transactions on a page. But what's different with blockchain technology is that the blocks are chained together. And how does that happen? The way the blocks are chained together is that once block one is full with the transaction data that it pertains to, the blockchain will create what's called a hash value. And a hash is really just an algorithm that's run on the contents of block one. And it will generate a unique alpha numeric string of characters, and that is what the hash value is. And that hash value is kind of an encoded representation of what the content is. And that hash value for block one actually gets written into the header of block two. So the way these blocks are chained together is the hash of block one, written to block two. Why is this important and what does it do? By doing this, if anyone ever goes back and tries to change any of the content in block one, block one will now have a new hash value. And so it will not match the hash value that was written to block two. And so this is one of the ways in which you can detect and/or prevent fraud from happening or anyone changing the data on a blockchain. And so this concept is referred to as imutability. The concept of imutability is that the data cannot be validly changed, or it will be detected. And this problem gets worse because as you can see, as you start writing the hash value of block two to block three, and so on, the more blocks there are, the more someone would have to go back and change each and every block of the chain in order to make a change. And on top of that, as I mentioned earlier, each copy of the blockchain is stored on multiple nodes. So even if someone changed all the blocks on their node, it wouldn't match the blocks on someone else's node, and that that whole blockchain would be rejected. So there's a lot of built in mechanisms that provide safety and security with respect to the data that's stored on a blockchain. Okay. So the next technology concept we're gonna cover at a very high level is cryptocurrency and digital wallets. So cryptocurrency is just a digital currency that uses cryptography in some way to create security around that currency. And in the context of blockchain, the way that this happens is that cryptocurrency transactions are processed, validated and stored on a blockchain in the manner in which I discussed just a moment ago. Okay, so how do you enter into transactions? The way you do it is typically through a wallet. And a wallet is just a piece of software that resides on your, it could be on a computer or on a cell phone. And the wallet is a piece of software that has what's called a public key and a private key. And the public key is what you need to know if you want to transfer something of value through your wallet to another person, you need the other public key. The private key is like a password, if you will, that if I want to send something from my wallet, I need to know the public key of who I wanna send it to. But then I have to put my private key in to basically validate that I'm actually authorizing this transaction. Very much like a email address and an email password. If I know your email address, I can send you an email, but I can't send an email from your account unless I've logged in with your password. Okay. So what happens then is if you want to initiate a transaction with your wallet, basically the wallet ID, the public key of your wallet gets associated with a recordation on the blockchain. So if I'm buying a Bitcoin, for example, when I execute that transaction and it's validated, it will take my public key of my wallet, and it will basically in the ledger record that I have one Bitcoin. What's important to understand is that there's a lot of misnomers in the blockchain world, one of which is the term wallet. Because when you think of a wallet, you think of it as something in which you store money or currency. With a digital wallet in this context, nothing is stored in your wallet. It is the wallet ID that gets recorded on the blockchain, and the ledger-based entry that says that this wallet owns a Bitcoin is what establishes ownership. Okay. So let's get on to the star of the show today, and that is NFTs. What are they? So most of you have probably heard about them. And many people describe 'em in many different ways. This is the way I describe 'em. I think of NFTs as really having kind of two parts. There's a token part. So NFT stand for non-fungible token. And non-fungible just means that each token is different in some way. And there's the token part. And then there is the asset or other thing that the token represents. So typically, the token, there'd be a unique token ID. And that represents ownership. All right? It gets associated with your wallet. And what you own is the asset, which can be a physical or digital asset, or some other entitlement which I'll cover in a second, that's associated with that token. So I liken this, I think a simple example in the physical realm is a car entitled to the car. So when you buy a car, you get a title certificate, and your car has a VIN number, a vehicle identification number. And the title certificate has a VIN number. And that title gets recorded in the DMV database. And so the title resides someplace, it's recorded, but your car is somewhere else. And that's typically the way things happen with NFTs. The NFT is like a recordation. The token is like a recordation of ownership associated with your wallet, and the asset is typically stored somewhere else. So lets take a little deeper dive into this. So how do you create a token? So a token is minted or created by what's referred to as a smart contract. And this brings us to the second misnomer in blockchain technology. When you hear the term smart contract, you might think it's a contract, like a legal contract. It's not. It is basically just software. And there's many different types of smart contracts. But in this case, the smart contract for an NFT is used to create the token and then to manage subsequent resales of the token. So, what happens is you min the token and the token has an ID, which is a unique token ID that'll uniquely represent that token versus any other token, and it has metadata. And so the metadata is just information that gets input into the smart contract by whoever's creating the token. And there can be various types of metadata. The most important things, or some of the most important things are; what is the asset to which the NFT relates? So if the asset for example's a digital file, whether it's art or something else, there's gonna be a reference to that asset. And that's what associates that NFT with that particular asset. The other thing that's important to understand is that typically the digital file is not stored on the blockchain. It is stored somewhere else. And we'll cover that in a little bit more detail in a second. But generally the metadata of the token will tell you where that file is. Okay, so that's the first thing. The second thing is, okay, so how do you get ownership of the token? Well, it's like I mentioned earlier. If you wanna buy an NFT, you need typically a digital wallet. And when you make a purchase, that wallet ID, your public key of your wallet, will get associated with the token ID. And that information, among other things, get recorded on the blockchain. And that establishes that you own the token for that NFT. Okay? It's as simple as that. And the smart contracts that I mentioned is just computer code, it's not a legal contract. But this is what creates and manages the resale of the token. Now, one of the things that's really interesting about resale of NFTs and other smart contract-based digital assets, is that part of the way they can be programmed is that every time that NFT is resold, the smart contract can automatically collect a resale royalty, which can be a percentage of the sale, for example, and that resale royalty can be sent directly to the wallet of the entity that issued the NFT. So this provides an ongoing royalty for token issuers, if they choose to do that. And again, that's one of the other things that typically would be in the metadata, is if there's gonna be a resale royalty, what is the percentage that will be collected? So this is really powerful, for example, for artists and in the music area in particular. So when we think about concert tickets, many times if the face value of of a concert seat is $50, by the time that you're able to buy it, a scalper has already bought them, and it's marked up to let's say $300. Well, that $250 increase pretty much goes to the scalper, not back to the musician. So, if they artist imposes a resale royalty, at least a percentage of that up-sale will go back to the artist, where it probably belongs because they're the one that's actually creating value in this situation. So one little deeper dive into NFTs. Here's a illustration that shows if you're an artist, you take a piece of digital, is for the media here, but let's say it's digital art that you want to create an NFT based on, you can go to a token generation app. There's many of them online. Or you can create your own smart contracts if you're sophisticated enough. But you basically input the token information, the metadata, what the file is, where the file's gonna be stored. And then once you're ready and you hit go, then the smart contract takes over. It takes that information. And based on a kind of a template, if you will, of the code, it takes in these different variables and it creates the token. And your file, which you typically have stored on some media somewhere, there'll be a reference to that. That's again, part of the metadata. So that informational gets recorded on chain. And when someone wants to access the file, you know where the file is through the metadata. And so the smart contract can read the metadata and point to where the file is. Here's just an example of an NFT. This is one that was actually listed. It's called Herbie Starbelly. And you can see here just as a way to illustrate, it's really not that complicated. But you see as annotated here, like some excerpts of what the metadata is, and you can see where there's reference to like the token URI, which referred to as a Uniform Resource Identifier. It'll tell you where the file is located, associated with that NFT. Okay. So what are some of the things that can be tokenized? So, as I said earlier, really you can tokenize any physical or digital asset. And we're seeing a wide range of examples. So on the digital side, which is we're gonna mostly cover today, art, digital art is a big category of things around which NFTs have been created, but we're seeing a growing number of NFTs around music and movies and other digital media. Virtual items for use in games, for example. So blockchain games will become a very popular thing. And in these games, the game items are typically represented by NFTs. So when you're buying them, you're usually using your wallet, and you have control over the tokens as opposed to a game company that has a centralized database that manages your in-game inventory. So things that can be created for games include avatars, accessories, like digital fashion, which have become also very popular. But traditional game items like skins, weapons, land, if it's like a metaverse or virtual world-based game. And people then are creating NFTs around game art as well, just to name a few things. The other big category we're seeing is digital collectibles. And this is a really fascinating category. We think historically of things like baseball cards, or football trading cards that represent players, and usually have their statistics. Paper versions of those have existed, or cardboard versions for a long time. People are now creating digital trading cards as an analog to that. But we're also seeing things like video highlights. So NBA top shot, their digital collectables are pursuant to license with the NBA. One of their offerings is highlights of NBA games. And many of these highlights for sports enthusiasts are very, very much in fashion and very collectible. And some of them go for pretty significant sums of money. So we're seeing all types of digital collectables. So I mentioned earlier in another category of things that can be associated with an NFT, and I broadly call them entitlements. And so entitlements are not really a digital file, nor is it a physical asset, it's typically something else. So things like tickets access to a discord channel or other online content. There's typically it could be a subscription. It's typically something like that. So it's some right or other access that you're getting by virtue of owning that NFT. And of course I mentioned, you can have NFTs that represent physical objects in many different ways to link the objects. So for example, you could put a code on a physical object, and that code could be in the metadata of the NFT. I'm not gonna go too much in to that side of it, we're gonna focus on the digital side for the most part. Okay. So what are the kind of overview of rights with respect to an NFT? The first thing to understand, and I touched on this earlier, is that typically the person who purchases an NFT owns the token. And so what that means is the person can buy and resell the token. But typically, there's only a license to the digital asset referenced in the token metadata. So there's this kind of bifurcation of rights, if you will. Ownership of the token, license to the digital asset. Now, one of the things that we see a lot of is kind of a mischaracterization of this concept. So many times you'll see NFTs advertised, where someone will say, you can own a unique asset, a unique piece of art or whatever the subject matter is. Typically that's not right. Typically you own the token, but you don't own the art. Typically the copyright owner will retain copyright in the underlying work, and you'll typically get a limited license. And for many of the NFTs that have been issued, that license is just a personal non-commercial license for the asset. So basically you get a right to display it, and that's it in many cases. And you can display it for purpose of saying, hey, I own this, just like you would with a traditional piece of art, or you can display it for purposes of reselling the NFT, but that's about it. Now, there's a growing number of commercial licenses that have been used with NFTs. And as we'll touch on in a little bit, those kind of range in scope. But it's important to understand, whatever the range of the license, there's typically only a license to the digital asset. So from a consumer protection perspective, you wanna be clear in what a user is getting. If you misdescribe what they're getting, there's likely will be lawsuits down the road on this. We've seen this in other contexts where people say you can own something, but it turns out you only have a license, and lawsuits have been sued. Okay. So the other thing to think about is if you are creating an NFT, is that you need to make sure that you have the rights that you wanna grant to somebody. And that may sound like a pretty basic statement, and it is, but there's a lot of NFTs that people sell that they don't have the rights to the underlying digital asset. In some cases, there's people that are just blatantly infringing by knowingly using IP that they have no interest in, in creating NFTs. But there's a growing number of cases where there's lack of clarity as to who owns what rights. So if you think about movies and other published digital content from years ago before NFTs were really a thing, and people didn't really address them in one way or another in a contract. There are situations where there can be ambiguity as to who has the right to create an NFT based on certain content. So one of the thing going forward is that you may wanna think about addressing that in rights agreements that are dealing with media properties and things like that. But for agreements where they're not addressed, we need to kind of take a look at, what is the language, and who owns what? So, as I mentioned, if it's a digital asset, generally it is an asset that's subject to copyright. So if someone owns the copyright to let's say a piece of art, unless there's something in the agreement to the contrary, it's likely that they would have the right to create the NFT. If someone has a license to create, let's say a book or some version or something based on the underlying asset, then the question comes down to a fact specific issue of, what is that specific language? And would it be broad enough to permit someone to create an NFT? Okay. So as I mentioned, many licenses are personal non-commercial licenses, but there's also commercial licenses. And there's some things in between. So one of the first real big crypto NFT projects rather was CryptoKitties. And they had a license that was, you got a personal right to display the kittes, but you also had a commercial license up to a certain amount. So you could create up to a $100,000 worth of revenue off that NFT per year, I believe it was. And so that's kind of an intermediate, it's a limited commercial right. There's many other variations out there. And so, one of the important things for companies that are issuing NFTs to think about is, what is our licensing strategy? Do we wanna grant broad rights? Do we wanna grant narrow rights? And part of this is driven by the nature of the business, the nature of the IP, and what business interests might you need to protect? So just an example of that, if you are a big brand and you have some very famous IP that you're already generating licensing revenue on, you wanna grant probably limited rights because you don't wanna impact any prior rights, you don't want to dilute that revenue stream and so on. And so what we're seeing is a lot of companies that have preexisting IP and preexisting revenue based on that, typically are granting more limited licenses. On the other hand, you have these so-called web three companies that they're just, they're starting out. And the first thing they're doing is creating an NFT. So one of the famous examples is Yugo Labs, which is the creator of the Bored Ape Yacht Club. And the Bored Ape Yacht Club is related to a set of NFTs that are depictions of different apes. And these apes, there's 10,000 of 'em, have become very popular, people use 'em as profile pictures. But there's a commercial license associated with those. And that commercial license gives people the right to do different things to commercialize the ape that they buy. And people have done very creative things. There's, I'm sorry, the Bored and Hungry Restaurant which is a burger joint that's themed with the ape of the person who started that. There's the Bored Breakfast Club, which is basically a coffee brand that's been branded using this ape. And they actually created a new series of NFTs based on this, which are basically like diner scenes or things like that. And those NFTs, in addition to having that digital image associated with it, gives you right to certain free coffee and other entitlements. So that's just an example of some of what's happening out there. There's is a pretty wide range of license types. It's important. There's not one right or wrong way to structure your license. It really depends on the overall business objectives. But once you've factored that all in and you decide the scope of the license, what is absolutely imperative is to make sure the license terms are clear. And there's a lot of licenses out there for NFTs that are not clear. So for example, the Bored Ape Yacht Club doesn't address trademarks. And when you commercialize, to what extent can use bored ape. In the examples I gave with the restaurant and the coffee club, the word bored is used in that new branding. Is that permissible under the trademark, or is it not permissible? And where is that line? And the fact that trademarks are not addressed in the license creates this uncertainty. And that's not a good thing. So if you are crafting a license and you don't want someone to use the trademark or elements of the trademark, you'd probably best state that. If you want to grant certain rights, you should be clear about what rights are granted and any conditions that go with it. It's common for many companies to have trademark usage guidelines that they publish. And you see this all the time. For example, with social media companies, if you wanna use like the Twitter logo or LinkedIn or one of the other things on your website, there's guidelines that they permit you to use it, but it's subject to the usage guidelines. So in some cases that might be advisable to think about, is if you're gonna grant commercial license that has certain trademark issues associated with it, that if you're gonna grant trademark rights, you do some kind of guidelines. Okay. So those are some of the basics. So what can go wrong if you don't heed the advice that I just gave you? Well, there's many issues. And here's just some examples of what can happen. So one of the, I'd say more kind of well known and publicized disputes that has arisen over NFTs is Quentin Tarantino, who is director of "Pulp Fiction," he created a set of NFTs, and Miramax claimed that they actually own the rights to the movie. Now I understand from what I've read about this is that Quentin Tarantino actually created some sketches himself of scenes, and that the NFTs relate to those scenes. So there's again, a factual question of maybe Miramax owns the film and the film right, but there may be a factual question of whether Quentin Tarantino owns some other rights, which he can legally create these NFTs. I don't know enough about the facts, but it's just an example of where this and the next bullet point in the next case, Damon Dash, he was involved with Jay-Z in his initial album release. And he was involved with the business. Damon wanted to create some NFTs and Roc-A-Fella Records basically said he didn't have the ownership rights. So even though he has a right in the company, he had no right to create NFTs based on the copyrighted works. In both of those cases, you see there was someone who was involved with a project and tried to create NFT, but there's a question of whether they could or couldn't. And so those are situations where it doesn't seem to me to fall into the category of blatant infringement, but rather perhaps a lack of clarity of what right someone has to create NFTs. The next case is really the NFT site called HitPiece. Basically just created NFTs of songs of famous musicians without any permission, as I understand it. And they clearly had no legal rights, and they were shut down pretty quickly. The next one, which is kind of interesting is the situation this company called Tamarind Art. They purchased a 60 foot long physical mural that they had hired an artist to make back in 2002. And they paid apparently $400,000 for that mural. And they decided they wanted to create an NFT based on the mural. So it was basically a digital image of the mural that they had purchased a physical copy of. And the artist, the state alleged that the NFT would be copyright infringement. Again, there's limited facts available on that case, but I think at a high level, that kind of fact pattern is that just because you own a physical copy of something that is subject to copyright, doesn't mean you have rights to exercise derivative works or make copies of that image unless you have a copyright license. So, in general, if you think about, if you have a book, a physical copy of a book that you own, you can typically resell the book under the first sale doctrine, and the copyright owner typically can't restrict you from doing so. But if you wanna make a copy of the book and either sell it or create a digital version, well, then you would be using some of the copyright, exclusive rights the copyright owner has, and if you did it without permission, that would likely be copyright infringement. Okay. The next one again is just pretty simple example. I mentioned digital cards are very popular for NFTs. There was this company that tried to create some NFTs based on Magic: The Gathering. And there clearly seemed to be no legal basis for doing it. And they got a cease and desist letter from Wizards of the Coast. Okay. So now onto a more interesting case. This is, I think one that is worth closely watching. There's a company. So Nike sued a company called StockX. And StockX is a company that verifies the authenticity of high-end physical items. And one of the things that they do this service for is high-end sneakers. As many of you may be aware, some of these sneakers Nikes and some other famous brands, some of these sneakers go for hundreds of dollars and potentially more. And so there's a fair amount of money involved here. And in situations like that, often you'll find people who try to create counterfeit goods to pass off. And so part of the service that StockX provides in selling, they have a marketplace where they sell high-end sneakers. They could be resales. They provide this service so that you can validate authenticity if you're gonna spend a significant amount of money to buy some sneakers. And so what StockX says is that what they do is they create an NFT, which they call a vault NFT. Which essentially represents proof of ownership of the limited edition Nike sneakers that they actually physically have in their possession. And so if they sell it to you, if you buy it, you will get the NFT as a proof of ownership. Now, using an image of a product in connection with a sale by itself is typically not a problem. We see this, for example, on eBay and other marketplaces. If you wanna resell something and you take a picture of it and post that picture of the physical item, that typically doesn't raise legal issues. In this case, what is alleged by Nike is that even when they provide a picture of the actual shoe enlisted for sale, they also create a digital image that's associated with the NFT. So now according to Nike, there are two images that you are dealing with in connection with the sale. And there's a number of factual disputes in this case. Nike alleges that the StockX website says that the NFTs represent more than just a certificate of ownership, but rather there's other entitlements that come along with it. And therefore, according to Nike, the NFTs that StockX is providing are not just a digital receipt or record of ownership, but rather they're a separate virtual product in and of themselves. And that because they're using Nike's trademark in the image associated with the digital asset associated with those NFTs, that that use is unauthorized. And because it's for a separate product, not just a resale of the original sneaker, then they're saying that there's different legal claims that are relevant here. So I think this case is interesting because not so much of the facts of the case, but because of the arguments that are being made. And that is at a high level StockX is saying an NFT just represents a representation of ownership of something. And Nike is saying, no, it's a separate virtual product. And again, the facts here might be a little bit different. I don't know if we'll get a universal proclamation if this case goes forward. But we may get some judicial thinking about what is an NFT, right? Is it just a representation? Is the token just a representation of ownership of the referenced asset, or is the NFT itself a separate digital product? I think we'll see what happens in this case, and maybe get some clarification on that as we go forward. Okay. Another case that is pending is Hermès sued a company that involved artwork, the artist in this case made digital art based on these Birkin bags. And Birkin bags are leather purses, a very high-end, well-known, famous bags that are produced by Hermès. And I understand some of these go for well into the thousands of dollars per bag. And what the artist did was he created these Birkin bags and he created a website called MetaBirkins. And he called his art MetaBirkins. And the art is a digital rendering of some of the different bags, the different types of Birkin bags, but with like a furry overlay on the bags. And one of the issues in this case is, is there an ability for this artist to use the images, even though they're modified with some artistic interpretation with the fur, as I mentioned, or not? Or is this just a blatant rip off of Hermès trademark? So this is gonna be another interesting case to watch for a couple of reasons. The first is, as I understand it, as at least as of the time of suit, Hermès had trademarks registered for leather products, not digital art. And so with trademark infringement allegations, one of the things you look at is what the trademark is. And if you have a trademark registration, when you register it, you get a registration for the name, in this case Birkin. But typically the goods are services to which it's applied. And there's different classes within the trademark system. And you can apply for protection in different classes. And so here again, as I understand it, the Hermès trademarks cover physical products, leather handbags, things like that. There are other classes that cover digital goods, where many people who are issuing NFTs will provide or seek trademark protection. And apparently Hermès did not. But that's not a dispositive fact. It's just one of many relevant factors that goes into a trademark analysis. Given the fact that the brand itself is very famous and very well-known, it's kind of a sliding scale. You look at all these factors together. But strong trademarks often get protection outside the literal protection that's covered in a registration. So I think that'll be one of the interesting things to look at. The other interesting defense that has been raised by MetaBirkins in this case is there's a doctrine under a famous case called Rogers v. Grimaldi, that is basically a First Amendment Right. And the First Amendment Right that is applicable here, and as dictated in the Rogers v. Grimaldi case, is it addressed when can you use a trademark in an artistic work and it not be an infringement? And so generally if the tests states that if there's no relevance of the trademark to the artistic work, and there's essentially an intent to deceive the consumers, then there would be infringement. But that's a pretty limited test. Or stated another way, the First Amendment protections of artistic works is pretty broad. And so I think that'll be an interesting issue here. And again, the fur that the artist is layered on, part of what I now understand that they're arguing is that this is a way of kind of reminding people that actual animals are killed to make leather bags. And so, that is theoretically an expression, and there's artistic creativity that went into the work. And so the artist's view is that they're exercising artistic expression, and have First Amendment Rights to use the Birkin name. And that case is still pending. We'll see how that one turns out. There's some other cases that are more straightforward. There was a Nintendo sued a company that created some NFT. It was an NFT-based gambling game, which used a lot of the Super Mario assets. Clearly, as I understood from the facts here, there was just no right or permission to do it. And Nintendo moved to strike deck down pretty quickly. There's other categories of IP that are relevant to NFTs. And one of the ones that's interesting is the right of publicity. Now, the right of publicity is generally misunderstood by many people. It's kind of complicated. Basically the right of publicity is a state law, right? Or in some cases, common law. So there are some states that have legislation that protects a person's name, image and likeness. And some states go beyond that to cover voice, mannerisms and other recognizable traits of a person. But whatever the scope is, generally people confuse this with copyright in many cases. And it really is two different things. If you are a photographer, for example, and you legally take a picture of a celebrity on the street, so in a public place; you don't break into their house or go on private property and take a picture illegally. If you take a lawful picture, you own the copyright in that picture, even though the subject of the picture is a celebrity. And one of the things that I think demonstrates the lack of clarity or understanding of the right of publicity is, there's a number of celebrities that have used pictures of themselves that were taken by someone else, by a photographer who owns the copyright, and they tried using those pictures on their own social media sites. And they've been successfully sued by the artist, saying, "We own copyright, you don't have a right to use the pictures without a license." So I think that kind of illustrates the difference between copyright and right publicity. While the celebrity owns their name, image and likeness, they don't have copyright in a picture that someone else takes of them legally. So what is a violation of right of publicity? And generally what is required to do that is you have to use the name, image or likeness of the celebrity to promote some other goods or services. So if you use a picture of a celebrity and you're advertising for a product, it tends to imply to the consuming public that the celebrity endorses that product. And unless you've paid them to the endorsement, that would be an example of infringement. So when we think about NFTs, kind of going back to the example I talked about a little bit earlier about in the Nike case, like what is an NFT, right? Is it a separate product, or is it just a, if you're a photographer and you create an NFT and it represents just a digital image that you own the copyright to, does the NFT represent just ownership of the license to that image, or is it a separate product? And I think in the context of right of publicity, like as in the Nike case, this may provide some interesting answers. Because if the NFT, if the token is just a representation of ownership of the license, then photographers probably can create NFTs around celebrities. But if a court decides that by using the digital image of the celebrity, you're using it to sell a different product, i.e. the NFT, then it could be deemed a violation of the right of publicity. I think that'll be an interesting set of cases to watch. So listed on this slide are a couple other examples of cases that have involved right of publicity. We're seeing a lot of YouTubers, streamers and others that have had people capture streams or images of them and try to create NFTs without their permission. There's a pending soup between the Yo Gotti and Opulus for using name, image and likeness without consent. And there was a company called ItsBlockchain that created a package of NFTs based on 46, very famous infosec pioneers. As I understand, it intended to be like an amage to them, but they did it without permission. And so once some of these folks whose image and likeness were involved in the NFTs found out about it, they shut it down pretty quickly. And I thought one of the things that was interesting from the press release that came out, ItsBlockchain once they got kind of the cease and desist letters, they shut down and they said, "Look, we weren't aware of the likeness laws in NFTs as the market is not regulated." Well, ignorance of the law doesn't make a difference. It's still a bit illegal. It's illegal in most cases. I mean, some laws there's a STO requirement, but in this case it's not. And the other thing is that the fact that they said NFT markets are not regulated is actually also not true. Basically they're subject to all the laws and regulations that are out there. Whether or not the agencies are fully enforcing the laws is another issue. But to state that NFTs are not subject to regulation is I think an ill-informed statement. So, that covers that. So going on to a couple other examples of what can go wrong with licenses. So, as I mentioned, Bored Ape Yacht Club earlier is owned by Yuga. So Yuga has now bought another project that was created by someone else called CryptoPunks. And CryptoPunks is one of the real first big projects that created a lot of publicity. And these CryptoPunks are little pieces of pixelated art of, as the name implies these, like just punkish looking figures. And they're not, I wouldn't say highly artistic from a fine art perspective, but they've created a lot of buzz and community around this. And they have this historic value for what they represent in the NFT market. And when they launched, there really was no clear license. And so now they're trying to go back and try to apply license terms. But that's an example of kind of what not to do, as you wanna make sure there's a clear license upfront. So the bottom line on this is that, as an NFT creator, you can adopt any of a variety of licensing models, right? The business model that you have and what your plan is for how you wanna use the NFTs; they really more for marketing purposes, do you wanna try to make money off of these? Is that the primary goal? Are you trying to use these to create a community and leverage that community to provide other products or services? Any, and all of these and other things can be goals of using NFTs. But whatever it is, you wanna think through it. You wanna have a well thought out license structure, and then you need to clearly reflect that in a license agreement. And then once you have a clear license agreement, there's other things to think about. And one of the things to think about under contract law 101 is that in order to have a binding contract, you must have a valid contract. And it typically needs to be accepted by the parties. So let's take a look at some of the issues around that. So how do you ensure that you have a valid enforceable license? So, as many of you are probably aware, there's a lot of law around online contracting and electronic signatures and whole body of law around that. But generally in the US, what the courts have held, and there's a little bit of inconsistency on some of the details around the edges of this, but in order to have a valid online contract, the user typically needs to indicate some affirmative acceptance. They must take some action that affirmatively indicates that they are agreeing to a terms of service or a license. And so one of the ways that this can be done is, and you've all experienced this when you download software or do other things where you're agreeing to be bound, there's typically a little check box or some other indicator. And it'll say, "By checking here, I agree to these terms of service." And there'll be a link right there to the terms of service. And so, most of the time if you do something like that, courts will enforce that. If you just stick terms of service at the bottom of your page, your webpage, and a user doesn't have to do anything to accept them, in many cases, courts will not enforce that, and say that there was no assurance, that the user actually saw them or had an opportunity to review them, and there was no affirmative acceptance to form a binding contract. So one of the challenges in the NFT space is that many NFTs are sold through marketplaces. And again, there's confusion there because many of the marketplaces will have a terms of service. And those terms of service often don't really cover the NFT license. And they're really not designed to do that in many cases. If it's a proprietary marketplace where the owner of the marketplace is selling their own NFTs, then maybe the license can be embedded in the terms of service. But generally the terms of service for a marketplace will cover your interactions with the marketplace. And that is the services that they're providing, the limitations, the liability, and all the typical things you'll see in a terms of service. Now, many of them might say, and if you're buying an NFT through our marketplace, the seller of the NFT may impose license terms, but they'll quickly follow it up with, but that's an issue between you and the seller. So typically it's not the marketplace, in a public marketplace that's granting you the license, it's the seller. And so they leave it up to the seller to apply the license terms. So how can you do that? So typically what we recommend and what we're seeing is some marketplaces provide this, others, you can do it on request in some cases, and in other cases, sometimes you can't. But generally with the NFT itself, where the listing is, if you have a description of the NFT and the image, whatever it is and what the price is, and there's a buy now button, right there, you have a checkbox, where something saying, "By proceeding to payment, you agree to the NFT owner license," or something analogous to that to leverage existing case law around click wrap license agreement. So that's kind of one way to do it. There can be other ways. But you wanna typically use something. There's no cases I'm aware of that specifically address this for NFTs. So you need to rely on the general principles of electronic contracting and online agreements to have something that's enforceable, until we get any further clarity from the court, specifically on NFTs. So the other thing to think about is that we see a lot of people copying other people's licenses. And we see this all the time. Whether it's someone's terms of service or other things saying, well, this is a big company, and these terms are good enough for them. They should be good for us. They probably paid lawyers a lot of money to develop these terms of service or license. And so, we should feel comfortable using it. That's often not the case. And I'm sure this is not a surprise to anybody. But you need to think about your unique business model and issues. And there may be situations where the NFTs you're selling have different features to it, different than what the terms of service you wanna copy from, the NFTs might have different characteristics. So some might be some form of multimedia as opposed just to digital still image. And you might need to address different terms for example. Or if you're providing entitlements with your NFT, you may wanna address some level of that in your license agreement. But whatever it is, you typically wanna have a custom license that specifically relates to what you're doing and your desired licensed terms. And then the other thing is that when you describe what the NFT is in connection with your listing, or if your website or wherever you're selling the NFT, whether it's on a marketplace or otherwise, is you wanna make sure that you are accurately describing it, as I mentioned earlier. You typically don't wanna say that you're getting total ownership of a digital asset or a unique asset if the user's only getting a license to the asset. Again, there's ownership of the token, but typically only a license to the digital asset. One of the kind of big looming issues that's kind of still out there is, okay, so let's assume that we get an initial purchaser to validly accept our NFT owner license agreement when they purchase the NFT on the initial sale. If they wanna resell that to somebody else, how do we ensure that subsequent purchasers are bound? We typically don't have control over where or how someone resells an NFT. If they have it associated with their wallet, they could re-list it on another marketplace, and it could be the same or a different marketplace than it was originally listed on, or it could be a direct peer-to-peer sale without going through a marketplace. And there's various other options. So the question is, how do you ensure that a license is binding on a subsequent purchaser? And there's different ways to do it, but one of the ways to think about, and this hasn't really been addressed in any court cases I'm aware of, but based on traditional principles of copyright law and agreements, is that you could have a conditional license. And that license would say that the initial purchaser, you're agreeing to these terms, and you can resell the NFT, but upon resale the NFT, if you sell it, you lose the original license 'cause you no longer are the owner of the NFT. And you could indicate, for example, if the license is transferable to the subsequent purchaser subject to the following conditions. And the conditions could be something like the original purchaser has to give notice of the license to the subsequent purchaser, and the subsequent purchaser has to agree. And so if there's a valid acceptance by the subsequent purchaser, arguably you have an enforceable agreement with them. This is an area I think that many people are thinking about and recognize the challenges and difficulties. Some people also recommend including at least the link of the license terms in the NFT metadata. I think that's helpful. We recommend that as well. We think it's a useful thing to do, but it's probably not dispositive. At least the license information kind of goes along with the NFT. But again, if a purchaser doesn't see it or know to look for it and doesn't have to do anything to affirmatively accept it, that alone is probably not gonna be sufficient. But I don't think it hurts to do that. So that that's gonna be an issue that I think will see some evolution over time. And there's companies that are working on technology to create a kind of a tech NFT licensing infrastructure layer into minting platforms and marketplaces, and potentially integrate with wallets and other parts of the NFT ecosystem, so that these things could potentially like pop up as a resale occurs. So we'll see some combination of legal and technology solutions to address this issue. So there's a lot of licensing opportunities out there for existing IP owners. And we're seeing one of the things we do a lot of is these license deals where many of the existing brands don't have a lot of experience with NFTs yet. And so they typically will license their content to someone who is sophisticated in kind of Web3 and NFT technology. And they do a license deal and it's great. So what we're seeing is a lot of brands doing this. And they're licensing their content through these agreements. And we're seeing companies from all different industries do this. There's brands like high-end fashion brands, there's sports teams, there's musicians, artists, celebrities, game companies, books, and movie, and other literature type publishers, et cetera. We've even seen, and many of you may have heard of this, Jack Dorsey did an NFT based on the very first tweet that he sent out through Twitter. There's been New York Times articles that have been subject to NFT. So really there's a lot of different licensing opportunities for different entities. So what are some of the things that IP owners should think about when they're licensing their IP for an NFT? Well, take the NFT part aside, if you're licensing your content for someone to use in digital media, even without the NFT part, everything that you would typically do and think about when you're licensing digital media, you would still do, because that's essentially what you're doing with the NFT. You're granting someone a right to make the NFT, but again, there's gonna be only a license to the digital media part of it. So all the traditional stuff applies, but there are some unique issues that brand owners should think about when they're doing their licenses. You typically wanna not just say, "Hey, you can use my IP to create NFT." You typically wanna put some parameters around that and some structure around, like what is specifically being authorized? Is it just digital still images, or can it be used for something else? In some cases you may wanna limit the number of instances. So a lot of the value of NFTs come from the scarcity. So if something is a one of one where it's the only authorized piece of that digital work that will be subject to an NFT, that usually will get more value than something that there's many copies of. So if you're a high-end brand, you might may wanna limit the number of instances, you may wanna specify, of course, what your license fee is, which is typical in a license agreement. But in the case of NFTs, you may wanna get a percentage of the resale. You may wanna limit how the NFT can be used with other things that might potentially tarnish your brand. If an NFT was used in combination with something else that was a little bit CD, you may wanna limit where it can be distributed and so on. So there's various considerations around that, that go into these agreements. In the last few moments here, I wanna talk about infringement. So there's a lot of infringement out there. One of the challenges in this space is the fact that if something is listed on a marketplace, if it's copyrighted content, you can do a DMCA takedown notice, and typically the marketplace will take the content down and give notice to the whoever published it, the NFT issuer. And then the DMCA process can kind of play itself out. But what happens if something is sold on a marketplace and gets associated with a wallet? Well, sometimes it gets a little harder to enforce because you don't know who the owner of the wallet is necessarily. It may just be a wallet ID. So detecting infringement early and using DMCA for copyrighted material is helpful. We've seen a number of people create NFT projects that use as part of the domain, someone's trademark trying to suggest to the public that it's from that brand, as opposed to some third party. So we've seen a lot of domain name rep offs, and you can use the UDRP procedures for many of those. But for some of the like, like dot E and some of the ENS domain names, you can't. That procedure is not applicable. So you have to use other methods to take that down. One other thing to think about is that there's a lot of different IP issues that can be associated with NFTs. And so all the traditional types of IP protection, you wanna think about, but in this slide, for example, there, there's an indication of, this is examples of NBA top shot. So what they're basically, as I mentioned earlier, the video rather is what the NFT represents, but they have this unique like display frame around the image. And so there may be creative elements you could think about and things like that. There's patents we've obtained on technology that's used to interface NFTs in traditional games, for example, that are not set up to manage NFTs. So this is a kind of a hybrid type system that enables that using technology. I mentioned earlier, trademark protection. So brands typically are pretty good about protecting their trademarks, but what they really wanna think about is if they're selling physical products, they also wanna look at some of the classes that would cover digital items, or kind of online services that may be associated with NFTs that are kind of shown here in this slide. And then design patent protection. So for anything that's visual, if it's basically the kind of ornamental aspects of a product, you can get design patent protection. This can apply to computer screen displays in some cases. And the damages associated with this are generally pretty significant, 'cause you can recover all of an infringer's profit in some cases. And so that can be a very lucrative way to enforce. And then of course, with copyright infringement, I touched on. There's a lot of infringement out there. You wanna focus on the DMCA where it's feasible, and do it early, because once it gets off the marketplaces, it's really hard to take down. Here's just this last slide, my contact information. We have a couple of blogs that are relevant to some of this content. If you're interested, please feel free to visit and sign up. And on the right side of this slide, we have a number of articles that go into deeper detail on some of the topics that I covered today. So with that, I wanna say thank you all for listening. I hope you found this informative. And if you have questions, feel free to reach out to me. I love talking to people about issues in this space. Thank you very much.