NFT Intellectual Property: Deep Dive into Branded NFT Licenses
Everything you need to know about brands' intellectual properties, what you can and can't do with your NFT, the risks for brands' IPs and the A16z "Can't Be Evil License" for a thriving NFT space.
Unlocking the vast potential of non-fungible tokens (NFTs) extends far beyond their artistic appeal. With each NFT collection comes a unique set of licenses, grants, and restrictions that introduce a realm of ambiguity and challenges for both brands and collectors alike. Surprisingly, the value of certain NFTs fails to reflect the associated rights they possess accurately. Did you know that as a proud owner of a Bored Ape NFT, you have the exclusive opportunity to launch your branded spicy sauce or a line of diapers? The world of NFT intellectual property (IP) rights and licensing is a fascinating frontier, holding the power to propel brand awareness and open doors for bold entrepreneurs seeking new business models. Let’s dive into the NFT IP business
What are you buying when you buy an NFT?
When buying an NFT, token ownership and underlying asset are distinct. NFT purchasers usually acquire limited rights to use the asset for personal purposes or sell it on the secondary market unless an express NFT license transfers those rights. Different brands have different approaches to licensing the rights in the underlying intellectual property of NFTs. The IP rights are frequently found in the project’s terms and conditions.
Let’s look at the most common type of licensing available:
The “traditional” approach, where buying an NFT grants the owner no rights in the underlying IP (much like the purchase of a traditional physical product);
The middle-ground approach, where some rights are granted in underlying IP;
In the “crypto-native” approach, purchasing an NFT grants the owner full rights in the underlying IP.
Let’s dive into concrete examples with branded NFTs:
The “traditional” approach — Adidas ‘Into the Metaverse’
In December 2021, Adidas released its “Into the Metaverse” collection, a collaboration with the NFT community from Bored Ape Yacht Club, owned by YUGAlabs.
But from an IP perspective, what did the collectors actually get? The Terms and Conditions state that Adidas maintains all IP ownership, granting NFT buyers only a limited, nonexclusive right to display the underlying asset:
“You acknowledge and agree that Adidas AG owns all legal rights, titles and interest in and to the Art, and all intellectual property rights therein.”
“Adidas grants you a worldwide, non-exclusive, revocable, royalty-free license, to display the Art for your Purchased NFTs, solely for the following purposes: (i) for your own personal, non-commercial use (for example home display, display in a virtual gallery or as an avatar); or (ii) as part of a marketplace that permits the purchase and sale of your NFTs.”
And specifically, the license does not include (i) the right to use the Art to create additional NFTs; (ii) the right to create derivative works of the Art; (iii) the right to, and you may not use any Adidas trademarks.
To summarize, purchasers of NFTs obtain restricted rights to utilize the asset for personal reasons only (e.g., show it as a social media profile picture or on a crypto wallet) or trade on the secondary market. This conventional approach allows brands to harness and exploit their intellectual property using NFTs as an additional line of products or marketing opportunities.
Commercial License — Nike x RTFKT — Azuki
Adidas rival, Nike acquired digital fashion company RTFKT in December 2021. For their NFT drops, RTFKT offered additional commercial use license terms that allow NFT owners to use the underlying IP of their NFT to create and sell physical merchandise, up to $1 million in revenue.
This includes the right to:
Modify the RTFKT-Owned Content solely to create a De-Branded Original Version;
Further, modify the De-Branded Original Version to create one or more De-Branded Modified Licensed Versions;
Make a reasonable number of copies of the RTFKT-Owned Content to exercise the license rights in above; and
Copy, display, perform and distribute, the De-Branded Original Version and the De-Branded Modified Licensed Versions for the Permitted Commercial Purposes (as defined below).
Azuki1 is another NFT collection where collectors are granted commercial rights limited to the sale of derivatives, including the right to create new NFTs and NFT projects based on the Azuki NFT Art, as long as you don't use the Azuki Trademarks and that you own the Azuki NFT.
Although keeping a strict license, by allowing buyers to build on top of the underlying IP asset, these brands offered an evolution beyond the usual fashion brand model of leveraging IP in new markets or product lines.
III - The Crypto-native or Degen approach — Yugalabs
In the 3rd approach, the creator is even more supportive and gives this time full rights to the NFT owner. Yugalabs’ Meebit, has taken the “degen” approach by granting an exclusive, universe-wide (meaning IRL too), royalty-free commercial and non-commercial license for the Meebit NFTs, with no cap on the revenue generated.
Similarly to Meebits2, Yugalabs3 granted full intellectual property ownership rights to the Bored Ape Yacht Club and World of Women collectors. Owners have seized the opportunity and launched all kinds of derivative projects like water, skateboard, media agency, spicy sauce and many others.
The T&Cs highlight the following rights:
You Own Your Meebit NFT. When you own a digital wallet that holds a MeebitNFT, you hold the exclusive right to hold, sell, and transfer; Yugalabs has no right or ability to seize, freeze, or otherwise modify the ownership of any Meebit NFT.
Yuga owns the IP in the Meebit Art but grants you the License to use the Meebit Art associated with the Meebit NFT for as long as you hold the Meebit NFT.
As a collector/creator, you own the IP in your Derivative Meebit Works. As between you and Yuga Labs, you own all rights, title, and interest in and to any “derivative work,” as defined by the United States Copyright Act, based upon Your Meebit Art created during the License Term.
This approach is quite revolutionary and sets a new frontier in the world of IP licensing. The intention is to clearly support creativity, the development and even delegate or at least invite the community to contribute to the NFT utility and brand expansion.
Challenges and Risks with IP Rights Distribution
Branded NFTs have become a remarkable tool to scale distribution and engage with fans; however, the technology comes with a wide range of technical and legal risks associated with it. There is currently a lot of confusion and conflict regarding the rights of NFT creators and metaverse builders when it comes to incorporating trademarks, artwork, writings, and other intellectual property owned by others in the physical world. Additionally, there is uncertainty surrounding the bundle of rights that purchasers of NFTs and other digital assets actually acquire.
Let’s take a look at the main risks associated with NFT for brands’ intellectual property:
Terms and conditions enforcement: each NFT sale has reached a large dispersed audience worldwide. Brands will undoubtedly have difficulties policing their intellectual property usage rules, especially for granted derivative works that will be created off-chain and on-chain.
Third-party T&Cs enforcement: The NFT original creators must look after NFT service providers that interact with their smart contracts and understand the terms and conditions and be prepared to combat (for IP infringement, NFT marketplaces evaporating creators’ royalties4) or to align with these 3rd party partners (OpenSea freezing stolen NFTs5). Creators will have to collaborate with NFT marketplaces, centralized exchanges, and DeFi protocols (LPs, asset-backed loan providers, fractionalization tools,…) to ensure their IP rights follow whatever derivate assets come out on their platforms.
Understand the Regulatory Landscape: Lawsuits recently filed in US federal courts by Hermès and Nike challenge whether the creation, marketing and sale of NFTs incorporating third-party trademarks and trade dress without authorization violate US intellectual property laws. These first cases6 have the potential to establish a precedent for whether and how these laws will govern the use and enforcement of branding assets in the metaverse. As the NFT market continues to grow, regulatory and legal issues are likely to arise; brands have to stay up to date with the regulatory landscape and understand the risks associated with licensing and marketing NFT IRL and in the Metaverse.
Introducing the “Can’t Be Evil” NFT License
The lack of standardization in the NFT intellectual property market leads to confusion, damageable legal risks for creators, and ambiguous pseudo-ownership rights for collectors.
To solve this critical issue, VC firm A16z partnered with legal firms to create the “Can’t be Evil” (CBE) NFT licenses7, a public licensing framework adapted from the Creative Common (CC) license, which was created to set a permissive environment and unleash the creativity and collaborations among creators entering the bourgeoning era of the Internet. Similarly, the CBE NFT license helps creators of the Web3 era to work efficiently and in a trusted manner8. To go even further, the CBE license was coded as a smart contract linked to the NFT metadata, so it can be easily added by the creator, displayed by NFT marketplaces, and understood by collectors. The venture fund has deployed six immutable versions of the licenses on the decentralized storage Arweave to facilitate referencing the rights associated with the NFT created9.
The CBE License follows what the Dapper Labs team, creators of the CryptoKitties NFT collection, initiated with the NFT License10, back in 2018, which aimed at clarifying users’ rights for what would become the first-ever ERC-721 NFT collection.
In that same trend, MeebitsDAO has partnered with FluidNFT11 to bring the complexity of licensing on-chain. This brilliant idea would help owners grant and track perpetual licenses and sub-licenses from their NFTs and enforces the long list of terms and conditions that usually come with each collection. Unfortunately, the project is still at the POC stage and is struggling to raise.
Conclusion
By granting IP rights to their vast community, brands like Yugalabs were able to leverage the powerful network effect these crypto communities intrinsically carry.
NFT intellectual property licensing is pushing brands and fans into new associations, unlocking inclusiveness, imagination, and value creation. This innovative collaboration method offers a proven and powerful marketing distribution increasing brand awareness and scalable community engagement.
However, it is also creating confusion and conflict over what can and can’t be done, and what bundle of rights are acquired or not. These challenges have caused litigation risks where traditional terms and enforcement systems have limitations.
Designing new open frameworks that encourage reflection and cooperation, such as the CBE NFT license, and embedding them within the NFT code, can address some of these challenges, bring clarity, and create a thriving space for brands and their fans to unite and unleash creativity to power the next culture (r)evolution.
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That’s a wrap!
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https://www.azuki.com/en/license
https://licenseterms.meebits.app/
https://news.yuga.com/reflection-on-baycs-nft-license
https://cryptonews.com/news/nft-marketplace-wars-see-royalties-evaporate-and-creators-arent-happy-can-coinbase-attract-them.htm
https://blockchain.news/news/opensea-freezes-stolen-bored-apessees-backlash-for-lack-of-decentralization
https://www.globallegalpost.com/news/branding-the-metaverse-first-us-lawsuits-may-define-scope-of-irl-trademarks-1366224270
https://a16zcrypto.com/posts/article/introducing-nft-licenses/
https://a16zcryptocms.wpengine.com/wp-content/uploads/2022/08/Cant-Be-Evil-Licenses.pdf
https://www.nftlicense.org/
https://www.fluidnft.org/
excellent work!
this is really very important because not all understood how it can work - the powerful network effect & IP rights