IP licenses in NFT Terms and conditions are evolving

IP licenses in NFT Terms and conditions are evolving

With the proliferation of non-volatile tokens (“NFTs”), particularly in the art space, an interesting and potentially revolutionary practice has developed whereby certain intellectual property (“IP”) related to NFTs is licensed to NFT buyers and their subsequent recipients. This type of IP license was made famous by the developers of Bored Ape Yacht Club, who included a commercial use license in their terms and conditionss and, based on public statements, these licenses are intended to enable NFT holders to more fully commercialize their Bored Apes. Granting the owner of an NFT, or for that matter, any reproduction of an artwork, a license for commercial use has not been a common practice until now, as traditionally the buyer has only been allowed to use that item. This trend of giving greater intellectual property rights to NFT owners aligns with the ethos of Web3 – allowing owners to have greater control over digital assets and content.

This licensing of commercialization rights to a specific NFT holder presents interesting opportunities for customers to monetize their NFT purchases. It also presents new challenges as developers try to develop the most appropriate legal construction to serve the interests of both the overall project and the individual owners of NFTs. Some of those challenges played out recently when major changes were made to the license terms of two popular NFT projects: Moonbirds and CryptoPunks, each showing a different strategy for allocating intellectual property ownership over NFTs. Moonbird NFTs were sold for as much as 350 ETH (approximately $570,000 based on the current ETH price as of August 22) and CryptoPunk NFTs were sold for as much as 8,000 ETH, approximately $13 million based on the current ETH price from August 22).

Moonbirds Shift to CC0

One approach to licensing, which is uniquely “Web3”, is to put otherwise copyrighted IP into the public domain using Creative Commons “Rights Not Reserved” (“CC0”) agreements. The idea behind CC0 is that when art is placed in the public domain, it allows more people to use and otherwise enhance that art without fear of infringement, which in turn increases the notoriety and value of the original works.

The original Moonbirds Terms of sale licensed the artwork in individual Moonbird NFTs to the owners of those NFTs for commercial use. The relevant extract from those original terms is below:

On August 4, 2022, Kevin Rose (founder of Project Moonbirds) he announced on Twitter that Moonbirds will move to the CC0 public license. This change from licensing artwork to individual owners only – to now allowing the general public to have equal rights over the use of that artwork is upset certain Moonbirds NFT owners who previously had greater intellectual property rights and were suddenly left with diluted commercialization rights due to a sudden change in license terms.

Yuga Labs releases long-awaited CryptoPunks license

Another example of the potential decentralization of IP ownership of NFTs is contained in the terms recently published by Yuga Labs in collaboration with CyptoPunks. When Yuga Labs acquired CryptoPunks in March 2022, it issued a Media Release it said “[w]With this acquisition, Yuga Labs will own the CryptoPunks and Meebit brands and logos, and as they did with their own BAYC collection, Yuga Labs will transfer IP, commercial and exclusive licensing rights to individual NFT owners.”

On August 15, 2022, the long-awaited ones licensing conditions they were finally released. Some interesting features of these terms include:

  • Explicit linking of licensing rights to the asset itself, meaning that when an asset is transferred, the licensing rights accompanying that asset follow.

  • A list of smart contracts to which NFTs were deployed, potentially to pre-emptively cut off claims by Owners of V1 CryptoPunk intellectual property rights under the contract. V1 CryptoPunk owners bought NFTs with a bug in the smart contract code. To fix the coding error, the original creator (Larva Labs) sent a new smart contract. V2 CryptoPunks became successful and popular. Recently, the original owners of V1 CryptoPunk decided to wrap their V1 CryptoPunk NFTs in a new smart contract and sell them. The packaged version of V1 CryptoPunks fixes the coding bug, but resulted in duplicate CryptoPunk NFTs (ie the artwork is identical between V1 and V2).

  • There is no express reservation of rights to modify the intellectual property licensing terms in the future (as included in the Moonbirds Terms).

These Yuga Terms are far more comprehensive than the Bored Ape Yacht Club License Agreement. Ed Lee, author Your NFTput together useful infographic showing certain differences between the CryptoPunks and Bored Ape Yacht Club licenses.

It is unclear whether this CryptoPunks license was first released to identify potential weaknesses or loopholes before the revised license was released to the owners of the Bored Ape Yacht Club, or whether it was simply done to clarify after their statement of the issue regarding their by purchasing the CryptoPunk IP.

Final Thoughts

The Web3 industry mentality surrounding the decentralization of ownership, including ownership of copyright and other IP, is a new development that is likely to have legal ramifications across industries. As with any developing industry, it will likely take time to establish the law around this current Web3 industry practice. As shown in the Moonbirds and CryptoPunks licensing changes above, these current practices and the laws surrounding them are constantly changing. This is why it is important for developers to engage legal counsel early on to assist those developers in creating an appropriate IP strategy for their specific goals. While there are obvious challenges in expanding and decentralizing NFT IP owners, these trends are an exciting development as they show Web3 is being put into commercial practice.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume XII, Number 235



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