NFT licenses: How can creators legally protect their intellectual property when making NFTs?

By the end of 2021, the valuation of the global entertainment industry will exceed US$99.7 billion, and now the global entertainment industry has begun to get involved in NFTs. After all, NFTs are the latest source of income for the entertainment industry today.

While the art world is largely responsible for some of the most expensive NFT sales of all time, the NFT market is still new, and there’s plenty of room for home entertainment groups like Warner Bros., Disney, Marvel, DC, etc. The future of entertainment, or find your place in Entertainment 3.0.

By leveraging billions of dollars worth of intellectual property, production companies and entertainment studios have begun to welcome conversations about how to strategically inject NFTs into their IP ecosystems. Perhaps more important is the conversation around that intellectual property and its licensing.

1. Entering the era of NFT licensing

“Bundle of 6 Rights”

What exactly do potential buyers get when they buy NFTs? Does the buyer retain full ownership of its NFT? Meaning, they can use it however they want – whether for personal or commercial gain? Or are there some restrictions or constraints on its commercial use?

U.S. copyright law grants the copyright owner (or in this case, the NFT creator/publisher) six exclusive rights over how their work is used and distributed:

  1. The right to reproduce the work.
  2. The right to create derivative works based on that work.
  3. The right to distribute copies of the work.
  4. the right to perform the work.
  5. the right to publicly display the work; and
  6. For sound recordings, the right to publicly perform the work through digital audio transmission.

Of these six exclusive rights, the NFT community has stumbled upon four of them as they affect copyright and trademark protection:

  • The right to reproduce a work, such as the Nike/StockX lawsuit.
  • The right to create derivative works, as in the SpiceDAO case.
  • the right to distribute copies of the work, such as the ongoing Miramax and Quentin Tarantino lawsuits; and
  • The right to publicly display works, such as the ongoing lawsuit between Hermès and Mason-Rothschild.

Let’s briefly explore how these rights arise in the marketplace, forcing the legal community to address the relationship between NFTs and intellectual property law.

2. Litigation and other legal issues of NFTs

1、SpiceDAO

Back in January 2022, a collective known as the Spice DAO made headlines for one of the dumbest misdeeds to happen in the NFT market. The collective paid $3 million for the unpublished manuscript of Alejandro Jodorowsky’s film “Dune,” mistaking the title to grant them the rights to the film as well.

After the purchase, the DAO informed users on social media that it was planning to make an “original animated series” inspired by the original book, which it then hoped to sell to a streaming service, for which it would need copyright.

2. Miramax v. Quentin Tarantino

NFT licenses: How can creators legally protect their intellectual property when making NFTs?

In November 2021, award-winning director Quentin Tarantino announced that he would sell seven NFTs related to the 1994 classic Pulp Fiction. According to Tarantino, each NFT will include an “unedited first handwritten script” from the film, as well as an “exclusive custom commentary” from the director, as well as a unique piece of art inspired by the film, which will be made available to the public.

The film’s distributor, Miramax, filed a federal lawsuit against Tarantino in California, arguing over numerous issues, but mostly because the NFTs involved copyright and trademark infringement. They claim that Tarantino has no legal right to create and sell NFTs without misappropriating Miramax’s goodwill and creates a “potential for consumer confusion” who may believe that Miramax created or endorsed the sale of these NFTs.

The case is currently under litigation.

3. Hermès v. Mason Rothschild / MetaBirkins

Back in January, French luxury fashion house Hermès filed a lawsuit against California artist Mason Rothschild. In December 2021, Rothschild announced his “MetaBirkins” NFT project – virtual art depicting Hermès Birkin bags and logos. The fashion house argues that Rothschild misappropriated Hermès’ Birkin trademark while also profiting from Hermès’ sales of more than 100 digital collectibles.

The case is currently under litigation.

4. Nike v. StockX

In February, Nike filed a lawsuit against online sneaker resale giant StockX, accusing it of selling its “Vault” NFTs without a license.

The complaint alleges that StockX knowingly used Nike’s trademarks without authorization to sell NFTs and subsequently minted the project, arguing that the project “could cause consumer confusion” because Nike never authorized or participated in the project.

The case is currently under litigation.

3. NFT license

In most cases, NFT creators expressly restrict all commercial uses of NFT artwork, prohibiting buyers from commercializing their NFTs.

However, we’ve seen some NFT projects – such as CryptoKitties, CryptoPunks, and Meebits – adopt “NFT licenses”. The license provides buyers with a “limited license” to use, reproduce or display their NFT art “for the purpose of commercializing their own merchandise.” However, in most cases, the “gotcha” of NFT licenses is to have an annual gross revenue cap, such as CryptoKitties’ $100,000/year gross revenue cap.

Let’s take a look at some of the later NFT projects, which licenses for NFTs they provide to users.

1. The Boring Ape Yacht Club (BAYC)

Yuga Labs, the creators behind the BAYC series, allows its holders to fully commercialize their personal Bored Ape under its terms and conditions, “to own the underlying Bored Ape, which is the art.” Additionally, buyers of Bored Ape receive an “unrestricted worldwide license to create derivative works based on the underlying art,” with no revenue cap.

However, it is worth noting that the copyright does not immediately belong to the new owner of BAYC NFT. Instead, a written assignment is required to complete the copyright assignment, as there is no assignment clause in the underlying smart contract.

Based on community feedback, monetizing Bored Ape’s commercial usage rights is extremely difficult because the buyer is ultimately competing with BAYC itself, which retains the only legal right to use its logo and other non-token-specific IPs.

2. The World of Women (WoW)

Taking BAYC’s approach a step further, the Women’s World (WoW) NFT project transfers all rights, ownership and interest in the intellectual property behind the art to the buyer of the NFT.

However, this is limited to non-commercial use only. In its terms and conditions, the program addresses trademark issues directly, informing buyers that they can use terms like “Women’s World”, “WOW” or “WoW” when using the underlying art for non-commercial purposes.

3. What are “royalty-free” NFTs?

Similar to the “royalties” typically paid to businesses or individuals for the ongoing use of their assets, the NFT marketplace also requires an explanation of how royalties are assessed and distributed.

NFT royalties refer to giving the creator a percentage of the sale price each time the owner/creator’s NFT work is sold on the market. In most cases, these payments are permanent and executed through “smart contracts” or code that automatically controls the distribution.

However, NFT royalties differ from traditional royalty payments in that these are automatically paid to the NFT owner/creator at the time of the secondary sale, without the need for an intermediary. While not every NFT can generate royalties, they need to be written into the terms of the smart contract, otherwise, the owner/creator has no claim.

4. “Royalty Free” License from ZINU

As an example, let’s take a look at ZINU, which recently launched its 3D fully animated “original zombie” NFT.

ZINU claims to be the industry’s first real case of decentralized intellectual property in the form of a “royalty-free” NFT license. ZINU grants each NFT holder a royalty-free license to their specific ZINU role – so they can use their individually minted ZINU for personal and commercial purposes without paying any royalties.

NFT licenses: How can creators legally protect their intellectual property when making NFTs?

The company has repeatedly stated to its community that members of its Zombie Gang Secret Society (ZMSS) NFT family will be able to leverage their personally owned piece of the Zinu brand as it creates toys, collectibles, merchandise and Countless other opportunities.

Summarize

The entertainment industry has a long way to go when it starts to dive into the NFT market, but it needs bright minds to help it navigate nascent unfamiliar territory to help itself rebuild a game that is both popular and fair to all creators and ancient infrastructure enjoyed by its community.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/nft-licenses-how-can-creators-legally-protect-their-intellectual-property-when-making-nfts/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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