Content Owners Beware: Navigating the Copyright and IP Matrix of NFTs

As content creators explore NFT marketplaces, they find both new opportunities and challenges

Summary:

• Non-fungible tokens (NFTs) are making headlines everywhere, capturing the attention of content owners and creators
• While the opportunity is exciting, the NFT market is still new and untested territory, particularly with licensing models and contracts
• Navigating this new space is best done with a partner that has expertise in monetizing IP and handling copyright, clearance and compliance

By Michael Arthur – SVP and GM, Content Licensing

NFTs, or non-fungible tokens, are generating a tremendous amount of buzz. The word non-fungible simply means unique and non-interchangeable. A dollar bill is fungible — every dollar bill is worth the same amount. A baseball signed by Babe Ruth is non-fungible — it can’t simply be replaced by any other baseball.

The market for NFTs is growing and shows promise of becoming quite lucrative. A piece of digital art recently sold for $69 million, and highlights from the NBA’s Top Shot platform routinely sell for tens of thousands. However, it’s important to put these eye-popping values into context.

Many of the transactions that put NFT’s on the front pages of the Wall Street Journal, Barrons and countless rotations on the financial networks were bought by the crypto community.  Why is that important? Two things: this community moves effortlessly in the crypto space. Adoption of this investment vehicle is very comfortable within that community and in-fact their personal infrastructure (banks, accounts, etc.) are already functioning and connected to a cryptocurrency ecosystem.

Secondly, with the dramatic increases in crypto value over the past year, the digital currency spent likely felt like Monopoly money. Going forward, the success of NFT’s as an investment and collectible will be determined by its adoption into the mainstream, mass market. In order to do that, content creators and owners who recognize the monetization potential that lies in NFTs will need to find more traditional avenues to market and educate the investing and collecting public.

However, venturing into the NFT space is not without difficulties. Navigating licensing, copyright, and IP matrices in this largely untested space is complex and challenging. That is why most offerings are limited to content with only one or two rights holders when it comes to intellectual property.

NFTs present a revenue opportunity for content creators and owners

NFT marketplaces present enormous opportunities for content creators and owners to monetize their work. Selling digital assets on a digital platform makes intuitive sense to both modern buyers and sellers today, reducing the barriers to entry  and simplifying transactions. When used well, the technology can enable content creators to exercise more control over their work, sell it more easily, and protect against others appropriating it without permission. Among other things, simply using blockchain technology both protects and enables the tracking of cryptocurrency and NFT’s as they wind through each transaction and stage of ownership.

While an NFT is unique by definition, the asset is not necessarily one-of-a-kind. Content creators can create and sell multiple copies of a digital asset. In many respects, this is what defines the NFT’s initial value to an investor or collector: is it individually unique, or one of twenty?

Before entering the NFT market space, sellers need to consider details surrounding the sale of their non-fungible tokens. For example, how many copies will you make available, what platform will you use to sell the content, how will you promote it, and what rights will transfer to the new owner?

Licensing models for NFTs can get tricky

An NFT contains a smart contract—a self-executing contract with the terms of the buyer-seller agreement written into code and stored on a blockchain. As the creator of the NFT, you can include limitations and constraints on the sale that become part of the code. You can limit the license to specific purposes, for example, or restrict how and where the asset is used and whether it can be modified. You can even craft the smart contract to allow you to collect a fee each time the NFT is sold—initially as well as when it’s resold.

NFT licensing models and smart contracts are new and largely unproven territory. It’s safe to say that there will be tests, stresses, and changes to the model going forward.

NFT copyright, clearance and compliance is complex and challenging

Given the unique aspects of NFTs, content owners need to rethink their IP protection and licensing strategies before selling NFTs. Foremost, do you as a content owner have the rights to sell the asset? IP owners whose content is used in NFTs without permission are ramping up their enforcement efforts.  Depending upon the type of content you include when developing NFT’s there can also be some significant clearance challenges.

In our traditional space, clearing people or athletes that are in a desired clip of video can take weeks and we are at the mercy of people’s willingness to respond. You can imagine many people are suspicious of an email or phone call offering them money in exchange for some pertinent personal information.

To protect your own work, you should seek legal advice regarding which aspects of your creations you can trademark or copyright within an NFT. It can be difficult to enforce IP rights against a buyer once you sell an NFT.

As with licensing models, copyrights, clearance and compliance surrounding NFTs is new and untested, and therefore subject to change with wide interpretation.

Navigating the maze of the NFT market

NFTs are capturing the attention of artists and content owners everywhere. The use of the tokens as the new collectible marketplace is rapidly expanding and gaining acceptance.  As you consider entering the NFT space, it’s essential to do it legally, protecting your IP and that of others. It’s also important to take the correct steps initially to help you craft the most appropriate and profitable licensing arrangements.

The best way to navigate the NFT maze is by seeking the advice of knowledgeable partners, ones who can help you avoid the pitfalls and missteps that every new technology brings.  We’re happy to weigh in on the things we know including how to utilize a content owner’s IP to license assets on a digital market as well as provide considerations to help you navigate the new and evolving space.