Thursday, September 29, 2022
I am delighted to introduce our readers to my former colleague, Michael D. Murray (left), now the Spears-Gilbert Associate Professor of Law and the University of Kentucky Rosenberg College of Law. Michael is a prolific author, having published 27 books and with 45 papers available on his SSRN site. He writes on a broad range of subjects, so it was only a matter of time before he would hit the jackpot and write something about contracts law. I invited him to share a summary of one of his recent pieces, with which followers of the blog will already have a passing familiarity from our weekly Top Ten from this week. But once the contracts scholarship spider bites you, it may have transformative effects, so this may not be the last we hear from Michael.
Transfers and Licensing of Copyrights to NFT Purchasers
6 Stan. J. Blockchain L. & Pol'y _____ (forthcoming, 2022)
This article seeks to educate non-fungible token (NFT) creators, purchasers, and the attorneys who counsel them regarding the question of what if any of the copyrights to the tokenized works should be transferred or licensed to NFT purchasers and bring clarification to the issues of copyright transfer and licensing in the world of NFTs and blockchains.
NFTs have introduced several wrinkles into the analysis of intellectual property rights in general and copyright law in particular. NFTs are a cryptography tool defined and operated by a “smart contract.” A smart contract is a small bit of code that makes up a simple computer program that runs the operation of an NFT. Smart contracts use blockchain technology to verify and record the existence and ownership of digital assets and physical three-dimensional assets. An NFT purchaser purchases control over the smart contract that defines and operates the functions of the NFT. The smart contract creates a registry entry on the blockchain that is understood in the NFT industry and crypto community to represent proof of ownership of the asset linked to the NFT, whether that be an artwork, a piece of real estate, or other asset. An NFT does not automatically provide ownership or control of the copyright to the artwork linked to the NFT, which leads to the topic of transfers of such rights to NFT purchasers.
Artists and creatives who mint NFTs and collectors and investors who purchase and use them often have very different understandings and expectations when it comes to the copyrights associated with the content linked to an NFT. The default rule of copyright law is that the copyright to creative works does not transfer to the purchaser of the works, so that unless the NFT creator does something to actively transfer or license the rights to the purchaser, the NFT purchaser will have no copyright rights to the works linked to the NFT.
An NFT creator may be very happy to transfer or license some or all of the copyrights to the purchaser of the NFT. In general, a transfer of all of the copyright rights to the purchaser is called an assignment of the copyright, and an assignment must be performed in writing, not orally or by implication from conduct of the parties. Transfer of fewer than all of the copyright rights is typically called a license of the rights.
With NFTs, there are several means discussed in the article to communicate license terms. They are presented here in order of their likely recognition as a valid legal license of part of the copyright intellectual property of the artwork:
- Bargained for exchange between seller and purchaser before purchase
- License terms coded into the smart contract of the NFT
- Pop-up clickwrap license terms (“Click here to accept these terms . . .”) at the point of purchase
- License terms provided in the listing and item description on the NFT sales platform
- License terms provided on the website of the NFT creator
The minter of an NFT who is the creator and owner of the copyright to the artwork linked to the NFT should carefully consider what rights might be transferred or shared with the purchaser of the NFT. If the artist routinely uses artworks in on-going commercial projects or plans to create derivative works or reproductions of existing works, then these rights should be protected and excluded from the purchaser and any other subsequent owners of the NFT. But if the minter and copyright owner is a follower of the open-source, cooperative, community-building philosophy that is surprisingly common in the crypto and metaverse world, then the creator may want to share, give away, or give up all of the rights to the artwork linked to the NFT. There are many options in between, but the drafter of a license should consider the following rights when designing the license terms:
- Right to Display
- Right to Copy for Specific Incidental Purposes
- Right to Create Derivative Works
- Right to Commercially Exploit the Artwork
- Sharing Everything—Use of Creative Commons Licenses
- Selling Everything—Assigning the Copyright to the Purchaser
Offering one right need not exclude any others, as any license could offer two or three or all of the possible uses. A bespoke license should be one that will satisfy a purchaser now but protect the creator’s rights on an ongoing basis into a distant future.
Licensing most often is a serious business decision of the artist and creator of a work because we tend to assume that the works we are trying to protect deserve to be protected from copying and uncontrolled distribution or exploitation. With traditional fine arts in their physical forms, it usually mattered greatly to the artists whether someone could copy their works, beat them to the intended marketplace or into new markets, make derivative works from their works, and out hustle them in exploiting the works until there was no point in claiming the works or attempting to control them. With highly complicated and labor-intensive ventures such as video game development, motion picture production, and building entire new worlds in the metaverse, it generally has been viewed as essential that the end product of years of work will not be duplicated and distributed freely with no compensation and control by those who expended the time, effort, and money to bring the work into existence. When it was more difficult to make a copy of the work in a painting or sculptural medium, there was a natural barrier that could slow down exploitation to a reasonable and policeable level. Digital artistic expression in the visual arts, film, and performing arts has changed the equation because it can be so easily duplicated and distributed with no perceivable loss in fidelity of content.
The developers of the metaverse currently contemplate using NFTs as a medium of exchange, a ticket to events, a calling card allowing entrance to gatherings, and, of course, as artist expression to literally and figuratively color in the alternative reality experience. Digital artistic expression will be ubiquitous in the metaverse, and one question to answer will be who will be able to exploit the value of these creations now and for the future. Copyright licenses are one answer to this question.