Although NFTs are bought and sold via smart contracts recorded on the blockchain, without a licensing agreement stipulating what legal rights are to be transferred along with the smart contract, transacting parties are vulnerable to litigation. Celebrity transactions are not immune to these problems. Jay Z and Dame Dash are hashing it out over whether Dame Dash had the right to sell an NFT the Reasonable Doubt album cover in Roc-A-Fella Records v. Dash, 21-cv-5411, U.S. District Court, Southern District of New York (Manhattan). The general rule is the higher the value of the art, the greater the likelihood a suit will be filed contesting your NFT ownership rights. If you have crypto punk dreams, listen up.
Under 17 US Code § 106, the owner of copyright has the exclusive rights to do and authorize any of the following (among others):
(1) to reproduce the copyrighted work, to prepare derivative works based upon the copyrighted work;
(2) to distribute copies of the copyrighted work to the public by sale or other transfer of ownership; and,
(3) to display the copyrighted work publicly, among other rights.
It is essential for NFT transactions to first verify that the seller holds these rights to the NFT art and the token itself in order to be able to transfer them to the buyer.
Furthermore, in addition to these rights, an NFT purchase agreement should stipulate whether the license is exclusive or nonexclusive and therefore whether the NFT is unique. The purchase agreement should also mention the duration of the license, whether it is revocable upon a certain condition, and whether there are any context or geolocation restrictions on the right to publicly display it. Finally, it is critically important to disclose whether the smart contract includes future royalty payments to the artist, seller, or other parties.
Without making these provision clear, it is unclear as a legal matter what NFT buyers and sellers are exchanging. Get in touch if you are buying or selling NFTs and need help.
Disclaimer: This blog is not intended to provide legal advice or my legal opinion. Any legal references or citations mentioned in these articles may be out-of-date.
It is your responsibility to speak with an attorney before relying on any information included in these articles. Should you need a legal opinion on any topic discussed in this blog, please do not hesitate to contact me.