NFTs in Artwork – What are you actually buying?

NFTs have grabbed the headlines over 2021 with their monumental rise to become a marketplace worth over US$40 billion in 2021 according to the Chainalysis 2021 NFT Market Report.

OpenSea, by far the biggest NFT marketplace, has handled over $US 11 billion in sales in just four years of its existence.

The Basic Problem – What am I buying?

It has become an automated process: a click to confirm cryptographically that a seller’s wallet address is the recorded owner of a particular token. However, it is much less easy to uncover and assess the practical and legal implications of what that token represents and what rights and responsibilities might come with it.

Slowly a consensus seems to be forming on internet forums that by issuing and selling an NFT of their work, an artist doesn’t create or transfer any intellectual property interest to the buyer. The buyer receives no more than a right to store and view the related artwork personally and privately, and little more than that.

Copying the artwork, using it as an avatar, printing or merchandising it in any way – is all generally prohibited unless permission to do so has been granted by the artist. The artist may also specify resale royalties, and any limits, or conditions to any permissions granted by the artist.

This is probably a good starting point for artists and buyers to start their investigations. But this is not a universal rule, and we can quickly see that the devil, as always, is in the detail.

So, where are the terms and conditions?

The token is of course not the digital artwork itself.

The token – the NFT itself – does not contain any of the details you would normally find in a legal contract between a buyer and seller. The “smart contract” which minted the NFT, need contain little more than the automated code which runs on the blockchain allowing transactions to be recorded.

Some of the more established NFT marketplaces – such as SuperRare – do embed some legal terms into NFTs minted on their platform. These generally require the artist, or creator of the token, to agree to provide some minimum assurances, such as the originality of the artwork, the extent of the buyer’s right to exclusivity, resale royalty rights for the artist, and basic licence terms. The artist can also build in disclaimers and sale commission for the marketplace.

However, many NFT marketplaces do not require the token to be linked to a contract setting out the terms under which the artwork is being sold.

Commentary

While there have been some efforts to create standard legal terms for the sale or licensing of NFTs in artwork, currently there is no uniform approach.

If you are either buying or selling an NFT artwork the terms should be investigated and considered carefully to understand precisely what is being bought and sold.

In particular, if the asset is of high value, whether you are a buyer or a seller, you may wish to seek advice from a lawyer experienced in digital assets, on the terms of the transaction and implications for you.

In the next article Chris explores the main contractual layers which together make up the NFT transaction.

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Are you looking at the emerging world of crypto and considering how it affects your business? Have you launched a currency or created NFTs, or are you considering doing so? Do you need to understand more about the legal issues behind crypto, NFTs or the technology, including regulation, tax, or intellectual property? Have you encountered any difficulties and are looking for advice or redress?

We have specialists across the Firm looking at all of these areas and others related to them. We operate under the Rosenblatt branding in relation to all litigation and dispute resolution matters and the Memery Crystal branding for non-contentious legal advice. Please come and talk to us.

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Should you have any questions, or wish to discuss any issues raised in this article, please get in touch with the author of this article Memery Crystal’s Chris Pulham. If you are having any issues in relation to an NFT you have purchased or sold please get in touch with Rosenblatt disputes partner Laura Clatworthy.

Disclaimer: We at Memery Crystal (and our parent company RBG Holdings plc) support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors of articles published on our website(s) do not necessarily reflect the opinions, views, practices and policies of either Memery Crystal or RBG Holdings plc.