Contracts Entertainment Intellectual Property Regulatory Securities
NFTs
Non Fungible Tokens
Leading attorneys share how they're grabbing hold of NFT-related work, the challenges they foresee and how long they think the tech trend will last.
Design by David Palmer/ALM
Leron Rogers, Fox Rothschild
contracts
Leron Rogers of Fox Rothschild in Atlanta points to the importance of platforms that clients use to host NFTs. This is key, he said, as well as the use of referral links to combat fraud. (Full article here)
Mercedes Tunstall, partner at Cadwalader, Wickersham & Taft
Mercedes Tunstall of Cadwalader, Wickersham & Taft in Washington, D.C. said the content in an NFT is often accessed through a referral link to digital content stored elsewhere. "Smart contracts, as I always say to lawyers, are kind of a misnomer from a legal standpoint, because it really is simple 'if, then' statements written in code," Tunstall said. "'If someone tries to copy the referral link … then they are prohibited from being able to copy the referral link.' That’s a standard smart contract and there are a set of smart contracts that are included in every NFT." (Full article here)
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entertainment
Leron Rogers of Fox Rothschild in Atlanta noted many creatives are attracted to the increased content distribution control NFTs provide, including royalty streams for subsequent sales that artists can recoup. "The unique thing about NFTs is it not only allows content creators to share the initial sale, but the smart contracts also allow the content creator to share in subsequent sales," Rogers said. (Full article here)
In addition to distribution, Leron Rogers of Fox Rothschild in Atlanta said lawyers should prepare to advise content creators on NFT monetization and protections against fraud. "Generally, that’s really understanding the platform’s marketing prowess," Rogers said. "The NFT has been historically marketed towards what I call ‘crypto whales,’ people who are already in the space. They’re very familiar with cryptocurrency. They have wallets and they want something really cool. What’s happening is it’s now getting easier for the general public to acquire these with credit cards. Now you can monetize these NFTs to more of a general public." (Full article here)
continued In addition to distribution, Leron Rogers of Fox Rothschild in Atlanta said lawyers should prepare to advise content creators on NFT monetization and protections against fraud. "Generally, that’s really understanding the platform’s marketing prowess," Rogers said. "The NFT has been historically marketed towards what I call ‘crypto whales,’ people who are already in the space. They’re very familiar with cryptocurrency. They have wallets and they want something really cool. What’s happening is it’s now getting easier for the general public to acquire these with credit cards. Now you can monetize these NFTs to more of a general public." (Full article here)
Intellectual Property
Jonathan Goins, Lewis Brisbois Bisgaard x& Smith
"They’re trying to get ahead of this technology in which they fully expect, potentially, that their trademarks or their copyrights could be used in a manner that is done without their authorization or consent or license for," Goins said. "Nike, for example, they just acquired a virtual shoe company that makes NFT sneakers for the Metaverse. So you have companies that are basically filing trademark applications for financial services involving digital currency [and] digital tokens for online communities." (Full article here) Goins suggested lawyers prepare for copyright litigation in the NFT spectrum after highlighting a lawsuit filed by movie giant Miramax against film director Quentin Tarantino after his announced plans to auction off scenes from the 1994 motion picture "Pulp Fiction" as NFTs. (Full article here)
After French luxury design company Hermès sued NFT digital artist Mason Rothschild for creating and selling MetaBirkins, virtual furry interpretations of Hermès’ high-end Birkin handbag, as minted NFTs, Jonathan Goins of Lewis Brisbois Bisgaard & Smith in Atlanta pointed out, “It’s possible they may have a certain First Amendment defense to some of these trademark claims.” (Full article here) Goins identified a trend of major Fortune 500 companies, like Nike and Walmart, filing Metaverse, or virtual reality, NFT-related trademark applications.
continued "They’re trying to get ahead of this technology in which they fully expect, potentially, that their trademarks or their copyrights could be used in a manner that is done without their authorization or consent or license for," Goins said. "Nike, for example, they just acquired a virtual shoe company that makes NFT sneakers for the Metaverse. So you have companies that are basically filing trademark applications for financial services involving digital currency [and] digital tokens for online communities." (Full article here) Goins suggested lawyers prepare for copyright litigation in the NFT spectrum after highlighting a lawsuit filed by movie giant Miramax against film director Quentin Tarantino after his announced plans to auction off scenes from the 1994 motion picture "Pulp Fiction" as NFTs. (Full article here)
Harry Richt of Richt Law Firm in New York City noted IP disputes over NFTs can range from intellectual property creators who'd been hired as independent contractors claiming to still own rights as project owners claim a transfer of the intellectual property. "It is, therefore, essential that all agreements be in writing with clear delineation of IP rights and any transfers thereof," Richt said. "In addition, due to the actions by Nike, Hermes, and others against NFT projects utilizing their IP, clients [should] seek counsel as to what the risk would be for using either some variation of a protected mark or copyrighted work."
Harry Richt, Richt Law Firm
As copyright disputes involving NFTs emerge, Harry Richt of Richt Law Firm in New York, New York suggested leveraging the Digital Millennium Copyright Act. "DMCA take down requests as well as counter-notices disputing the take down can be employed with varied effectiveness," Richt said.
Harry Richt of Richt Law Firm in New York City noted IP disputes over NFTs can range from intellectual property creators who'd been hired as independent contractors claiming to still own rights as project owners claim a transfer of the intellectual property. "It is, therefore, essential that all agreements be in writing with clear delineation of IP rights and any transfers thereof," Richt said. "In addition, due to the actions by Nike, Hermes, and others against NFT projects utilizing their IP, clients [should] seek counsel as to what the risk would be for using either some variation of a protected mark or copyrighted work." 2. As copyright disputes involving NFTs emerge, Harry Richt of Richt Law Firm in New York, New York suggested leveraging the Digital Millennium Copyright Act. "DMCA take down requests as well as counter-notices disputing the take down can be employed with varied effectiveness," Richt said.
continued As copyright disputes involving NFTs emerge, Harry Richt of Richt Law Firm in New York, New York suggested leveraging the Digital Millennium Copyright Act. "DMCA take down requests as well as counter-notices disputing the take down can be employed with varied effectiveness," Richt said.
David C. Rose, Pryor Cashman
Mercedes Tunstall of Cadwalader, Wickersham & Taft in Washington, D.C. pointed out existing intellectual property and compliance law "could be tweaked in a way to literally include NFTs," but "there’s not a huge gap from my perspective." (Full article here)
David C. Rose of Pryor Cashman in New York City didn't believe litigating emerging NFT-related issues would reveal a legal gap. "If you look at the basis upon which Nike and Hermès are suing, it’s really fundamental trademark concepts at their core," Rose said. "False designation of origin. False attribution. Pure and simple trademark infringement concepts that you would see in connection with the misappropriation of somebody’s intellectual property." (Full article here)
Regulatory
David Rose, a partner at Pryor Cashmann in New York City, said as NFTs continued to gain popularity, he anticipated seeing an uptick in cases related to fraud as duped buyers sued marketplace platforms. "The irony of it all is that an NFT is supposed to denote unique and singular ownership of something. It’s supposed to basically create a sense of legitimacy in terms of authenticity," Rose said. "But what you’re seeing now is that there are fraudulent NFTs being put up on NFT marketplaces." (Full article here)
Harry Richt, Richt Law Firm in New York City suggested the regulation of NFTs may soon occur. "With more scrutiny being put on the promises made by NFT projects and the proliferation of what has been termed 'rug pulls,' the risk of regulatory enforcement action for either fraudulent or deceptive projects is becoming more present. Criminal prosecution, such as the [Department Of Justice] charging the founders of the Frosties NFT project, is also a possibility," Richt said. "In addition, if we see pressure on the crypto market as a whole and the NFT market in particular, either due to a recession or otherwise, it is likely that private actions for failed projects which caused participants financial harm may increase. These harms range from intentional 'rug pulls' to negligence, such as through the utilization of faulty smart contracts which drain participants' wallets."
REGULATORY
"Existing law is going to be able to handle" NFT litigation accoridng to Leron Rogers of Fox Rothschild in Atlanta, but the entertainment attorney said questions remained regarding jurisdiction and the naming of proper parties. "Where does the dispute get resolved if I made an NFT in Atlanta, Georgia, and then I sell it to someone in Los Angeles and then they sell it on the retail market or on the secondary market to someone in Singapore—and your image was used and it was without your permission?" Rogers posed. "Where do you file a lawsuit? And who do you sue?" (Full article here)
securities
Harry Richt, Richt Law Firm in New York City said many foundational questions revolve around whether a specific NFT project may be a security. "I speak with a range of projects, some with an understanding of what might be a security, and some who were ready to offer an illegal security to the public due to no knowledge of the legality," Richt said. "On the federal level, NFT projects which are most obviously at risk of being deemed a security is often due to some kind of profit sharing component between the founders and project participants, and thereby generally meeting the Howey Test."
Mercedes Tunstall of Cadwalader, Wickersham & Taft in Washington, D.C. highlighted that the U.S. Securities and Exchange Commission has not identified NFTs as securities in most cases but that, if NFTs are issued and discussed "in a manner that is consistent with a security, then it could be a security." (Full article here)
continued Harry Richt, Richt Law Firm in New York City pointed out, "more vague questions as it relates to securities law and whether an NFT project is at risk of state regulatory action, is where there is no profit sharing, but there is 'risk to capital.' "For states, such as California that follow a 'risk to capital' regime for ascertaining whether an offering is a security, there is a more in-depth analysis that has to be undertaken," Richt said.