If you are not familiar with the acronyms in the title of this article, perhaps the following explanation will help. NFT stands for “non-fungible token,” which is a type of digital asset that has recently come to be used in connection with selling digital art. IP stands for “intellectual property,” and is used to describe intangible things that people create, such as original artworks.
If you are familiar with the acronyms in the title, then you may know that the way IP rights relate to NFTs has caused a good deal of confusion in recent months. You may even argue that the title of this article is simply not true. In the case of some NFTs, you would be correct. Still, for those who are interested in owning the NFT and the IP rights, options exist.
Why IP rights are not automatic for NFTs
In general, IP rights belong to the person or group that created the work. When Thomas Edison invented the light bulb, he was given the patent on the invention, which meant he owned the IP rights. The same is true of the movies that Disney makes and the songs that Beyoncé writes. (While this may be oversimplifying, it is basically how it works.) IP rights belong to the original creator, but they can be transferred or sold to others, as Bob Dylan showed when he sold the IP rights to his song library to Universal Music.
When an NFT is minted — the term used to describe the creation of an NFT — it creates a unique expression of an artwork, video, song, or other assets. Blockchain technology is used to establish the NFT as unique and “non-fungible.” The creator of the NFT then typically seeks to sell it on one of a variety of NFT marketplaces like Opensea or Rarible.
So, when an NFT is minted, does the creator own the IP rights? When he or she sells the NFT, do the IP rights transfer to the new owner? This is where things begin getting slightly more complicated.
NFTs with IPs
“In the best case scenario, the NFT creator owns the IP rights for the art that is being sold,” explains Alvin Juano, creator of the Squarmy NFT collection. “This occurs when either the creator of the NFT is also the creator of the art itself, or when the creator of the NFT has been given the IP rights for the art by its creator. In such cases, the creator can choose to transfer the IP rights to the buyer by stipulating those terms in the smart contract that is embedded in the NFT’s blockchain.”
The Squarmy NFT collection is an example of this type of NFT. Released in January 2022, the collection of 3,535 Squarmy NFTs sold out in less than 60 seconds. Every buyer received not only the NFT, but also the IP rights to the art. The statement on the Squarmy website leaves no room for confusion: “You have the IP rights to the Squarmies you own.”
NFTs without IPs
Other NFT creators have chosen to be less generous than the Squarmy team when it comes to IP rights. Meebits is a collection of 20,000 unique 3D artworks that was released in May 2021. The Meebits website makes their position on IP rights very clear: “When you acquire a Meebit, you own the NFT, not the associated Art, or any other Meebits Materials.”
NFTs with IPs sorta
In between Squarmies and Meebits is a space where NFT creators give limited IP rights to NFT purchasers. Crypto Kitties NFTs provide an example of this.
The Crypto Kitties “License to Art” states that owners have “limited, worldwide, non-exclusive, non-transferable license to use, copy, and display the Art for your Purchased Kitty for the purpose of commercializing your own merchandise that includes, contains, or consists of the Art for your Purchased Kitty…, provided that such Commercial use does not result in you earning more than One Hundred Thousand Dollars… in gross revenue each year.”
Which of the IP options works best for NFTs?
“As NFT creators continue to experiment with how to create the best experience for the NFT community, the IP rights issue remains a topic for debate,” says Alvin. “At this point, each creator is making their own decision about how much control they want to have.”
In March 2022, Los Angeles restaurateur Andy Nguyen announced plans to leverage his Bored Ape Yacht Club NFT as part of the branding for his new restaurant. Bored Ape NFTs are one of the more popular lines in NFT history, often being collected by celebrities and regularly selling for hundreds of thousands of dollars — or more. Nguyen could use the Bored Ape art in his branding because Yuga Labs, which created the Bored Ape line, gives NFT owners IP rights.
Yuga Lab’s position on IP rights has been contrasted with that of Larva Labs, which is the creator of Meebits. Larva Labs also created CryptoPunks, which was one of the seminal lines of NFTs. When Larva Labs launched CryptoPunks, the issue of IP rights was unclear. As the debate has grown, Larva Labs has declined to clarify the issue in relation to CryptoPunks.
When Nguyen announced his decision to launch his Bored & Hungry restaurant with a Bored Ape theme, he explained his vision for the value of NFTs in the real world. “We launched Bored & Hungry to show people that NFTs are more than ‘just a JPEG,’ that the IP can be used to create brands and businesses,” Nguyen explained.
In light of Nguyen’s move, NFT creators who want to be a part of brands and businesses should carefully consider the decisions they make about IP rights.