Non-fungible tokens (NFTs) are taking the digital art marketplace by storm, with artists cashing in millions. Mike Winkelmann, a.k.a. Beeple, has been at the forefront of this trend. If you haven’t heard, an image he created was auctioned at Christie’s for $69 million, outselling the likes of Monet, Lucian Freud, and Damien Hirst.
Needless to say, there’s much hype around NFTs and digital art. Due to their unique structure, it opens up several questions about intellectual property (IP) rights, regulation, and more.
ChaseLawyers® is a boutique entertainment law firm, specializing in all legal matters related to art, entertainment, and IP licensing. From IP governance and asset protection to the implementation of smart contracts, our lawyers are prepared to answer all your questions about non-fungible tokens.
Short for non-fungible tokens, NFTs are unique digital tokens stored on Ethereum’s blockchain. They can be used to verify the authenticity and represent ownership of any form of art, such as drawings, music, furniture, and legal documents. Even memes, recipes, and startups are being sold at NFT marketplaces.
No matter what the assets are, NFTs can’t be exchanged for other items because of their unique properties.
The hype around NFTs is mostly around digital art. Someone, for instance, paid about $6.6 million for a 10-second clip by Beeple. Although anyone can download that same digital file for free, the buyer has ownership of that work of art.
Just think of physical art collections. Anyone can get their hands on Monet reproductions, but only one person can own an original. NFTs have extended that concept to digital assets.
An NFT can only have a single owner. Smart contracts manage the ownership and transferability of NFTs using unique ID and metadata, which other tokens can’t replicate. When you create an NFT, you carry out a code in a smart contract that adheres to different standards like the ERC-721. Every token that is minted comes with a unique identifier, which is connected to an Ethereum address.
Creating NFTs comes with a lot of advantages. For starters, it makes it so much easier for you to prove that you are the creator of a particular work of art. As a creator, you get to determine its scarcity. You aren’t limited to selling it to a particular platform. You can sell it on any NFT market out there. Best of all, you don’t need an intermediary to sell it. You can do a peer-to-peer transaction.
In the traditional art scene, artists don’t receive any royalties from the resale of their work. NFTs are changing that by allowing creators to receive royalties from future resales. For instance, owners of EulerBeats Originals earn about 8% royalty every time the NFT is sold.
The best part is that the royalties will be given to creators directly when the NFT is sold from one person to another.
As a buyer, this means that purchasing an NFT doesn’t automatically give you ownership of the patent asset. A proper license agreement can guarantee the transfer of ownership, as well as the rights associated with the patent. The same goes for trademarks and copyrights. Unless specified in your smart contract, you won’t have the right to reproduce or transform the work of art.
NFTs are poised to streamline the valuation and monetization processes of IPs. If you turn an issued patent into an NFT, it’ll be easier for you to sell, trade, and commercialize. The self-executing contracts can simplify the costs and documents involved in the transaction.
Perhaps the most exciting and intriguing potential of NFTs, in terms of IP licensing, is recurring royalty. Artists get to retain ownership of their work. More importantly, they can potentially participate in future transactions and claim resale royalties.
Take note that recurring royalties are still a developing concept. Although it is one of the most promising features of NFTs, the process of figuring out royalties is manual.
Ideally, you should find an NFT with a built-in royalty program to secure your royalties. You can also safeguard your cut of NFT resale revenues through well-drafted license agreements.
Since NFTs are relatively new and evolving, it’s best to seek legal assistance from experts who are well-versed in IP licensing and are keeping up-to-date with NFTs.
At ChaseLawyers®, our experienced entertainment and IP lawyers can help you understand the financial opportunities and risks associated with NFTs. We can walk you through all the IP and legal considerations. Moreover, we can assist you in converting a variety of digital and physical assets into non-fungible tokens.
Be it artists, art collectors, or art houses, our legal team will go above and beyond to protect the interests of stakeholders through asset protection and IP strategies.
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