Harris Sliwoski attorneys Jonathan Bench and Fred Rocafort sat down again to discuss Non-fungible Tokens (NFTs) and the legal issues common to their creation and transfer.

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When dealing with NFTs, pay attention to the relevant contracts, whether they are smart contracts or traditional contracts. Note that jurisdictional differences could be important and are systemic to all web3 technology and future dispute resolution.

Don’t let the “smart” part of a smart contract dazzle you. You should think of a smart contract as only one part of what should be a larger and more comprehensive traditional contract. The smart contract can still play a part, but it should not and cannot entirely replace traditional contract best practices.

Register everything you can. Determine what intellectual property you have created or received and the steps you need to take to protect your IP.

Make sure TM registrations cover NFT use. NFT use is an entirely different trademark category than your traditional business endeavors, and you need to protect it accordingly.

TM assignment agreements should include NFT language. NFTs often comprise a novel use for an existing trademark.

Be mindful of naked license issues so that you do not inadvertently transfer or abandon all of your IP rights in your NFT transfers or licenses.

Jonathan Bench 0:05
Fred, thanks for coming back for this third part of our discussion today. Let’s talk about some general legal do’s and don’ts when you’re working in the NFT. Space. What kind of suggestions do you have for everybody?

Fred Rocafort 0:15
Well, sure, first and foremost, look at the specific terms, whether you’re talking about a smart contract, whether you’re talking about a conventional contract, whether you’re having to follow particular terms and conditions that are set up by the entity, selling the NFT, or by the platform on which it’s being shared, look at the look at the fine prints, right, this is this is, in a way no different than the advice we would give for for people engaging in all kinds of transactions, that the terms will be different. There is no such thing as NFT law, you know, that is going to create special rules, at least not for the time being at a presentation that I attend that recently, somebody offered a great example, using using the hammers as an example and saying, look, there’s no national hammer law in any country. But if you go and then bash someone’s head with with that, with that hammer, then there’s going to be criminal criminal law implications. And it’s the same thing with with with with with an NFT. Right. What are you doing with it? Right? I mean, there’s all sorts of potential implications, you know, one, one area in particular that you might be looking at, right, for example, is there is there a potential for NFT’s to be used as a vehicle in the issuance of securities, right? I mean, I haven’t seen that. But it but to the extent that it potentially could be used in that way, then securities laws are going to be implicated, right? You have to look at the use. And in the same way that that regulation is going to depend on the particular users that are being given to the NFT, the conditions under which you acquire it aren’t going to change the rights that you have, it could be the case that I sell an NFT that includes artwork that I created. And as part of that package, I am also transferring my copyright over that, but somebody else might be doing the exact same thing but retaining that so really look at the really look at the specifics. And don’t let the smart part of smart contracts dazzle you. It the definition, there’s still debate over what exactly is is this a smart contract, but I can tell you, it doesn’t mean that it’s going to smartly and wisely get rid of all issues that are faced by parties when they enter into a contract. So take a look at that. And again, don’t neglect the terms and conditions, don’t neglect that I mean that because that could really devil is in the details. And it could be those conditions that are even less likely to, to or that you might just a higher chance that you might not read them that that that might be the key to what you can do and not do. More broadly. For for anyone who’s involved in this space, especially from from the creative side of things, register everything that you can in terms of IP. If you are if you if you have a business, the your your your create your minting NFTs even putting aside what intellectual property rights you might have over what you’re creating, at least protect your business, right you have a name, you might have a logo, you might have slogans that you use, protect those, right? If you are someone who is minting NFT’s using their own artwork, or if you’re representing or working together with that original creator, again, protect that that underlying work so that there’s no ambiguity there so that you don’t accidentally end up giving up rights that that could be of value. So in in essence, a lot of the the legal advice connected to NFT’s is advice that that is a very wide application. These are these are legal fundamentals really. One important thing is make sure that in the case, specifically of trademarks, make sure that your trademark applications are or if you have, if you have registered your trademark already, make sure that you expand that coverage to include activities in this space. There’s a, there’s been a flurry of activity by all sorts of companies that are getting into this space, making sure that their trademarks are covering their activities and in the web three space. And that is something that all companies entering the world through space should be doing. Because just to give a very simple example, let’s say that I’m in the business of making T shirts. And that’s what I’ve been doing for a long time. But now I want to start minting NFT’s and maybe connecting those to my to my to my actual clothing, or it might be going into completely new business areas, right maybe selling virtual T shirts, whatever the case may be. Now, if my trademark registrations only extend to, to my core business of selling clothing, then I might not have sufficient protections for for my for my NFT business. So so be sure to update and refresh those. Those registrations. I mean, I think this is a very, very, this is a very actionable intelligence that that we can provide. Also, when entering into licensing agreements, whether that is as part of the of the smart contract, or whether you are providing this content and creating Terms and Conditions. Be careful with licensing and again, this is this is not a an NFT specific issue, it’s just that in the NFT context, it’s going to manifest itself in different ways. Make sure that you avoid the pitfalls that are present. When for for license ORs. So just a very brief summary when you license the use of your of your trademark, if you’re not careful, if you basically, you know, for example, if I had a trademark and I say, Jonathan, I hereby grant you a license to do whatever you want with my trademark, that creates the risk that that trademark will be considered to be Jonathan’s and not mine. Right? That’s I’m oversimplifying. But but there that risk does exist and a licensing agreement that’s well drafted will have provisions addressing that, and there will be safeguards in place to to avoid that outcome, right? Because that’s usually not what what a what a license or wants, right? If I wanted to give away the trademark, I could do that. License usually implies that I want to retain ownership in that and data in that trademark. So in the NFT context, and again, it’s an evolving area. So there are going to be challenges, there are going to be some bumps in the road. But at a minimum, we can say, watch out for those issues, right? It’s going to be a challenge for us as attorneys to come up with the contractual provisions that allow our clients who are licensed in their their trademarks in the NFT context do to retain that ownership. But it is something that we have to be will have to look look out for and our audience should as well.

Jonathan Bench 8:21
I think it’s important to note, Fred, that sometimes people ask us, you know, why does this matter? Right? And I was like, come back to that as well. Why does any of this matter? And I guess it doesn’t matter, unless you are interested in enforcing your rights at some point, right? The law, good business contract, good business relationships, don’t depend on the contracts until things start to go wrong. And that’s when you need to be able to look back and say, Well, what rights do I actually have? So the rights don’t matter. And everyone, this happened in the cannabis space, this happens in every emerging industry, where people who were at the forefront who were minting money, and doing whatever they want to wherever they want to, it’s never an issue for them until there’s an enforcement action for either from some kind of government body or from someone else who says now, I’ve been wronged what are my rights? And so I think it’s important to come back to that and say, we’re, we are not here to we’re not here to stop deals from happening. We’re here to make sure that the deals that you thought you made are actually the deals that you’re making.

Fred Rocafort 9:21
Exactly, absolutely. And that the deals that you’re entering into are what you think it is. And we have to this is why you know, during this conversation, right, I’ve made a point of these twice, right? Be careful, even if you’re told that purchasing does NFT is going to give you ownership over that book or that image. Don’t take that for granted. Right because that could be the case, but that might not be the case. So exactly like you. I like the way you put it right make sure making sure that the deal that you’re entering into is what you think it is.