As NFTs hit the stage in a new era of digital media and cryptocurrency, many digital experts, including us, are learning to navigate the space in real time, including all of the legalities. While there have always been conversations stirring about the ownership of digital content like gifs and memes, the rise of NFTs has opened up an entirely new dialogue.
We wanted to learn more about the world of artist and consumer rights as it applies to NFTs, so we sought out some local experts. Tyler Harttraft is one of the partners at Bull Blockchain Law, a blockchain and cryptocurrency law firm right here in Philly. The firm deals with everything from digital assets and securities to blockchain and crypto advising.
Read my conversation with Tyler to dive into the copyrights and wrongs in the world of crypto.
Matt: Thanks for taking the time to chat with me, Tyler! To start off, I’m curious: What is the biggest legal challenge that you think people are not aware of when they enter the NFT space?
Tyler: I think it’s infringement issues, and I think this is more on the platform than the creator. Whatever platform you’re listing on, there will be terms of use dedicated to infringement issues and how they’re handled. These platforms often do not have systems in place to properly handle infringement concerns. If it’s not on their platform, it can be really difficult to stop. I had a client recently who said he almost bought the wrong NFT, that it was a rip-off of an existing NFT, so that’s a genuine concern. NFTs are advertised as unique, scarce and secure, but consumers should educate themselves and check sources of authenticity since they can be copied and sold with ease.
Matt: Tell me a little more about what one of your average clients look like.
Tyler: We have blockchain core projects that are developing layer solutions—they are developers that are focused on solving a particular issue within blockchain technology like interoperability of blockchains or providing a platform where people can more easily develop applications. We also have investment funds that are investing in crypto and emerging companies, as well as other issuers who are exploring digital securities and tokenizing private investments those interests. There’s a whole private securities market for trading secondary shares. Traditionally, most of these investments have been limited to professional investors, and it can be difficult for the average person to get access to the same opportunities.
On the flip side, it’s very hard for investors to get out of those investments, so what’s being developed with blockchain is access to liquidity via private markets, which looks and feels much like a a brokerage account for public securities. Our role is to advise on compliance and disclosures so those securities may trade online. That’s related more to the financial compliance aspect of blockchain. Our firm represents a good mix of both.
Some NFT law talk from CoinDesk
Matt: Let’s say I’m an artist and I release a series of NFTs, and then I hear that someone is copying mine. What legal recourse do I have?
Tyler: It usually starts with an infringement suit. You can sue them for infringement, and if you’re successful you gain the right to the profits of what that person sold. That’s a very long process that goes through the legal system, which generally starts with a cease-and-desist letter. This gives notice that you’re aware of the issue and acts as a warning shot.
Matt: So pretty similar to copyright infringement as we know it with songs or art.
Tyler: Right. And in addition to actual damages, you can get punitive damages if the seller is willingly infringing your copyright or trademark; that’s something that can be pursued beyond what the actual damages are. It acts to further discourage infringement. This comes with practical considerations; it may be difficult to track these people down, so there’s a lot to be considered.
Matt: How does the consumer know where mashup culture ends and if they’re in trademark violation or infringement?
Tyler: I don’t think the consumer can really know; it depends on the licensing agreement between the creator and the owner. Whatever kind of rights are provided, whether it’s a derivative work or selling the existing work, it’s important for these creators to understand these rights to avoid owing damages to the owners who they develop copyright for. That’s a tough thing for a consumer to know and may vary in each instance.
Matt: If someone obtains an NFT that has copyright infringement, can the new purchaser be sued for that?
Tyler: No, recourse is generally against the infringer not a purchaser. The purchaser may have to give up the NFT, but they would not be sued for damages. It could be destroyed by the platform or returned to the person that is claiming infringement.
Matt: Those of us working in digital and social are still challenged by legalities, and in the world of NFTs, it feels like there’s a huge delta between what’s happening and where we’re litigating.
Tyler: We’re not aware of any case law on the definition of an NFT and issues regarding NFT infringement. That doesn’t mean it’s not happening, but where it’s happening will be in arbitration. Platforms [are] where the main issues are going to be, and they are going to have arbitration in terms of service. We’re not really seeing what’s happening behind the scenes.
Matt: So with that case law, is it hard for you to advise your client?
Tyler: It’s tough, and that’s kind of the whole nature of it. We have regulators dipping their toes in the water on certain issues, but that can prompt more questions than answers. There’s a lot of gray area in the space to navigate.
Matt: Can you talk a little more about those gray areas?
Tyler: One of the biggest areas is money laundering. You have AML bodies internationally, one in particular called FATF that puts forth money laundering guidance for all countries to follow. The most recent guidance talks about DeFi and the potential for money laundering through these mechanisms. Money laundering has always presented an issue in the sale of art, so take that and combine it with crypto, and you have a perfect storm. This is an area we look at closely with our clients; if we’re advising a platform, we tell them they need to do certain KYC with their customers and platform even if there’s no requirement right now in the U.S. You want to have that information to point to.
Breaking News: The first NFT sold by Christie’s was just bought for $69.3 million. The price for “Everydays — The First 5000 Days,” by the artist Beeple, is a new high for an artwork that exists only digitally. https://t.co/JzsQG6i0tF
— The New York Times (@nytimes) March 11, 2021
Matt: It feels like there are equal challenges in being a creator as well as a corporation.
Tyler: I find that if I am the creator, I have the opportunity to go out and access a market that didn’t exist before. Where I might have the rights to sell this, I didn’t have the means or platforms to do it, but if I didn’t have those rights I am still restricted in the same manner that I would be without a platform.
If I am a corporation, I would be looking at it as a very difficult area to enforce our licensing agreements. If I’m on a platform that doesn’t have to enforce your cease-and-desist for copyright infringement, how are you going to pursue infringement? It’s very difficult to do without a centralized entity to answer the call.
Matt: NFTs, Bitcoin, the Metaverse — it feels like the wild west. Is it challenging and exciting to be in an area that isn’t defined? It feels like this is being written as we go, and you’re helping write it.
Tyler: Right, we regularly review guidance or comments from regulators and what their perspective is and how it’s changing—it’s kind of feeling around and trying to apply existing laws to this technology that’s being developed while acknowledging they don’t always fit well. We need some regulatory understanding about how they should be applied, and that’s a lot of what we work on. It’s not like many areas of law where the book is closed on most of the issues. There’s a lot of new thinking in the legal community.
Whether you’re an artist, marketer, lawyer, or something in between, we’re all learning about this space one day at a time. Keep following along on our blog as we explore the universe of NFTs and the evolution of digital media!
