Protecting your NFT assets – why NFT licensing 'Can't Be Evil'

Despite the burgeoning popularity of Non Fungible Tokens (‘NFTs’) and the NFT sellers’ market over the last 24 months, there is a lag in market understanding (at least amongst purchasers) as to what they can do in relation to the digital art, music and other media rights (‘NFT Content’) they may have purchased (or not) and the relevant licensing considerations in relation to the IP rights that may attach to their NFT purchase.

This lack of market understanding is further compounded by the NFT licence often being kept off-chain (eg in a marketplace platform’s standard terms) which can make such terms difficult to access and/or subject to change to less favourable terms at a later date.

In some instances, NFT project creators and/or sellers are not providing any licence terms in connection to an NFT purchase at all. This inherently creates ambiguity in the market with NFTs being a new technology and class of product that are not a natural fit for traditional licensing modes and expectations.

On 31 August 2022 the Silicon Valley VC firm Andreessen Horowitz (known as a16z) published a series of NFT licences which are intended to be part of the solution to these general market issues. These licences are known as the ‘Can’t Be Evil’ or ‘CBE’ licences – a reference to the maxim that the decentralised nature of web3 means that users do not need to trust each other as web3 is effectively a ‘trustless’ environment. In this spirit, the CBE licences are openly available to be attached to projects and they are drafted to be reasonably short-form and transparent.

What are the CBE licences?

There are 5 CBE licences aimed at the commercialisation of NFTs.

1. Exclusive Commercial Rights (CBE-ECR licence)

The NFT holder/creator grants the licensee full, exclusive commercial rights to the NFT Content, including the right to creative derivate works for commercial use, with the NFT holder/creator not retaining any rights to create their own derivate works for commercial use.

This form of licensing will be most appropriate for NFT creators commissioned to create bespoke pieces, or other 1/1 projects, where much of the project value is derived from the generous basket of rights that the licensee is paying to receive.

2. Non-Exclusive Commercial Rights (CBE-NECR licence)

Similar to the CBE-ECR licence, but with the NFT holder/creator granting commercial rights to the NFT Content on a non-exclusive basis, whilst also retaining rights to create their own derivate works for commercial use.

This form of licensing will be useful for commercial projects where the NFT holder/creator plans to work with a number of commercial partners in relation to the commercialisation of the NFT Content and creation of derivative works.

3. Non-Exclusive Commercial Rights with Hate Speech Termination (CBE-NECR-HS licence)

The same as the CBE-NECR licence as above, but with the NFT holder/creator having an additional termination right if the media content associated with the NFT is used by the licensee in a hateful, defamatory or abusive manner.

4. Personal Use (CBE-PR licence)

NFT holder/creator grants rights to use, distribute and use the NFT Content for personal, non-commercial use.

Unlike the CBE-ECR, CBE-NECR and CBE-NECR-HS licences mentioned above, this licence does not permit the licensee to modify the NFT Content and it does not grant the purchaser any rights in relation to creating derivate works.

This licence would be most suitable for NFT projects aimed at consumers, where NFT holders want to retain commercial control over the NFT Content, permitting use of the NFT Content on a very limited basis.

5. Personal Use with Hate Speech Termination (CBE-PR-HS licence)

The same as the CBE-PR licence above, but with the NFT holder having an additional termination right if the NFT Content associated with the NFT is used by the licensee in a hateful, defamatory or abusive manner.

The non-commercial CBE licence

There is a final CBE licence – the CBE-CC0 licence – where the NFT holder is making the NFT Content freely available in the public domain under a Creative Commons CC0 licence, which is not appropriate for commercial projects.

However, it could have some utility in the charity sector and third sector, for example where an NFT project is created using grant funding with the ultimate intention that the NFT Content will be made freely available to the public.

When will the CBE licences be useful?

CBE licences present several key benefits. They can easily be incorporated into the smart contracts for new NFT projects, meaning that they can be stored on-chain. This improves transparency for purchasers, making the terms easier to access and mitigating the risk that terms can be amended to less favourable terms at a later date.

In turn, this would also improve the process of NFT marketplaces offering NFTs for sale, by enabling these marketplaces to easily provide information on the licensing arrangements to purchasers. This will help improve understanding as to exactly what rights to NFT Content are being purchased and also enable purchasers to search NFT marketplaces by certain licensing parameters. This should streamline the process of purchasers browsing marketplaces for suitable NFTs.

The CBE licences also state that the rights to the NFT Content are only granted where the NFT is legally sold, and not stolen, which is an important step in giving purchasers confidence when buying NFTs given ongoing concerns regarding the theft of NFTs.

Questions regarding application of CBE licences

CBE licences are not intended to be an all-encompassing solution. As a new tool, questions remain regarding how they will be utilised and interpreted in legal practice.

Complexity – despite being created partly with the intention of making NFT licence terms more accessible to consumers, CBE licences are still relatively dense legal documents, meaning that they will not completely overcome the challenge of ensuring that consumers fully understand the rights they are purchasing.

Termination rights – the CBE licences can be revoked at the discretion of the NFT holder if the licensor is in material breach, a position which may not always be commercially acceptable to licensors. Where the CBE licence allows the NFT holder to revoke the CBE licence where the NFT is used for hate speech, this determination is at the NFT holder’s discretion, rather than the CBE licences providing more detailed parameters, such as by defining the relevant key concepts.

IP rights – the CBE licences themselves are restricted to licensing copyright in the NFT Content. They do not deal with other IP rights or moral rights, which may potentially need to be addressed under a separate licensing arrangement with the NFT holder. The CBE licences are also limited to licensing rights to purchasers, and do not address any ‘upstream’ issues, such as regarding the rights of NFT creators to mint NFTs at first instance.

Sublicensing – where sublicensing is permitted under the CBE licences, no standard form sublicensing agreement is provided, meaning that licensors looking to utilise these rights will need additional legal support, to help ensure that any sublicensing arrangements are compliant with their requirements under the relevant CBE licence.

Governing Law and Arbitration – the CBE licences are tied to the governing law of the State of New York, USA and require disputes to be resolved via arbitration. This may not be appropriate for every NFT project, especially those with no connection to the USA, and therefore may require adaptation for certain projects.

We regularly advise NFT platform providers and related businesses on NFT licensing issues, and we will be monitoring with interest the uptake and development of CBE licences in the months ahead. However, it is likely that CBE licences (either in an unmodified or modified form) will only be part of the solution for the licensing of rights in NFT Content, and that businesses in this space will continue to require specialist advice in relation to launching complex NFT projects in the future, including in relation to how to utilise CBE licences appropriately.

If you have any questions on this topic, please get in touch with your usual Withers contact, or either of the authors of this article.

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