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Commercializing NFTs – generating value from digital assets and intellectual property rights – JD Supra

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This is part 3 of our IP Update series exploring the evolving landscape for Internet, Digital Media and e-Commerce.
Part 1: “NFTs: Art meets crypto – traditional copyright issues in a tokenized world
Part 2: “Branding in the metaverse – how brand owners can find growth in the virtual realm
2021 was a big year for Non-Fungible Tokens (NFTs) resulting in significant commercial value. The creators behind Cryptopunks, an NFT project with over $2 billion worth of trading volume1, signed a representation deal with a leading Hollywood talent agency to pursue a range of commercial projects. Purchasers of the Bored Ape Yacht Club (BAYC) NFTs, including music producer Timbaland, distribution label Universal Music Group, and consumer products company Arizona Iced Tea2, have all commercially exploited the NFTs they purchased for marketing and merchandising efforts. Adidas also released a video on their collaboration with BAYC to begin their push into the Metaverse3.
The ability for NFT purchasers and creators to leverage and commercialize their NFTs is contingent on ownership of the intellectual property (IP) rights and/or access to the commercial rights governing the underlying digital asset. Depending on the particular project, there may be limitations on how a buyer may commercialize the NFT asset, including limits on revenue, limits on rights to create any derivative works, and/or requirements to pay royalties to the NFT creators. In this article, we provide an overview of the various approaches to intellectual property rights taken by popular NFT projects and the resulting commercial rights and benefits afforded to purchasers and creators.
Some NFT projects have adopted the NFT License4, a license originally created for the CryptoKitties NFTs that aims to define the rights of both NFT purchasers and creators. Under the NFT License, the purchaser of the NFT obtains a limited right to use, copy, or display the art underlying their NFT “for the purpose of commercializing [their] own merchandise”, to generate up to $100,000 in gross revenue each year. The creator of the NFT retains ownership of all legal rights to the underlying art, including all intellectual property rights. The NFT License has been adopted by several prominent NFT projects such as CryptoPunks5 and Meebits6.
To strike a balance between the needs of NFT creators, purchasers, and the wider fan community, the Forgotten Runes Wizard’s Cult NFT project7 has taken a more unique approach to licensing their Wizard-themed NFTs. Purchasers of these NFTs obtain a non-exclusive, royalty-free commercial license to the underlying art for up to $5 million in revenue per organization, after which a 20% blanket royalty is applied. The non-exclusive license allows the creators to also exploit the intellectual property rights governing the art. Individuals that are neither creators nor purchasers can also use the art underlying the Wizard NFTs under a Creative Commons non-commercial license8, a popular open-source license for online creators.
The creators behind the BAYC collection took an approach that aims to provide unlimited commercial rights to the purchasers of their NFTs, with ownership of the NFT being mediated “entirely by the Smart Contract”. According to the terms and conditions, “when you purchase an NFT, you own the underlying Bored Ape, the Art, completely”9. Further, purchasers obtain an unlimited, worldwide license to create derivative works based upon the underlying Art with no cap on the revenue that a purchaser can generate or earn.
However, purchasers should note that although ownership is mediated entirely by the Smart Contract, the Smart Contract includes no specific provision speaking to the ownership of the intellectual property rights governing the NFT art10. What this means from a copyright perspective is that there is no executed assignment of copyright, so copyright may not immediately vest to the owner upon purchase of a BAYC NFT. A written assignment is required to perfect the copyright transfer. From a trademark perspective, a purchaser would generally not receive any trademark rights, since trademark rights only arise upon use of a trademark in the course of commerce or upon registration of the mark. Instead, the purchaser obtains permission to pursue trademark rights in the NFT, but the purchaser is fully responsible for assessing whether the mark is available to be used with the goods or services they plan to offer and to pursue protection for.
The World of Women NFT project11 goes a step further than BAYC and assigns all of its rights, title and interest to the intellectual property underlying the Art to purchasers. The project specifically addresses trademark rights by providing that purchasers may use the terms “World of Women”, “WOW’, or “WoW” when using the underlying art for non-commercial purposes only. Upon resale of these NFTs, all rights must be transferred to subsequent purchasers, and the original creator is entitled to compensation upon resale in accordance with a commission determined by the NFT marketplace12.
In stark contrast to the NFT projects above, some creators have opted to take a fully open-source approach by adopting the Creative Commons13 license dedicating the underlying copyright to the public domain. An example is the CrypToadz project, whose website states that “to the extent possible under law, [the creator] has waived all copyright and related or neighboring rights to CrypToadz by [the creator].14
Similarly, the Nouns NFT project, which aims to auction “one noun, every day, forever”, provides that “nouns artwork is public domain”. However, the project compensates the team behind the project by dedicating every 10th Noun NFT minted for the first 5 years of the project to be shared among the founding members15.
NFT creators should carefully consider an appropriate intellectual property strategy and approach to manage how the intellectual property rights underlying their project will be transferred to the purchasers and the public. Creators that wish to retain control over intellectual property rights in a project may adopt a traditional licensing model, those that wish to provide their community with unlimited commercial rights may assign these rights, and projects without a commercial focus may adopt the Creative Commons license.
Companies and brands looking to purchase NFTs for commercial use and marketing programs should be aware that the intellectual property and commercial rights obtained upon purchasing an NFT will vary depending on the approach to intellectual property and licensing taken by the creators. Purchasers should carefully examine the terms and conditions, licenses, and the Smart Contracts governing the NFT project. Purchasers should also seek competent legal advice to ensure that a project provides a valid transfer of copyright upon execution of the Smart Contract, and to clear and protect the underlying trademark rights necessary to commercially exploit the NFT as a brand or marketing tool.
1. Cryptopunks Sales summary
2. Twitter: AriZona APED into the @BoredApeYC
3. Twitter: Addidas “leap into the Metaverse with @BoredApe YC, @GmoneyNFT and @punkscomic
4. NFT License
5. CryptoPunks, Larva Labs
6. “Say Hello to Meetbits”
7. Forgotten Runes Wizard’s Cult
8. Creative Commons: Licenses
9. Bored Ape Yacht Club: Terms and Conditions
10. Etherscan: Bored Ape Yacht Cub
11. World of Women art (WoW)
12. World of Women digital ownership assignment
13. Creative Commons “Public Domain Dedication”
14. Cryptoadz
15. Nouns
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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FASB Excludes NFTs, Some Stablecoins From Crypto Accounting Project – The Wall Street Journal

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Michael Saylor can't stop: MicroStrategy now holds 130,000 Bitcoin – Cointelegraph

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MicroStrategy bought an additional 301 BTC for $6 million at an average price of $19,851, the company’s executive chairman announced on Twitter.
MicroStrategy now owns 0.62% of all the Bitcoin (BTC) that will ever be mined. The company’s executive chairman, Michael Saylor, announced that the company bought another 301 BTC for roughly $6 million at an average price of $19,851 per BTC. 
In sum, the company is one of the planet’s largest holders of the asset, owning 130,000 BTC. Apparently, Saylor likes round numbers, buying 301 BTC to reach the 130,000 milestone. 
MicroStrategy has purchased an additional 301 bitcoins for ~$6.0 million at an average price of ~$19,851 per #bitcoin. As of 9/19/22 @MicroStrategy holds ~130,000 bitcoins acquired for ~$3.98 billion at an average price of ~$30,639 per bitcoin.https://t.co/5kYW98ij4I
Due to plunging price action, the company’s investment is down substantially in U.S. dollar terms. MicroStrategy’s entry price is roughly $30,639 per BTC, and the Securities and Exchange Commission filing states that the firm has bought 130,000 BTC at an aggregate purchase price of approximately $3.98 billion.
If MicroStrategy started stacking sats (buying Bitcoin) at today’s prices, it would have spent $2.48 billion on 130,000 BTC. Saylor is currently at a paper loss of over a billion dollars.
According to the SEC filing, the company made the purchase with “excess cash.” Saylor recently stepped down as CEO of the company to focus on buying more Bitcoin, while Washington, DC has taken aim at the billionaire in a tax evasion lawsuit.
Bitcoin enthusiasts were quick to commend Saylor’s buy. Referred to as the “Chad” or “Gigachad,” Saylor’s conviction and commitment to buying Bitcoin despite the investment being underwater has garnered both a devout following and numerous critics.
Related: Bitcoin better than physical property for regular folks, says Michael Saylor
Other large wallet addresses include that of crypto exchange Bitfinex, which holds 170,000 BTC, and a Binance reserve wallet that holds 125,000 BTC. Binance is the world’s largest crypto exchange and has several wallets holding six figures of Bitcoin. Regarding individuals, Saylor has stated that he holds Bitcoin, and FTX CEO Sam Bankman-Fried and Binance CEO Changpeng Zhao are also “hodlers” — a meme that became popular jargon for holding crypto.

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NFT Collections Will Be Regulated Like Cryptocurrencies Under EU’s MiCA Law, Official Says – CoinDesk

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