Considering an NFT Drop? NFT Lawyer Enrico Schaefer Warns About Trademark & Copyright Legal Issues.

My name is Enrico Schaefer. I'm an attorney specializing in blockchain technology, and today we're going to be talking about non-fungible tokens, NFTs. They're the hottest thing going in blockchain and crypto right now, and specifically we're going to be talking about copyright and trademark issues with regard to NFT platforms and NFT sales. So we get a lot of calls from clients who want to start an NFT project, and they have a lot of questions about how they should move forward with that project. And a piece of that puzzle deals with intellectual property rights. So today we're going to take a look at and learn a little bit about the trademark and copyright issues related to NFT sales. So let's dive right in. My name is attorney Enrico Schaefer. I'm an attorney with Traverse Legal. We specialize in crypto and blockchain. And so you're going to see that we've got some resources on our website. If you want to check those out, that's great. You'll find a link in the description. If you want to go ahead and hit the subscribe button, you're going to see we've got a lot of NFT, crypto, blockchain content, and you'll get notified. Every time we post a new video. So go ahead and subscribe. And with that, let's dive right in. First question, what is a trademark? No better place to go than the United States Patent and Trademark Office. We're going to be talking about trademarks with regard to these NFT projects. The next question we're going to look at is, what is a copyright? No better place to go than copyright.gov to find out what a copyright is. Understanding trademarks and copyrights are really key to a lot of these NFT launches. All right, so let's take a look at what a trademark is. A trademark can be any word or phrase, symbol, design, combination of things that identifies your goods and services in the marketplace so that consumers know when they see the word Nike or the Nike swoosh, they know what company they're dealing with. Trademarks are designed to protect consumers as well as the trademark owner. So a trademark identifies the source of goods and services so that consumers know if they can trust interaction with the seller or the website who is displaying that trademark. So it provides a lot of legal protection for your brand, helps you protect your goodwill, and this is really relevant, helps you guard against counterfeit and fraud, which is of course rampant in the NFT marketplaces and in the NFT market itself. So these are the different things that you're going to want to understand about when we talk about trademarks. And why is this important? Because if you are the Bored Ape Yacht Club or any other NFT offering, chances are you're operating under a brand. Bored Ape Yacht Club is a trademarkable brand. It identifies the source of those NFTs, with the owner of that marketplace, Bored Ape Yacht Club. We'll be taking a look at some of their trademarks and understanding why those trademarks are so important to protecting the Bored Ape Yacht Club against infringers who might come up with some Bored Ape or Yacht Club variation that is designed to cause confusion in the marketplace, to defraud, to counterfeit consumers. All right. So that's the trademark. It identifies the company and the brand. Who am I dealing with? Let's talk a little bit about copyright. So copyright is different than trademark fundamentally in, in several ways, but you want to think about copyright as who owns the art. It protects original works of authorship and it gets protected as soon as it gets fixed in a tangible expression. So if it's a digital asset, the moment that that artwork, that logo, that avatar, avatar, the digital asset that's being offered with the NFT, the Bored Ape, as soon as that gets fixed in an editing device, uh, in Adobe, it becomes copyrightable. It is copyright protected under common law. You can also register that copyright, and that becomes important in terms of protecting your copyright. But the actual digital asset that goes along with the NFT sale is, is potentially copyrightable. And if you don't copyright protect your digital asset as the owner of the project, as the founders of that project, um, you're going to have some serious problems down the line with what did you actually provide to the NFT purchaser. Did you even own the copyright, or did you contract that work out with an artist who provided you with the digital asset? Did you get an assignment of that from the copyright owner, the person who actually put pen to paper? If not, there could be issues. The other issue that you're going to deal with with copyright is you're going to be licensing or assigning, typically licensing, that copyright to the NFT owner. So the Bored Ape, the particular Bored Ape that I buy, okay, I'm going to get that— it's going to get reflected in the smart contract, which is going to go on the blockchain. That's the NFT itself, is the smart contract. That smart contract is linked to the digital asset, the Bored Ape. I now have this ownership NFT that says I own, but the question becomes, what do I own? And we're going to learn a little bit about the distinction between what kinds of licenses are out there, for instance, with Bored Ape NFT assets versus CryptoPunks NFT assets. And so you're getting totally different things when you buy a Bored Ape NFT than when you buy a CryptoPunk NFT. So this is really important. So independent creation of an original work that is— and got enough creativity to get over the copyright hurdle is going to be copyright protectable. Whoever the artist is is going to own the copyright. If you contract that out, you need to get an assignment of that copyright in order to then be the copyright owner to be able to provide a license as part of the NFT sale. All right, so you're going to see on our website we've, we've generated a number of different blog posts and pages about the idea of NFT copyright licenses We provide, and we'll show you the NFT license that, that we provide to people as a sample NFT license to go along with the NFT sale. But you're going to want to take a look at some of these articles. They'll also be linked in the description below. And so again, subscribe and you'll see all this great linking and content that we'll provide you as a resource. All right, buying an NFT, read the fine print and copyright language. Licensing NFTs, you need to know who owns what you're selling. NFT copyright license rights due diligence is critical. Some of the themes. Now the best way for us to dig into this is actually look at what's going on with NFTs and use an example. Good example, Bored Ape Yacht Club. Bored Ape Yacht Club is a very well-known, very high-value NFT where you've got a You know, a floor price of 83 ETH. So tens, hundreds, or millions of dollars per Bored Ape. You can see here Bored Ape Yacht Club has got a logo, Bored Ape Yacht Club, BAYC. It's got the skull. All of these elements are potential trademarks that identify the who, the what company is offering these tokens. Now, one thing that's missing here is a TM or a circle R indicating that this is a registered trademark. Doesn't mean they can't enforce their mark, but they certainly want to upgrade their logo on their website and on the NFT platform to tell people you're claiming trademark rights in the words Bored Ape Yacht Club, BAYC, and the logo with the skull, the Nike swoosh, that goes along with the offering. So the words Bored Ape Yacht Club are potentially worthy of trademark registration. The logo is also separately worthy of trademark registration, and the Bored Ape Yacht Club is the entity, the project owner, which is offering these Bored Apes for sale. So that's the trademark rights, the words and the logo that identify the company The copyright are the actual images, right? The unique piece— pieces of art that are created for sale. These were originally uploaded by Bored Ape Yacht Club and minted and then sold. So each one of these Bored Apes, which can be filed as a copyright registration as a collection, but each one of these Bored Apes is subject to copyright protection. Bored Ape Yacht Club is either assigning or licensing these images to the NFT owner. Let me say that again. Bored Ape Yacht Club is either licensing or assigning the rights to the digital asset, the digital image, the artwork that is attached to the token sale known as the NFT. Okay, so these need to be Copyright protected and properly licensed and/or assigned. If we take a look at the Bored Ape Yacht Club's website, you'll see again, here's— this is sub— this is Bored, B-A-Y-C with the skull. This is subject to trademark law. This should have a TM or a circle R indicating that it's registered to tell people that they're going to protect it as a trademark. This is what you don't see in most of these NFT projects. The people who are launching NFT projects are failing to grasp at this early stage of emerging technology the importance of the intellectual property rights that are foundational to their business model. If you don't protect the trademark of your project, the trademark that goes with your URL, the logo that you've designed to go along with the words Bored Ape Yacht Club, if you don't protect those things under trademark law, you're going to have very little leverage to stop counterfeiters, to fight back fraud, to protect your brand, to grow your brand. 50% or more of Apple's entire valuation market cap is its trademark rights. Apple, iPhone, iPad, um, you know, iMac, uh, you know, all of these different, you know, brands that they've got— MacBook Pro— are worth 50% of their total value. You want to be thinking the same way if you're launching an NFT play. You want to protect your intellectual property to go along with it. It becomes even more important in a market that's subject to so much fraud. All right, so here you can see everything that's going on. You're going to see terms and conditions here for the Bored Ape Yacht Club and also for this, you know, the sister, which is the Mutant Ape Yacht Club, which you've probably heard about as well. But these are also really important if you've got NFT project that you're about to launch, these terms and conditions on your website are going to be important. This actually tries to tell people what they're getting on the website, right? But then it also goes into ownership rights of your NFT. Now, this tells you what you can and cannot use the NFT for, and it tells you about commercial use. So this is the license that people got when they purchased their Bored Ape. Now the interesting thing here is that this now exists on their web page. What happens if this website goes down in 200 years? What was the license that was granted? Most people, uh, in the industry are, are not even putting ownership information down along with their NFT sale. They're not telling you what you own when you own the NFT, what your uses are that are allowed with the NFT, whether or not you can make commercial use of the NFT. So kudos to Bored Ape for at least having this information on the website. However, they can't make changes to this webpage legally and modify the contracts because those contracts were already offer and acceptance at the time of sale. This should be captured in a more permanent way than, than a webpage. All right, so let's take a look at some of the Bored Ape Yacht Club trademarks. These are all trademarks owned by Yuga Labs, which owns the Bored Ape brand website and And which is behind the Bored Ape Yacht Club project. And you can see they've got a lot of trademarks in play here. So that's great. Let's take a look at some of them. So Bored Ape, this is a standard character mark, meaning that it's just anyone who uses anything similar to Bored Ape. If it's B-O-A-R-D-Ape, Trademark Office is going to see that it's exactly the same and any secondary use, any subsequent use is going to be a potential infringement of the Bored Ape Yacht Club standard character mark. So this is one of their marks, is probably their broadest and most important mark. It's a standard character mark, meaning that it's not the image, the logo, the design, the colors, it's just the words which are protected. Anything that's substantially similar or confusing with Bored Ape as words is going to be potential infringement. And you can see here's Yuga Labs, they're the entity that owns this particular mark and the Bored Ape play. And now that we've got the international classes. So they're Bored Ape in jewelry, probably digital jewelry, collectible printing, trading cards, printed trading cards. Some of these I, I've not seen yet, so they've registered trademarks and things that I'm not sure are actually out there. Hopefully they are. Hats, shoes, skateboards, beer, wine. These could be, um, you know, uh, marks that they're, they're rolling out in the future. Online retail store, nightclub services, nightclubs, bar cocktail lounge, online social networking. So they have really tried to cover the bases here. You're going to see they also have a design plus words and letters mark, meaning that it is the logo, it is the style of this design that they're protecting. So even if it's something different than Bored Ape Yacht Club, if it uses a skull, if it's got a black background, if it uses apes, baboons, chimpanzees, gorillas, monkeys, orangutans, heads of primates, bones, then you're going to have potential infringement. So anyone looking to mimic Bored Ape Yacht Club, copy Bored Ape Yacht Club, and uses a logo similar to this, now Bored Ape Yacht Club has trademark rights. And you can see they've got additional trademarks that they filed. They filed for their Bored Ape Social Club. Oh, Board Ape Social Club. Interesting. So this is, this is a Board Ape Social Club. This could be an infringing mark, I don't know. But is, is Yuga Labs behind this trademark? Well, this says that it's owned by Yuga Labs. This one says it's owned by Molar Klaus. So is this an imitator who's trying to get in? It's in wines and spirits. Is it something different? Is it going to be confusingly similar with the Bored Ape Yacht Club? Well, this is a potential issue for infringement, the type of issue for infringement that we see out there. All right, so let's take a look at a different project, which is CryptoPunks. CryptoPunks, another very famous NFT drop that a lot of people are trying to mimic. Is different than Bored Ape Yacht Clubs in a number of different ways. But you're going to see that CryptoPunks has potential trademark rights in the word CryptoPunks. Doesn't look like they've got a logo here that they're displaying. And then they've got what are potentially copyrightable digital artwork that they can either assign or license as part of the NFT sale. Now if we take a look at Bored Ape Yacht Clubs, let's take a look at one of the NFTs. Where is the license agreement? How do I know what I'm getting if I'm buying a Bored Ape Yacht Club NFT? And then we'll take a look at the same issue with regards to CryptoPunks. Uh, and where you hope you're going to be able to find that is in the actual platform. Well, Properties doesn't tell us what our license agreement is. CryptoPunks— this About page is normally where you would want to find a link to the license agreement. This doesn't tell me anything about what it is that— what rights I have to my CryptoPunk when I buy it. And of course, the details just provide a contract address, does not tell me anything about the license. So I guess I could dig myself into the website for CryptoPunks, unique collectibles, etc., Larva Labs. So, uh, where do I know what it is that I have purchased and what rights I have in my CryptoPunk? I don't know by looking at this, uh, and there's no terms of service, there's no website agreements. But let's take a look at About. Matt and John, um, boom, there is nothing. I have no information, nor does anyone else really, by looking at OpenSea or the website understand what it is I receive when I buy a CryptoPunk. Am I getting full rights to this image? Am I getting limited rights to this image? What are my rights? What are the limitations being held by the copyright owner? I certainly didn't receive any sort of assignment that would have to be in writing, and if there's nothing spelled out, that means the owners of the copyright can in any implied license situation, terminate or withdraw license rights with notice. So very interesting. All right, so let's take a look at Bored Ape Yacht Club. Um, created by, that's great. Properties doesn't tell us anything about the license. Bored Ape Yacht Club collection. Um, we now, we know that this is visit Bored Ape Yacht Club for more details, go to the website. And we already took a look at— we do actually have in the terms and conditions ownership rights. You own the NFT. That's not the digital asset, that's not the Bored Ape, that's the smart contract telling, telling everyone that you own, okay, uh, the, the, uh, the NFT, the token. But then it goes on: each Bored Ape is an NFT on the Ethereum blockchain. When you purchase an NFT, you own the underlying Bored Ape. Wow, that's great. So here are some interesting things. It says you own it, maybe should say assign, assigning you the rights, but it says that you've got personal use rights, grants you the worldwide royalty-free license to use, copy, display the purchased art, the NFT. This is somewhat inconsistent with this language saying you own it. If you own it, you could do whatever you want with it. This is now trying to pull back some of the rights. Okay, solely for the following purposes. Okay, these are words of limitations. This is what you're looking for. So, okay, I don't own it, right? I'm getting a license to the Bored Ape, but I can use it for personal non-commercial use as part of a marketplace that permits purchase and sale. Um, and so, uh, you know, I can resell it as long as the marketplace verifies each Bored Ape's ownership right to display the art. Of their Bored Ape to ensure that only the actual owner can display the art. As part of a third-party website or application that permits the inclusion, involvement, participation of your Bored Ape. If there's a metaverse where you can bring your Bored Ape into, you get that right as well. Okay, um, so this is interesting. So you own it, but you don't own it. You own it, but you have— you, you don't. You're getting a license, and here are the things that you can do. Okay, and some of the things that you can't do. Here's an interesting one that is is a little bit different. You get a commercial use right subject to your continued compliance with the terms, which— are they changing them over time? If so, that's probably not allowed under contract law. But let's just keep going. Yuga Labs grants you an unlimited worldwide license to use, copy, display the purchased art. Okay, well, that's fairly limited. For the purpose of creating derivative works based on the art. Well, that's very broad. Derivative works you could take your Bored Ape and change it into something else. Examples of your allowed commercial use would be to use the art to produce or sell merchandise, t-shirts. That's great. Normally the NFT owners, project owners, are reserving that right to themselves, but they're in this case providing it to you. Owning or operating a marketplace that permits the use and sale generally of the Bored Ape. Owning or operating a third-party website or application that permits the inclusion. This usually means that it's being integrated with a metaverse project or earning revenue from any of the foregoing. So this isn't limitless. There are things that are not on this list, but at least it's telling you what you're getting. With CryptoPunks, it's unclear. And you're gonna see that, um, one of the things that is interesting is that CryptoPunks has registered the copyright to the CryptoPunks with the Copyright Office. Bored Apes has not. Bored Apes, even if they're going to transfer certain rights they should have a registered copyright. I was unable to find it under a company name search. So you're going to see here there's some, some commentary here on the, on the web about the difference between CryptoPunks and some of the other NFT offerings. CryptoPunks faces social blowback over NFT copyright license. Lava Labs gave out 10,000 NFTs free to its community. The catch is that these NFTs had no written content license. Huh. Now, can you do that after the fact? Probably not, because offer and acceptance— the sale's already occurred. It'd be like trying to put limitations on the use of a car you already bought and have in your garage and you have the title to, and now the dealership's gonna say, oh, you can only drive that to work. This is a huge flaw in the CryptoPunks, um, business model, and you're gonna see that there's been a lot of debate about is there a license? If so, what is that license? The page that a license used to exist on no longer exists. And you're gonna see that there's a number of other different articles here that talk about— it seems that no transfer of IP, copyright, or trademark to PUNK owners. This is an important concept. If there's no written agreement, it's buyer beware, because the law is gonna default back to an implied license based on the marketing. Well, you must have gotten these rights, but implied licenses can be terminated, meaning CryptoPunks could literally pull back all of the CryptoPunks if the smart contract had allowed for that, right? Which it probably doesn't. It's probably technologically precluded by blockchain. But you can write a smart contract that can allow a pullback, and if that's the case, then, uh, boom, um, you could just simply lose your CryptoPunk back to, uh, the project owner. And there was a suggestion that maybe this, this kind of NFT license developed by CryptoKitties is the one that belongs to the CryptoPunks community as well. But hey, that's just speculation at this point. I don't see anything linking to this license or telling anyone that this is the license that they're getting. But here's some of the things that are different about CryptoPunks than we have with Bored Ape. What am I allowed to do with the art associated with my NFT if it's a Crypto Kitty or maybe a Crypto Punk? Use it, use it, use it. Okay, what am I not allowed to do? Modify it, use the art to make or sell third-party products— I can't do that— t-shirts, use the art in connection with images of hatred, violence, or inappropriate behavior. If you do these things, then theoretically you violated your license, and Crypto Kitties and/or CryptoPunks might be able to pull that asset back from you. You can't trademark your art or otherwise acquire intellectual property rights in it. You know, I suppose what they really probably meant to say is copyright, but you can see here we just have novices trying to develop contracts around complex IP rights that literally don't make any sense in some regards and certainly are lacking in specifics in others. And so So you can see here, you could actually take a look at the actual license language, and you're going to see that there is commercial use limitations here with these licenses. Subject to your continued compliance, you get a non-exclusive— not exclusive to your CryptoPunk— non-transferable license to use, copy, or display your NFT. Okay, you can use it commercially as long as it doesn't earn you more than $100,000 in gross revenue per year. However, you may still sell that at the marketplace for as much as you can, as you can muster. So very important. All right, so we've talked a little bit about the difference between the copyright of the artwork, trademarks related to the project owners, why those are important. They're important to the project owner, but they're also important to anyone that's purchasing one of these NFTs. One of your risks in the NFT marketplace is an unknown license. If there is no specific license provided, how do you know what rights you're getting, whether or not they can be pulled back, and related issues? Okay, we created an open-source NFT license, and you can see on, on our website we've got a whole article about it. And we link actually to this, this license which you can use or modify. And, and go ahead and, and click on this link called NFT Copyright License Language. You're going to see that it's going to take you to a web page that's got a web page for an NFT license project, open source license. And one of the licenses that's currently available is this license which tells both the buyer what they're buying and identifies for the seller what they're selling. And they're selling a license to the associated digital works. This version of it allows you to receive certain limited rights in the works, non-exclusive transferable license, meaning you could sell it, use, copy, display, may not make commercial use of the work in this instance except to resell or transfer some of all the rights granted herein. And so And so look at this, is a very crude and basic license, but better than nothing. All right. So if you're an NFT platform, if you're looking to launch an NFT project, you need to work with a blockchain attorney who understands intellectual property, who can help build your— help you build your business on top of a strong foundation of intellectual property rights, licensing language, copyright registration, making sure you own all the rights that you're trying to send downstream through an NFT sale. If you are a buyer of an NFT, you need to be looking for the license agreement that goes with the NFT, the digital asset that goes with the NFT. What rights are you getting in that NFT? My name is blockchain attorney Enrico Schaefer. We'll see you next time. Don't forget to subscribe, follow our channel, and we'll be here to help all along the way.