Licensing vs Assignment of IP rights in PFP Projects
In continuation of our discussion on PFP projects, an interesting occurrence that took place last week was the announcement made by Mousebelt, to create an ‘instruction manual to Bored Ape Yacht Club (BAYC) owners to utilize the IP rights of their NFTs.’
This is an interesting initiative. However, this announcement exemplifies the many misconceptions on rights of NFT holders granted under a contract and this article seeks to explain the legal nuances of these rights.
Clarifying the term “intellectual property right”
To better understand the legal nuances, it is best to give clarity and meaning to the term IP right.
An IP right is a right over an intangible property given to persons over the creations of their minds. It is generally divided into copyrights (rights over literary, artistic work and includes performers’ rights and rights of broadcasting organizations) and industrial property rights (which include trademarks (protection of brand name), patents, industrial designs, and trade secrets (patents, industrial designs and trade secrets seek to protect inventions).
Intellectual property rights in a PFP project
In a PFP project, the IP rights will be over the digital avatar design (PFP), which is a generative art. Our previous articles in the series dealt with the protection of a generative art by copyright, which is still unresolved. However, the terms and conditions of many PFP projects are drafted on the premise that a PFP is protected by copyright. It should also be noted that there are other IP rights associated with a PFP, for example, a brand name of the PFP can be protected by trademark. Therefore, in the BAYC project, the copyright of the digital avatars and the trademark ownership of the brand “BAYC” is owned by its creators Yuga Labs.
Owning an NFT and owning a PFP- clarifying the misconception!
First, let’s start by clearing the misconception that owning a PFP NFT and owning a PFP are one and the same. It is not the same thing. Owning a PFP NFT gives the buyer physical ownership of the PFP which must be distinguished from owning the intangible IP rights of the PFP.
A PFP NFT is the ‘non-fungible token’ that represents the physical ownership of a PFP.The PFP (i.e. the underlying image) exists outside the blockchain and is separate and distinct from the NFT.
The terms and conditions governing the sale of a NFT determine whether the buyer merely receives physical ownership of the PFP or whether the buyer is granted/licensed any/all IP rights to the PFP.
Unless expressly provided as otherwise, a buyer of a PFP NFT has physical ownership of the PFP and has personal property rights in it. This right must be distinguished from being granted an IP right over a PFP. Please refer to our previous articles on implications of being granted an IP right.
Therefore, a buyer of a PFP NFT should not automatically assume legal ownership of PFP as this is governed under the terms and conditions of the transfer of the NFT.
Assignment and licensing of IP rights
Through a sale of an NFT, the IP rights to the PFP can either be assigned (extremely rare) or licensed (the most common practice).
An assignment is the permanent conveyance of IP rights (either full or partial) associated with the PFP. It should be noted that under some laws, not all IP rights can be assigned. For example when assigning copyrights, certain jurisdictions do not permit the assignment of moral rights of creators (i.e. the rights of creators to protect their association with their work).
Through an IP assignment (most jurisdictions require the assignment to be in writing), the original owner (Assignor/Transferor) relinquishes all/some IP rights (depending on arrangement between parties) in the PFP to a third party (Assignee/Transferee). The Assignee becomes the new owner of the IP assigned under the agreement. This was what essentially happened when Yuga Labs acquired the rights to the CryptoPunks and Meebits NFT collections from Larva Labs. Larva Labs relinquished all rights and control it had over the IP rights over these PFP collectibles.
Under an IP licensing agreement, the original owner (Licensor) retains ownership of the IP rights and gives permission to a third party (Licensee) to use all or some of the rights subject to certain terms and conditions. A license agreement is generally exclusive or non-exclusive. Under an exclusive license agreement, it is only the Licensee who can exploit the IP rights under the agreement. The Licensor will also not be able to exploit such rights unless, it is expressly provided for under the License Agreement. Under a non-exclusive license agreement, the Licensee does not have any exclusivity in exploiting the IP rights and the Licensor or any other persons permitted by the Licensor has the right to exploit the IP rights underlying the license agreement.
Am I the owner or licensee of my PFP?
The answer to this question lies in the contract governing the sale of the NFT. However, in most instances the contract governing the sale of the NFTs is not simple, which has given rise to confusion on the rights held by an NFT holder of a PFP.
For example, several inconsistencies can be seen in the BAYC Terms and conditions.
The terms and conditions begin with the statement, that when you purchase the NFT you own the underlying Bored Ape, the Art, completely. Thereafter, paragraphs (ii) and (iii) of the terms and conditions go on to state that the Yuga Labs LLC provides you with a worldwide, royalty-free license to use, copy and display the purchased art….. The Terms and Conditions seek to license personal and commercial rights of the IP to the bored Ape PFP.
The statements are contradictory and a consumer can easily assume that they are the owners of the underlying Bored Ape Art, when buying the NFT.
But paragraph (ii) and (iii) set out that this is a license and therefore Yuga Labs continue to hold and be the owners of the IP rights of the Bored Ape Art. The buyer of the NFT is only its licensee and is only able to exploit the IP rights of the PFP as provided for in the Terms and Conditions.
It is further interesting to note that the terms and conditions are silent on the exclusivity of the license granted. Do the buyers enjoy exclusive rights over their Bored Ape Art? This has been quietly disregarded.
Additionally, paragraph (i) of the statement provides at no point may we seize, freeze, or otherwise modify the ownership of any Bored Ape, when granting the said license for personal or commercial use, the terms and conditions do not specify whether the same is irrevocable. The usage of the term ‘subject to your continued compliance with these terms’ implies that the license is revocable. However this is then contradictory with the statement in the Terms and Conditions, “at no point may we seize, freeze, or otherwise modify the ownership of any Bored Ape”
What rights do I hold under my license?
Generally, an Agreement to license IP rights clarifies the rights licensed under the Agreement. The BAYC Terms and Conditions do not define nor explain what constitutes ’rights’. This is interesting, as the Mutant Ape Yacht Club Terms and Conditions (Mutant Ape Yacht Club (MAYC) also owned by Yuga labs), which is similar to the BAYC Terms and Conditions, adds an extra paragraph which restricts the buyers’ right to use any of the trademark or other IP rights of Yuga Labs.
So, this gives rise to a lot of questions. Does this mean that, since the BAYC Terms and Conditions is silent on the usage of its trademark, buyers of the BAYC NFT can use the trademark whilst buyers of MAYC NFT cannot? This is unlikely since the BAYC Terms and Conditions do specify that the buyer only receives ownership of the BAYC Art and nothing else.
What this also means is that, while buyers of the BAYC and MAYC PFPs can exploit their commercial rights by using the artwork in merchandise etc., as per the Terms and Conditions, they will not be able to use the BAYC/MAYC brand name. Therefore, they cannot, in most instances, use the BAYC trademark in any of the items they seek to commercialize, unless doing so falls within any recognized exemptions to trademark infringement.
Conclusion- Buyer be aware!
Our series of articles evince that a general reading of the Terms and Conditions of PFP NFT projects and the news articles and advertisements proliferating over the web misinforms a consumer of the rights they purchase under a NFT. Therefore it is imperative that a purchaser is well informed and understands what legal rights and protections are available to him/her when buying a NFT and more importantly whether they own or are a licensee of the IP rights underlying the NFT!
The res ed cohort programme is an initiative by resolutio to help spread awareness on NFT rights. Learn about our cohort here. For updates, follow us on Twitter & LinkedIn and join our Discord Community.
