NFT Licence and Contracts in PFP Projects

By Sushruti Verma

A PFP NFT is a kind of NFT that may be used as a profile image on social networking. PFPs are included in several of the world’s most popular NFT collections, including Bored Ape Yacht Club and Doodles. PFPs exist at the nexus of being collectables as well as generative art. A person interested in NFTs, would have inevitably come across the term “PFP Project”. Each person who buys a PFP NFT inevitably becomes part of that project’s community. One way of proudly displaying their role in the community is by replacing their social media avatar with that of their PFP NFT’s image.

This communicates your social standing and membership in community endeavours. A means to let people know you’ve arrived.

PFPs can provide owners with some good incentives in addition to a ready-made community. These benefits can range from rights to the art attached to the NFTs, or certain utilities which may be claimed by holders of the PFP NFTs. Rights to the art could include the right to commercial use of the art attached to the NFT. The popular NFT project World of Women is an example of a project which grants its holders commercial rights. They expressly specify that any use that promotes hate or bigotry is forbidden. One member of the community made a hard cider out of their WoW artwork. This is an illustration of how NFT IP may be used for a broad range of commercial activities.

When it comes to utilities, the possibilities are limitless. They may be the exclusive entrance to an event, in-person memberships, or future usage in the digital world (think within a game). A recent example is Quentin Tarantino’s release of the Pulp Fiction NFT, which includes a DVD featuring film secrets.

NFT Licences and Contracts

The benefits which PFP Projects might provide, whether they be specific utilities or rights in the art, are usually promised in the roadmaps that the project intends to follow. You can find examples of such projects here, here and here. Unfortunately, not all PFP projects provide clarity regarding the rights available to potential or existing holders. Even when such promises have been clearly laid out, they may be restricted to websites and social media platforms, as opposed to legally binding contracts. The need for contracts to ensure the fulfilment of promises by PFP projects shall be dealt with in a forthcoming blog.

Popular projects such as Moonbirds and Fluf World, provide NFT Licences, which clarify what each holder is buying into when they buy a PFP NFT. NFT Licence agreements, like any other contract, may be tailored to meet your unique requirements. The following parts are included in the standard NFT Licence: Definitions, ownership, licence, restrictions, and terms of the licence are the first five items in the list. Additional conditions on connecting wallets, liabilities, controlling legislation, alternative dispute resolution, and physical experiences may be included in NFT licensing agreements.

NFT licensing agreements often provide customers “General Use” rights to the NFTs they acquire. Purchasers often obtain a “global, non-exclusive, non-transferable, royalty-free right to use, copy, and display the Art” that underpins the acquired NFTs for personal, non-commercial use or resale when they buy a general use licence. Some NFT licensing agreements, on the other hand, allow for “Commercial Use” of the NFTs in question. The CryptoKitties Terms of Use permits customers of their NFTs to sell their own derivative items (e.g., T-shirts) with such NFTs under a limited licence, as long as such sales do not generate more than $100,000 in annual gross income.

Creators may opt to add a section in NFT licensing agreements that describes the costs and royalties connected with the first sale and future resales of the NFTs. Creators may incorporate terms requiring future buyers to pay the original creator a royalty or a portion of sales. The Vee Friends Terms of Use is one such example, wherein, the NFT buyer must, “acknowledge and accept that [Vee Friends, LLC] earns 10% of every future sale of a VFNFT (“Royalty”)”.

The NFT Licence by Dapper Labs is a popular template which is relied on by PFP Projects. You may also consider Creative Commons licences.

Creative Commons and CC0

Creative Commons was created to address the issue of copyright and to provide creators with alternatives on how to distribute their work. Traditionally, the rights vested in a creation were “All Rights Reserved”, giving only the creator the right to take advantage of their work in economic spheres. This non-profit group addressed this by making several forms of rights available. The CC0 or public domain licence is a great option, if you want to make your work available to the public. Beeple is a fantastic example of an artist who used to create, just for the sake of sharing it with others. However, this was before the sale of his historic NFT pieces. He did not make the NFT public domain and instead moved to the secondary market to gain even more money.

Creative Commons has developed a collection of licences that allow authors to share their work with others under various conditions. Creative Commons licences include those to

• give credit,
• for personal use only,
• for commercial use but duly attributing authors, and of course,
• public domain aka CC0

CC0 is the most basic type of creative commons, implying that anyone is free to use the work. CC0 is not just limited to art but extends to software, literary work, etc. Artists, scientists, engineers, and others gain from the ability to rely on other people’s creative contributions. Allowing people to rely on your work without restriction also promotes collaboration and creativity. Some people in the NFT space rely on this licence. Although, in some instances it may be necessary for creators to be adequately compensated for their contributions, thereby requiring some restrictions on the use of the art. Therefore, depending on the purpose of the project, creators of PFP projects must choose those terms which are most suitable for them. Note that creators should be mindful that there may be future applications of their work that have not developed in the present day, but if it does not exist when an agreement is drawn up, ideally these applications cannot be exploited to the detriment of the creators. This shall be dealt with in detail in a forthcoming article.

We will be discussing the impact of NFTs on Contracts in greater detail in upcoming articles.

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