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What Are You Getting When You Purchase an NFT?

November 21, 2022 Intellectual Property Intellectual Property

Now that we have reviewed the terminology for non-fungible tokens (NFTs) in our March 4th issue, and you have chosen an NFT to purchase from our April 1st issue, it is important to review the terms of sale or other applicable terms. These may not always be easy to find. In particular, some of the provisions you should review are:

  1. The terms applicable to each transaction.
    1. There are several types of NFTs and ways to purchase them (such as an auction or single sale), and the terms and conditions for each can vary.
    2. “Utility NFTs” (NFTs that provide rights other than the ownership of the NFT itself, such as admission to a concert) may have other terms that apply to each of these additional rights.
  2. What you are buying: Purchasers often think that by purchasing an NFT, they are also purchasing the underlying intellectual property (IP), such as the copyright.
    1. Unless otherwise stated in the terms, generally the purchaser acquires only the ownership of the token itself, not any IP associated with it. For example, you may acquire only the right to display a work, but not the right to otherwise commercialize it.
    2. If you are acquiring IP rights associated with the NFT, review any representations and warranties made by the seller regarding its ownership of the IP and IP infringement.
  3. Any obligations you may have upon a future sale of the NFT: For example, there might be a requirement that a royalty (which can be substantial) be paid to the original author or that subsequent purchasers accept certain terms.
  4. The governing law/venue for any disputes: Review whether disputes will be governed by U.S. or foreign law and venue and if mediation or arbitration is required.
  5. The terms and policies associated with the marketplace: Different marketplaces have different rules regarding ownership and resale. For example, certain marketplaces may charge a high transaction fee for sales. Additionally, it is often listed as your responsibility to ensure that your wallet is linked for transactions, and you risk losing money if it is not set up properly.

These are only some of the provisions to consider when purchasing an NFT. You should review all the applicable terms carefully to understand what you are getting and what your obligations are going forward.