3 Things Everyone Should Know About NFT License Agreements

With all the buzz (and even more confusion) around NFTs these days, it is critical that everyone—NFT creators, purchasers, sellers, and anxious onlookers—know and understand the scope of rights granted through the purchase and sale of an NFT. So how does one go about determining what rights a creator reserves and what rights a purchaser acquires in an NFT? The license agreement, of course.

The first and most important thing you should know is that the purchase of an NFT does not automatically grant the purchaser intellectual property rights in and to the NFT. Most people automatically assume that if they purchase something—especially something they pay hundreds or thousands, or hundreds of thousands of dollars for—they are also purchasing the right to use, display, perform, commercialize, and pretty much do whatever they want with it.

However, contrary to what you may naturally assume, you don’t get any intellectual property rights in the NFT you purchase unless the creator of the NFT specifically grants those rights to you. The granting of intellectual property rights from the creator of the NFT to the purchaser of the NFT is typically done through a license agreement contained in a smart contract.

The second thing you should know is why NFT license agreements (and all other intellectual property license agreements for that matter) are important. Intellectual property license agreements are necessary to protect the creator of the intellectual property and their financial interest in and to their intellectual property, even after their intellectual property is sold. Because NFTs are intellectual property, the same holds true for NFT license agreements and their protection of NFT creators. Specifically, NFT creators are able to dictate exactly which rights original owners and purchasers hold in purchased NFTs while also preserving their ability to continue to profit off of their creations by requiring a certain percentage of the subsequent sales of their NFTs to be paid to them.

The third thing you should know is the difference between a standard and custom license agreement. NFT marketplaces typically have standard NFT licensing agreements available to creators through their platform. However, if a creator wants to set their own parameters regarding, for example, what purchasers can do with their NFTs, how subsequent purchasers obtain ownership of their NFT, and even attach a physical experience opportunity to an NFT, some marketplaces, such as OpenSea, allow the creator to come up with their own custom license agreement.

For example, the notorious Bored Ape Yacht Club’s license agreement famously (or infamously—whichever way you choose to look at it) transfers commercial rights to its NFT apes to purchasers royalty-free, thereby allowing purchasers to do as they please with their apes—apes as music album cover art, apes in a film, apes on TV, books on ape, ape apparel, ape merch, or other ape-worthy projects.

Cryptokitties has a similar transfer of commercial rights that is more restrictive—the granting of rights in and to its NFTs is non-exclusive and does not allow the purchaser to make more than $100,000 in gross revenue each year off of their kitties.

Whichever collection you prefer – be it apes or kitties, punks or mfers – your rights in and to the NFTs you purchase will likely be dictated by a license agreement.

About The Author
Rola Daaboul, Special Counsel with Akerman LLP in Austin, is a former Texas state Assistant Attorney General and seasoned trial attorney. She focuses her practice on complex commercial litigation and business torts and intellectual property litigation, particularly in the worlds of entertainment and music law. She has a wealth of experience with class action litigation, employment litigation, whistleblower and tort litigation, challenges to Texas law, and constitutional claims, and has argued in state and federal courts across Texas and in the 5th Circuit Court of Appeals. She can be contacted to discuss NFTs or other litigation-related topics at rola.daaboul@akerman.com.