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Non-Fungible Tokens: Technology & Legal
Overview

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NFTs & Consumer Industry: New Opportunities and
Dangers
● NFTs offer unprecedented opportunities to develop new revenue streams and stronger
relationships with customers for the traditional companies
● NFTs offer a major challenge to existing industry from “digital native” companies such as Yuga
Labs
● Business models matter: CryptoPunks’ NFT value increased dramatically after Yuga Labs
acquired the IP rights from Larva Labs and granted the NFT holders commercial rights
● All consumer companies need to have a NFT strategy
● Entertainment
● Sports Teams
● Consumer Product

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NFT Purpose and Strategy Will Drive Legal Issues
● Collectibles
● Tickets to events/access to virtual experiences
● Works of art
● Merchandise (digital and tangible)
● Tool for community coordination to develop and fund new works, such as films and books
● Develop community and manage communities
● Distribution of music/films
● Infrastructure for metaverse

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NFT Market: Growing Quickly
• Sales of NFTs
• 2021: $22 billion according to DappRadar
• 2022: $12 billion in the first quarter of 2022 according to DappRadar
• Collins English Dictionary: NFT is the Word of the Year in 2021
• Use of NFT increased by 11,000 per cent from 2020 to 2021
• NBA developed Top Shots NFT videos sold $500 million in 2021
• Native “NFT” Platform Raised Significant Capital
• Yuga Labs, the developer of Bored Ape Yacht Club, raised $450 million at a valuation of $4
billion

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NFT Market 2022

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NFT Technology
• NFT Elements
• Token
• Artwork
• Generally stored off-chain on AWS, IPFS and Arweave
• Underlying Level 1 Blockchain
• Ethereum
• Solana
• Tezos
• Smart contracts
• Secondary royalties

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NFT Technology:
Consequences
• Raccoon Secret Society shifts link
from Raccoon PFP to new image of
“raccoon bones”
• Developers wanted to demonstrate the
vulnerability of smart contracts and
how code is “copy-pasted” with little
review
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Examples of Major
NFT Collections
• CryptoPunks: 155 ETH
• MAYC: 16.4 ETH
• Moonbirds: 10.6 ETH

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Consumer NFTs
• Starbucks Loyalty Program
• NBA “Top Shots”

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NFTs: A Legal Platypus
Like a Platypus, NFTs are a hybrid with many legal regimes. They may raise many new issues and
companies need to be alert to the risks and how to reduce them

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NFTs: Key Business and Legal Issues for Success
● Platypus
o Egg Laying Mammal
o Duck Billed
o Beaver Tailed
o Otter Footed
o Poison Spur
● NFT Legal Issues
o Copyright
o Trademark
o Articles 2 and 12 of the UCC
o Licensing
o Securities Law

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Key Legal Regimes Applying to NFTs: Copyright
● Works of authorship fixed in a tangible medium of expression
● Video
● Music
● Software
● Images
● Very low threshold for protection
● Copyright law is national and more than 180 countries have copyright laws
● Rights under copyright law
● Public perform
● Public display
● Reproduce
● Distribute
● Modify (make derivative works)

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Key Legal Regimes Applying to NFTs: Trademark
● Word, phrase, symbol, design, sound or a combination of these things that identifies the source
or quality of goods or service
● Trademark rights are national, most countries provide rights only through registration (not use),
US and UK commonwealth countries provide rights though use alone (as well as registration)
● Owner of trademark may prevent use of “confusing similar” marks
● Owner of trademark must monitor “quality control” and police use of “confusingly similar” marks
● Failure to monitor quality control and police use may result in loss of trademark rights: the mark
becomes generic and can no longer be enforced
● Escalator was once the mark for a particular brand of moving staircases

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Key Legal Regimes Applying to NFTs: Article 2 of UCC
● Governs “transactions” in “goods” from automobiles to nuclear reactors to software
● NFTs are likely to be “goods”
● Default warranty terms unless properly disclaimed
● Warranty of merchantability (average quality in the trade) but only provided by “merchants”
● Fitness for particular purpose
● Title
● Non-infringement
● Default remedies unless properly disclaimed
● Consequential damages
● Losses from requirements/needs which seller has reason to know
which could not be prevented in by cover (possibly “lost profits”)
● Injury to persons or property proximately resulting from breach of warranty

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Key Legal Regimes Applying to NFTs: Article 12 of UCC
● New UCC Article approved by Uniform Law Commission in 2022:
● Rules for transactions involving certain new types of digital assets, including cryptocurrency
and non-fungible tokens (NFTs). Under Article 12, these intangible assets are called
“controllable electronic records,” or “CERs.”
● CER is “a record stored in an electronic medium that can be subjected to control under Section
12-105.” Note that the definition “does not include a deposit account, electronic copy of a
record evidencing chattel paper, electronic document of title, electronic money, investment
property, or a transferable record.”
● Priority: defines priority of claimants
● Governing law: establish default rules for choice of law

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Key Legal Regimes Applying to NFTs: License
● Wide variety of licensing frameworks based on company strategy
● Scope of Use
● Personal use (publicly display and sale)
● Limited commercial rights, such as cap on royalties
● Limited license rights, such as no modifications
● Full commercial rights
● Exclusive/non-exclusive/sublicense
● Rights being licensed: copyright, trademark, rights of personality
● Reasons for termination
● CC0

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Key Legal Regimes Applying to NFTs: Securities Law
● NFTs may be “investment contract” under securities law
● Howey test (orange groves)
● Investment of money
● Common Enterprise
● Expectation of Profits
● Through the Efforts of Others
● SEC has suggested that securities law may apply to NFTs
● Hester Pierce: “The definition of security can be pretty broad”
● Particular concern about “fractionalization” and selling “basket of NFTs” and NFTs linked to
royalty streams or other payment
● State Security Regulators: Action against “Gambler NFTs” by Texas, Alabama and Kentucky

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Open Legal Issues
• How are license rights to NFT artwork gets transferred?
• Determined by contract
• Determined by blockchain
• Right of the licensor to change rights
• Abandonment of copyright (adoption of CC0 public domain determination)
• Contractual right to change license terms
• Treatment of sublicense rights upon transfer
• Remain in existence
• Remain in existence but right to make additional modifications is terminated
• All sublicenses are terminated upon transfer

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Major Mistakes
● Spice DAO: Paid $3M for a copy of Jodorowsky’s script bible believing that they could make a
movie based on it
o Error: The ownership of a tangible copy of a work does not grant rights under the copyrights of
the work, so the Spice DAO did not have rights to use Jodorowsky’s script bible (they would
also have needed to rights from the owners of the copyright in Dune series of books)
● Legendary Entertainment: Announce Dune movie NFT collection in 2021 on Ethereum, but
withdrew it
● Error: Ethereum was PoW at that time and inconsistent with the ecological basis of Dune
● “Reasonable Doubt” Album Cover: Damon Dash announced a plan to mint a NFT of the cover of
the album for Reasonable Doubt, Jay-Z and Roc-A-Fella Records sued to stop him
o Error: Roc-A-Fella Records owns the copyright to the album and Damon Dash does not
control the corporation, so he can not use the copyright owned by the corporation

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Litigation
• Dapper Labs
• Class action litigation claiming that Dapper Labs had violated the Securities Act of 1933 by
selling NBA Top Shots NFTs, claiming that such NFTs are securities
• Yuga Labs vs. Ryder Ripps
• Yuga Labs claims that Ryder Ripps violated Yuga Lab trademarks by selling its RR/BAYC NFT
collection
• Miramax LLC vs. Quentin Tarantino
• Miramax sued Quentin Tarantino over Quentin Tarantino’s intention to sell NFT based on the
Pulp Fiction movie. Tarantino claims that his agreement carved out rights to copyright
ownership to the hand written script as “reserved rights”.

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Key Business Strategy Issues: NFT Strategies are New &
Changing
● Key Business Issue Number 1: Be Prepared to Experiment with Different Strategies.
o NFTs have a wide number of potential uses for a company from collectibles like “digital tickets
stubs” to access to special events. The sale of NFTs alone does not take advantage of the full
possibilities of the technology. The NFT strategy should consider using NFTs to develop a
community by using social media, such as Discord or Twitter, as well as real world events as
part of the strategy.

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Key Business Strategy Issues: IP Rights are Critical
● Key Business Issue Number 2: Understanding your IP Rights Will Be Critical to Strategies.
o If a company intends to use existing content, it should ensure that they have cleared the
necessary rights. For example, a video can include music and background works (such as
street art) whose copyright is owned by third parties. Since NFTs are likely to become more
important in the future, companies should ensure that their agreements include rights to exploit
content in NFTs. And they should protect their core brands in this new area by registering their
trademarks in the appropriate classes and jurisdictions.

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Key Business Strategy Issues: Monitor NFT Platforms for Misuse
● Key Business Issue Number 3: Monitor NFT Platforms for IP Infringements.
o The NFT marketplace is young and many participants are casual about intellectual property
rights or simply do not understand them like the members of the Spice DAO and their
misunderstanding that buying a physical item, the Jodorosky’s Dune Bible, would give them
rights to make movies from his Dune Bible and other spinoffs.

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Conclusion
Conclusion: NFTs offer great opportunities for consumer companies both for existing companies
and new entrants. Companies need a structured, but flexible strategy.

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Speaker: Mark Radcliffe
Mark Radcliffe is a senior partner who practices corporate securities and intellectual
property law at DLA Piper a global law firm with lawyers located in more than 40 countries
throughout the Americas, Europe, the Middle East, Africa and Asia Pacific. He works in
their Silicon Valley office. He has worked both on transactions implementing blockchain
technology and NFT issues are a major part of his practice. For example, he advised
TikTok in their initial token drop. He has been working with new technologies and business
models for over thirty years, ranging from drafting the initial domain dispute resolution
policy for Network Solutions in 1994 to developing the dual licensing model for open source
startups. He is one of the Co-Chairs of DLA’s global Blockchain and Digital Asset practice.
He is the co-author of “Top Billing for NFTs”, the cover article in the May, 2022 issue of LA
Lawyer Magazine https://lalawyer.advanced-pub.com/?issueID=36&pageID=22. DLA Piper
is a global law firm with 4200 lawyers and offices in over 40 countries.

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Speaker: Tom Ara
Tom Ara is the Global and US Co-Chair of the Media, Sport & Entertainment group at DLA
Piper LLP, a global law firm with lawyers located in more than 40 countries throughout the
Americas, Europe, the Middle East, Africa and Asia Pacific. Tom has received wide
recognition in the media and entertainment industry for his representation of the top-calibre
clients that look to him for their most important transactions. Tom was one of a few
Hollywood lawyers recognized by Variety Magazine as a Variety 500 Honoree. He has
consistently been recognized by Variety as a top “Dealmaker” and by the Hollywood
Reporter as a “Power Lawyer.” He is frequently quoted by leading industry publications and
financial news outlets such as The Wall Street Journal, Financial Times, Bloomberg and
many others on his industry insights and expertise. Tom has also been interviewed on
television on key topics and issues affecting the entertainment industry. Tom is a Board
Member of the impactful Blackhouse Foundation, a Trustee for the prestigious US-Asia
Institute, and Chief Editor of the Los Angeles Lawyer Magazine Entertainment Law Issue.

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Thank You