When a digital image is sold for 69 million dollars or venture capital companies call up valuations of 5 billion US$, the current magic word is NFT (non-fungible token). This is currently used especially in connection with expensive crypto art, but is expected to do much more in the future.
For many, an important part and savior of the future internet web3, but probably more of a snowball system in which only a minority will make a lot of money, but most will lose money.
Even if the hype vanishes into thin air after a while, one still has all the rights to the purchased images of the underlying NFT. After all, these are “on the blockchain” and can be tracked. At least this is what most believe.
That this is unfortunately not the case is nicely illustrated without much technical understanding in this YouTube video. On YouTube, a lot is often claimed and I wanted to see for myself where these claims come from that you have no rights to the images.
Since one of the things I do for a living is negotiate, read and interpret licensing agreements, I took a look at the underlying contractual terms of the most famous NFTs.
⚠️ Note: The analysis of the data and the text on NFTs happened around the date the article was published. Since the topic of NFTs is quite hot right now and very dynamic, data here can quickly become outdated and no longer current.
License Agreements of NFTs
Technically, most NFTs are based on the ERC-721 standard of the Ethereum Blockchain. For this standard, one can use the NFT license at nftlicense.org, which is offered by Drapper Laps (the inventor of CryptoKitties) as an open source license for further use. I quote from this license in the following text. The licenses of Tastybones, CloneX are similar. Only Bored Apes Yacht Club is a bit different. More about this later.
Status of the most traded NFTs of the last 30 days on the marketplace OpenSea:
Ownership
So who owns the underlying art? I quote in full the part under 2. Ownership:
You acknowledge and agree that Creator (or, as applicable, its licensors) owns all legal right, title and interest in and to the Art, and all intellectual property rights therein. The rights that you have in and to the Art are limited to those described in this License. Creator reserves all rights in and to the Art not expressly granted to you in this License.
Here it comes right away. The Creator (here: the one who created the Art) owns everything and the buyer is left with the litte remaining pieces, which is defined below (described in this License)
What does the buyer get
What are the little remaining pieces that the buyer gets. This can be found under 3. License. I quote and comment here excerpts:
General use
a worldwide, non-exclusive, non-transferable, royalty-free license to use, copy, and display the Art for your Purchased NFTs
A worldwide license is good, but not exclusive?! You spend several hundred thousand for a work of art and you don’t get it exclusively? So if the creator wants to resell the same artwork and grants someone else the same or more extensive rights, he can do that without asking the buyer.
Once again for clarification: only a license is granted. Despite “purchase” no transfer of ownership rights takes place! That is as if one would buy a music CD. You only acquire the rights to listen to the music and the buyer does not own the songs on the CD.
solely for the following purposes.
What can you do with the non-exclusive license, which is also restricted?
(i) for your own personal, non-commercial use
You can use it personally, but not commercially? You can have the image printed, framed and hung in your home. However, this printed artwork may not be sold afterwards and a business may not be built up with it. Merchandise such as printing on T-shirts or mugs is also prohibited.
(ii) as part of a marketplace that permits the purchase and sale of your NFTs, provided that the marketplace cryptographically verifies each NFT owner’s rights to display the Art for their Purchased NFTs to ensure that only the actual owner can display the Art.
You are allowed to display it on a marketplace. Wow. So if you want to sell the useless thing again, you are allowed to show that you have it.
(iii) as part of a third party website or application that permits the inclusion, involvement, or participation of your NFTs, provided that the website/application cryptographically verifies each NFT owner’s rights to display the Art for their Purchased NFTs to ensure that only the actual owner can display the Art, and provided that the Art is no longer visible once the owner of the Purchased NFT leaves the website/application.
The art may be used on other websites, but only if the other website can verify that the art belongs to me. So it can’t even be used as a profile picture on social media or in a forum, because pretty much all websites can’t verify it.
Can Facebook and Twitter actually do this?
Commercial use
The next paragraph begins hopefully with the words “Commercial Use “. It seems that commercial use is allowed after all. What does it say?
a limited, worldwide, non-exclusive, non-transferable license to use, copy, and display the Art for your Purchased NFTs for the purpose of commercializing your own merchandise that includes, contains, or consists of the Art for your Purchased NFTs (“Commercial Use”), provided that such Commercial Use does not result in you earning more than One Hundred Thousand Dollars ($100,000) in gross revenue each year.
So you’re allowed to sell your paintings and mugs of art after all, as long as it doesn’t exceed $100,000 in annual revenue. How generous. This is still not exclusive. Additional licenses of the art can still be sold by the creator.
Restiction
Those who believe that these few rights cannot be further restricted will not be disappointed. An equally long paragraph of restrictions follows. However, there are a few really lovely paragraphs in it:
You agree that you may not, nor permit any third party to do or attempt to do any of the foregoing without Creator’s express prior written consent in each case: (i) modify the Art for your Purchased NFT in any way, including, without limitation, the shapes, designs, drawings, attributes, or color schemes (your use of Extensions will not constitute a prohibited modification hereunder).
If the art is a brown monkey or green cat, you cannot change their fur color. However, you may (“use of Extensions”) put on pants if the picture shows only the face.
(ii) use the Art for your Purchased NFTs to advertise, market, or sell any third party product or service
The image may not be used to promote your own business, even if it is completely independent, e.g. a flower shop.
(iv) use the Art for your Purchased NFTs in movies, videos, or any other forms of media, except to the limited extent that such use is expressly permitted in Section 3(b) above or solely for your own personal, non-commercial use.
Here it is explicitly pointed out again that you have to pay attention that you are not allowed to earn more than $100.000 per year by using it. For example, if a 90min long movie contains a scene with the image, this movie may not generate more than the specified revenue per year.
After a few more restrictions there is now a the best part at the end:
To the extent that Art associated with your Purchased NFTs contains Third Party IP (e.g., licensed intellectual property from a celebrity, athlete, or other public figure), you understand and agree as follows: (w) that you will not have the right to use such Third Party IP in any way except as incorporated in the Art, and subject to the license and restrictions contained herein; (x) that the Commercial Use license in Section 3(b) above will not apply.
If the image contains rights of others, such as sports stars, the entire earning clause up to $100,000 per year does not apply. For example, the buyer of a Michael Jordan image may not sell mugs with the image purchased as NFT on them.
Even if you can no longer earn money with the image of Michael Jordan, it may at least continue to be used as a profile picture. Until we read the following section…
(y) that, depending on the nature of the license granted from the owner of the Third Party IP, Creator may need to pass through additional restrictions on your ability to use the Art; and (z) to the extent that Creator informs you of such additional restrictions in writing (email is permissible), you will be responsible for complying with all such restrictions from the date that you receive the notice, and that failure to do so will be deemed a breach of this license. The restriction in Section 4 will survive the expiration or termination of this License.
If Michael Jordan has obtained an court order order that his images must be deleted from Twitter and the buyer of the NFT has been informed of this, then the buyer must also immediately delete the images from Twitter.
Bored Apes Yacht Club
For the well-known Bored Ape Yacht Club, the conditions on commercial rights are much less restricted. There it is written:
iii. Commercial Use. Subject to your continued compliance with these Terms, Yuga Labs LLC grants you an unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art (“Commercial Use”). Examples of such Commercial Use would e.g. be the use of the Art to produce and sell merchandise products (T-Shirts etc.) displaying copies of the Art.
This rights model seems to be paying off for the inventors. The commercial use of the buyers has already created a variety of business models, which increases the distribution and thus drives up the attractiveness and price of the images even more.
Unfortunately, nowhere in the license terms is it stated whether the license is exclusive or non-exclusive.
It gets worse
Those who still buy an NFT despite all the described circumstances at least hope that the image remains theirs forever. Unfortunately, there is a downer here as well.
Due to the size of the image, this is not included in the token, but only a link to the image.
In short, this looks something like this:
| |
If, contrary to expectations, the server nft.example is no longer available, is hacked or for some other reason the image can no longer be accessed (the owner of the server may charge an annual fee for providing the image in the right place), the buyer ends us with:
Nothing.
Update April 25th
The next hype called Moonbirds is just beeing played in the Metaverse. Mined roughly one week ago for 2.5 ETH, it now stands at a floor price of about 33 ETH.
Of course, I couldn’t help but take a look at the terms here as well. And as expected we can see the ususal clauses:
worldwide, royalty-free license to use, copy, and display the digital art represented by your Moonbirds NFT (“Art”) […] (i) for your own personal, non-commercial use; (ii) as part of a marketplace […] (iii) as part of a third party website or application that permits the inclusion, involvement, or participation of your Moonbirds NFT
As expected, you are only allowed to use the image for personal use on the Internet.
However, the next paragraph starts pleasantly with the words “Commercial Use”. Apparently the successful NTFs have taken an example from the licenses from the Bored Ape Yacht Club and now allow merchandize to be sold. They seem to understand that the money is made from speculating the NFTs and it is good for the spread of the brand and the hype if the images can be printed on t-shirts:
Translated with www.DeepL.com/Translator (free version)
[…] grants you a worldwide license to use, copy, and display the Art represented by your Moonbirds NFT for the purpose of creating derivative works based upon the Art (“Commercial Use”). Examples of such Commercial Use would be the use of the Art to produce and sell merchandise products (e.g., T-Shirts etc.) displaying copies of the Art.
It is still only a license and not a real ownership, but it is a first step to not completely exclude the buyers. However, this does not change the fact that the smart contract of the NFT does not contain the image, but only the link to the image.
I would be really interested to know who is just speculating or who is actually interested in the art.
I prefer to continue saving for a self-portrait by Alicja Kwade