NFT licenses that “can’t be evil”, are they good?

Licenses attached to non-fungible tokens (“NFTs”) are still far from the norm, meaning that most NFTs still do not convey sufficient or appropriate intellectual property rights in relation to underlying content, a problem that may be compounded by the practical difficulties inherent in the nature of NFTs. The need for licenses tailored specifically to the NFT market is therefore obvious. To address these issues, publicly available NFT licensing systems are beginning to emerge. The question is: Are they good?

Over the past few years, we’ve seen NFTs become something of a mainstream phenomenon. Although the hype has calmed down quite a bit, NFTs may be here to stay. After all, new NFT projects continue to appear seemingly every day, and the dawn of Web3 and the metaverse paves the way for many more creative possibilities and possibilities when it comes to NFTs and the technology underlying these tokens, which can be used to to provide significant control over the creative works associated with them. But that control is not automatic. Rather, a license is required to link an NFT with rights of use or exploitation to the attached creative work.

Against that background, here is a look at the current state of this market and a view on the possible use of NFT licensing regimes going forward.

Current issues and legal uncertainty

A relatively new market, NFTs present significant ambiguities and legal risks (as indicated by enduring litigation focusing on NFTs and attention from regulators). According to a recently published report by Galaxy Digital on NFT licenses, the vast majority of NFTs convey zero intellectual property rights to the underlying content. Furthermore, it was found that there is a discrepancy between what the public thinks they are buying and what they actually buy when it comes to an NFT.

These ambiguities are further compounded by the fact that if licenses exist, they are often kept off-chain (eg in the terms of use on an NFT creator’s website). This means that, among other things, any terms of use can be changed without it being clear to NFT holders. Although this general does not (unless otherwise agreed) change the license acquired by an NFT holder, it may create difficulties with regard to traceability and transparency. In addition, there may still be a lack of knowledge, understanding and predictability about which rights should be included in an NFT. What happens, for example, if an NFT creator has included extensive rights (perhaps even on-chain and thus more or less irrevocable), but these turn out to be incompatible with the actual use of the work or simply the transfer and sale of an NFT ( considering, for example, given sub-licenses or created derivatives)?

All this puts a strain on the industry and the development of NFTs.

The rise of NFT licenses as “Can’t Be Evil”

To tackle these issues, NFT licensing systems have emerged. Silicon Valley venture capital firm Andreessen Horowitz (aka a16z), for example, recently proposed a new licensing regime tailored to the NFT market. It includes six types of widely applicable NFT licenses that are freely available online. These so-called “Can’t Be Evil” (CBE) licenses were developed by lawyers and operators who have a deep understanding of NFTs and address some of the legal uncertainties and risks that come with them.

According to a16z, the goal of their CBE licenses is to “make NFT ecosystems more trustless, and provide holders with a minimum basis of standard real-world rights, thereby harmonizing real ownership with on-chain ownership.” (Specifically, a16z states that their licenses aim to advance three goals: “(1) to help NFT creators protect (or release) their intellectual property rights; (2) to provide NFT holders with a baseline of rights that are irrevocable , enforceable and easy to understand; and (3) to help creators, holders and their communities unlock the creative and economic potential of their projects with a clear understanding of the IP framework within which they can work.

Following the example of Creative Commons, which “released its first set of free, public licenses, enabling creators to open up aspects of their copyrighted work to the public for sharing, remixing and reuse beyond the standard ‘all rights reserved’ notice” in 2002, they provide a set of simple, standardized licenses each type has slightly different permissions and requirements. CBE licenses range from a comprehensive license that grants exclusive commercial rights to the NFT owner (“CBE-ECR”) to the grant of personal, non-commercial rights (“CBE-PR”) to a license dedicating the copyright to the public domain (“CBE-CC0”).

NFT creators can include a reference to their preferred CBE license directly in their NFT’s on-chain smart contracts. With this, the CBE license is applied to the respective NFT, and one can follow which rights are – and are not – linked to the NFT or the work linked to it.

Going forward

NFT licensing systems such as the one created by a16z aim to address the legal issues and uncertainties that come with NFTs and associated works, and they can lay a solid foundation for a coherent and professional NFT licensing regime. But are these systems a definitive solution? When widely accepted and applied, standardized licensing frameworks have the potential to remove ownership ambiguity, minimize confusion over underlying rights, strengthen the legal enforceability of those rights, and thus perhaps help avoid future legal problems and spare creators some of the burden (and expenses) by creating their own licensing regimes.

However, there are some limitations to standardized licenses: practice shows that there is no such thing as an ultimate license that can be used for many different projects (in the on and offline world); licenses must largely be tailored to the needs and intentions of each individual scenario.

For example, CBE licenses are limited to copyright only (meaning that trademark and publicity elements, etc. are not covered). Furthermore, the CBE licensing system is exclusively aligned to US law – which may prove limiting given the geographically borderless nature of the market for NFTs.

Not intended to be an all-encompassing solution, a16z acknowledges that “despite the options, these licenses[s]This will not be right for all projects and that the licensing needs of projects will change as rapid innovation relentlessly drives the space in new directions.” Publicly available NFT licensing systems nonetheless provide a useful foundation and framework when drafting NFT licenses and, as a16z says, will hopefully set “a starting point for fostering a trustless NFT licensing ecosystem and encouraging greater standardization as the space grows .”

Anna Katharina Tipotsch is an associate at Schoenherr, where she specializes in IP, unfair competition, IT and technology law and digitalisation.

Roland Vesenmayer is an associate at Schoenherr, where he specializes in IP and unfair competition.