The Interplay Between NFTs in the Metaverse

December 16, 2022

The metaverse and non-fungible tokens (NFTs) may come with a perception of being used solely for entertainment and frivolity, but the technologies are more than videogames and multi-million-dollar art pieces. Viewing the metaverse as the next step of online interaction and NFTs as the venue through which to personalize one’s online experience, it is possible to understand the demand for unique and authenticated digital assets. As with all technologies gaining commercial steam, there are legal and business issues to consider in the metaverse going into the new year. 

  • Understand the intellectual property rights for NFTs: The development, selling, and use of NFTs are entwined with intellectual property rights. The person or company “minting” (or making) the NFT must either own or have appropriate rights in the underlying asset that is being used or displayed as an NFT. What’s more, one should not assume that existing licensing or artist agreements involved in the creation of an asset automatically allow for converting that asset as an NFT—that will depend on terms of the agreement. Lack of such rights will require, at best, renegotiation or potentially scrapping an NFT project and, at worst, a lawsuit.
  • Create a “Minter’s Checklist”: When reviewing and negotiating agreements involving NFTs, it would be valuable to have a diligence checklist on hand to ensure awareness and full compliance with all of the requirements needed to create the NFT, including whether the creator made the works within the scope of their employment or the NFT was created by an independent contractor bound by an appropriate contractual agreement.
  • Carefully review platform rights and restrictions when choosing a place to list an NFT: There are several NFT platforms or marketplaces to choose from and each have their own capabilities and specific terms of service having to do with things like selling and licensing NFTs so it is important to make sure a platform’s capabilities and terms of service mesh with the vision for a particular digital asset.
  • Be mindful of rights and restrictions that you place on end users when buying or selling NFTs: When crafting the terms of an NFT purchase or sale, be thoughtful about what rights and/or restrictions to place on the ultimate end user and what the seller is and is not giving up. Sellers can place limitations like whether an NFT can be modified, is subject to an ongoing royalty stream, permits commercialization, and where and how the digital asset can be used.
  • Look to the future: Given the expected trajectory of NFTs, consider building the conversion of work from third-party designers or artists into a digital asset and insert the appropriate granting language into existing or new agreements. This will potentially eliminate having to reopen negotiations with the creator of a certain work, which could delay or prohibit certain NFT plans.

As the functionality of the metaverse and NFTs become more complex, expect legal issues to head in the same direction. By keeping some of these key legal considerations in mind, businesses will be better equipped in protecting their intellectual property rights when engaging in the metaverse.

To learn more about how the cloud, automation, artificial intelligence (AI), Anything as a Service (XaaS) products, blockchain, digital assets, and the metaverse create opportunities for companies, please visit our Global Digital Transformation webinar series page.