Turning creative content into NFTs - What's the deal?

Despite a reported turndown in the NFT market during 2022, we continue to see companies offering large sums of money to mint artwork and content created by our clients. So, what is the benefit, if any, in minting your creative output into NFTs and what should you look out for?

Back to basics: What is an NFT and what is minting?

At a high-level, a non-fungible token or NFT is a unit of data, recorded on a blockchain, which is linked to a digital or physical asset such as music, artwork or even in-game purchases on videogames. It is “non-fungible” because it is unique and immutable, the token can be exchanged but not replicated (unlike a cryptocurrency which is fungible because it can be exchanged like-for-like) and proves ownership of the asset. “Minting” refers to the process of converting digital files into the NFT, which is then published on a blockchain where it becomes purchasable.

Who owns the IP?

Let's dispel any illusions. Ownership of an NFT does not equate to ownership of the underlying intellectual property.Damian Hirst's project, The Currency, provides a good example of this. Hirst created 10,000 artworks, which he sold. The catch is that Hirst asked each buyer to choose whether they wanted the NFT or the physical piece - the other would be destroyed. It is reported that as of October 2022, 4851 opted for an NFT. Nevertheless, much like if they had opted for the physical piece of art, purchasers were buying the saleable piece only and Hirst alone remains entitled to enforce his artistic copyright against any unauthorised copying.This is good news for IP owners looking for another avenue to exploit their IP, without having to lose title to it altogether. Of course, there is nothing stopping an IP owner from also assigning ownership of the IP but that isn't the default position upon the sale and purchase of an NFT. More typically, a licence is granted by the owner of the IP to the NFT purchaser, to use the copyright work. That licence will contain restrictions on how the work can be used - so, purchasers beware.

Getting the licence right.

The licence mechanism provides safeguards to IP owners wishing to retain ownership and control of their creative output.Licensors should ensure the licence is granted with robust restrictions as to how the content can be used. For example, a licensor may wish to include protections against use of the NFT for anything other than private in-home use and to ensure all onward owners of the NFT are bound by the same licence terms. Likewise, where granting a third-party access to your content in order for it to be minted into an NFT, it is wise to clearly set out what permissions you are granting to use the content. To maintain creative control, many licensors also retain the right to have the final say over whether the proposed NFTs may be minted and issued to the public.

Benefits of minting content into NFTs.

Subject to getting the licence terms correct, NFTs can generate another stream of income from your content via royalties. Companies providing minting services are willing to pay substantial upfront fees for access to your content and, save for any approvals, they require relatively little input from you. If the NFT is minted under a licence, the IP will stay with you and you can sue for IP infringement if someone uses your content in a way that you have not permitted. Nevertheless, much like the internet, the NFT market is a wild west with little regulation. As such, once the NFT is out there you no longer have control of who owns it and how they use it - beyond contractual restrictions.

Looking beyond the NFT

NFT minting is big business. It comes hand-in-hand with broader promotional and marketing obligations. The contracts passing our desk tend to include weighty obligations on the content creator such as social media posts, press releases and the like. By way of example, in the sporting arena, we are seeing minting companies include obligations on professional clubs to provide match hospitality and player meet and greets. These obligations are not market standard and should be approached with caution. If you are unable to meet these obligations then you are likely to be faced with a claim for breach of contract, which in turn may impact on your income under the contract and from the NFT sales.Likewise, if you are planning to market the NFTs, ensure you have all the relevant licences needed to use the minter's brand in your own promotional activities. Doing so will reduce the risk of receiving a trade mark infringement claim down the line. In short, ask: Do I have permission from the minter to use everything that I need to? If the answer is no, then changes need to be made to the agreement.

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If you have any queries on this article, get in touch with Chris Musgrave.