Why You Need An NFT Contract - Klein Moynihan Turco LLP

Why You Need an NFT Contract

An ever-increasing number of celebrities, athletes and artists are commercializing their own NFTs (short for non-fungible tokens), in part, by entering into NFT contracts with NFT creators or “minters.”  NFTs are unique, often one-of-a-kind, digital files (usually images, photographs or short videos) that use blockchain technology to establish proof of ownership.  Once created, or “minted,” NFTs can be purchased from the minter, and then (where allowed) re-sold by collectors in secondary markets.  The minter and, where applicable, the artist/athlete/celebrity involved, usually take a portion of all such sales.

NFT minters must take steps to establish clear contractual provisions governing the commercial relationship with the parties whose images/works will be portrayed in the subject NFTs.  The NFT contracts between NFT minter and partner differ from the “smart contracts” discussed below, which govern the relationship between the NFT ventures and NFT purchasers.  Given the relative newness of this industry, there are many unique legal issues specific to the NFT vertical.  Thus, it is essential that NFT minters retain attorneys who have experience in drafting and negotiating NFT contracts in order to assist them.

What Legal Issues Apply to NFT Contracts?

Below are some key legal considerations to be aware of when establishing the contractual terms that will govern the relationship between an NFT minter and the artist/athlete/celebrity whose images/works are to be featured in the NFTs.  The following list is by no means exhaustive:

  • The parties must determine which party will create the “smart contracts” that will govern the initial sale of the NFTs, and the sale of the NFTs in any secondary markets.  Smart contracts are, in essence, computer programs that are stored on a blockchain and provide automated responses when specific, predetermined conditions are met.  These smart contracts will, according to pre-established automated commands: (1) store the NFTs; (2) enable the purchase and (where allowed) sale of the NFTs; and (3) enable the NFTs to link to the “wallets” of those parties that will receive currency in connection with the underlying NFT transactions.
  • Related to the implementation of the smart contracts, the parties must determine which blockchain to launch the NFTs on, and through which marketplace (such as the OpenSea marketplace) to promote/sell them.
  • The parties must agree on which assortment of rights consumers will be granted in and to the NFTs, once purchased.  Some variables include, without limitation: (1) which commercial uses consumers will be permitted to engage in with respect to their purchased NFTs; (2) which party owns the copyrights associated with the “fullness” of the NFT images; and (3) which party owns the copyrights associated with the NFT’s constituent files, layers and parts.
  • The parties must agree on which assortment of rights the parties will retain, respectively, in and to the NFTs produced in connection with the venture, as well as the trademarks/branding associated with the commercial exploitation thereof. 

Attorneys with NFT Contract Experience Can Help You Address the Relevant Issues

There are specific contractual and legal issues that apply, almost exclusively, to the NFT industry, including to the relationships formed between the NFT minters and the parties whose images/works are depicted in the subject NFTs.  Further, significant legal liability may result if an NFT minter does not take the necessary steps to ensure that its contractual relationships with both its partners and the end-user consumers contemplate all legal issues.  As such, it is advisable to obtain guidance from attorneys experienced with laws applicable to the drafting and negotiation of NFT contracts, and the wider implications involved in that process.  Please note, the above offers only a brief overview of some of the legal issues involved in connection with drafting NFT contracts.    

If you are interested in learning more about this topic or require assistance in connection with your commercial NFT-ventures, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney. 

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Photo by Cosmin Serban on Unsplash

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