As blockchain and non-fungible tokens (NFTs) are still emerging technologies, their legal infrastructure is still evolving, creating potential vulnerabilities. Three such vulnerabilities were disclosed in our previous article, available here. We have now issued a follow-up notice exploring solutions to such license errors.
1. How to deal with NFTs not accompanied by appropriate license terms: Adopt licenses at the marketplace level
If NFT creators do not accompany their NFTs with appropriate license terms, they may fail to protect their intellectual property. While each creator can implement their own set of license terms, a more universal solution is to allow NFT marketplaces to adopt standardized licenses.
For example, one marketplace provides various Creative Commons licenses and even a full copyright transfer. Another marketplace has its own licenses with provisions such as non-commercial exploitation. Offering standardized licenses at the marketplace level enables an efficient way to ensure that NFT creators legally protect their intellectual property.
2. How to deal with the buyers’ lack of consent to the license terms: Use Clickwrap and/or cryptographic signatures to manifest consent to licenses
Licenses are generally unenforceable if buyers do not consent to them. Courts will often enforce “clickwrap” agreements where users agree to an agreement by clicking “I agree” after viewing the contract.
Cryptographic signatures are general features of blockchains, not the marketplaces themselves. Such signatures are required to complete a transaction and are usually done by clicking “sign” or “verify” in one’s cryptocurrency wallet. Therefore, one potential solution is to allow marketplaces to prominently follow a “proceed to checkout” button with: “by signing this transaction, I agree to NFT’s license terms,” while clearly displaying the terms.
3. How to deal with practical enforcement issues: Enable role-based access control in smart contracts
Even if NFT creators adopt license terms and they are accepted by NFT buyers, the terms may still not be practically enforceable. For example, how will the creators revoke the license and NFT if the buyers are anonymous individuals in foreign jurisdictions? The answer lies in the NFT’s code itself (ie the smart contract).
A common practice in the blockchain space is to grant administrative authority over smart contracts to individuals such as core developers, achieved through what is known as “role-based access control.” Although this is not common practice with NFTs, creating such access control will enable creators to perform critical functions such as revoking ownership of NFTs if the license is violated.
Conclusion
These approaches bridge the gap between smart contracts and legal contracts to address NFT licensing failures: (1) adopting standardized licenses at the marketplace level enables efficient licensing for creators; (2) use of cryptographic signatures enables practical manifestations of consent, making such licenses legally enforceable; and (3) creating role-based access control over NFTs allows for actual, programmatic enforcement of NFT licenses.
