Non–fungible tokens (NFTs) have been making big headlines for months, including significant transactions in the sports, arts, entertainment, and gaming industries, and also in the broader business world. For those interested or already operating in the world of NFTs, there are myriad legal issues to be considered in any NFT initiative.

Key Takeaways from the Webinar:

  • While anyone can create an NFT, there are a lot of legal issues to consider. Before creating an NFT, you need to ensure you have the rights to incorporate the intellectual property that is in the NFT, including any copyrights and trademarks.
  • When creating an NFT, it is also important to consider patent rights and whether the creation of the NFT will infringe another patent or multiple patents.
  • It is vital that NFT descriptions be clear and accurate about what the NFT is, does and can be used for. Any ambiguity in a description could subject the NFT creator to claims including breach of contract or class action fraud.
  • Buyers and sellers need to be aware of the governing legal framework, terms of service and related IP rights of NFTs. Depending on the platform used to buy and sell the NFT, there could be gaps in the terms of service and it is important to be mindful of where those gaps are.
  • Similar to most business deals, contracts are key for NFT transactions. NFT transactions are governed by smart contracts, which are made up of thousands of lines of code and more difficult to decipher, and as a result could lead to disputes around interpretation.
  • There are a host of SEC and security law issues to consider with NFT transactions. Ultimately, scale and substance matters, and it is important to structure these transactions so the NFT can be traded freely and without restriction in order to not be classified as a security.
  • NFT buyers and sellers need to be mindful of potential tax implications related to NFT transactions since the IRS considers these transactions property, not currency.
  • Royalties are one aspect of NFTs that are especially important for artists and others in creative industries as an additional income stream for the use of their IP.