The Fourth Industrial Revolution has been instrumental in reshaping our lives. With blockchain, cryptocurrencies, DeFi, and decentralized technologies, there is no doubt that we are witnessing a tectonic shift in virtually all commercial categories. Regarding the intersection of finance, real estate, art, and ownership, NFTs (non-fungible tokens) have experienced a sudden and substantial rise in popularity, with the multitude of potential use cases driving billions of dollars of investment into the ecosystem.
While there is great potential, NFTs implicate various legal considerations and ramifications, including securities laws, contracts, and intellectual property rights, among numerous other regulatory frameworks. Novel questions are raised, such as how centuries-old intellectual property laws apply to 21st-century technology. Courts have begun to settle these questions, and we are seeing new laws being enacted on trademark, securities, and other legal fronts.
We also see civil settlements of varying kinds and motivations, such as the securities class action involving the NBA Top Shot matter from Dapper Labs, the company behind CryptoKitties. In a sign that these open questions persist, in August 2024, the largest NFT marketplace platform, OpenSea, received a Wells Notice from the Securities and Exchange Commission (SEC), a notice from the SEC indicating impending enforcement action. Individual NFT projects, such as CyberKongz, have also received the dreaded Wells Notice, which is notable given it comes in the waning days of Chair Gensler’s tenure at the helm of the SEC. Some companies, such as DraftKings, have closed their NFT marketplaces following litigation, highlighting the immense compliance obligations that certain types of NFTs entail.
For specific NFT projects, there is the potential for criminal liability. For example, the space has become notorious for “rug pulls” and related scams, as well as threats and intimidation as a result of flared tensions and disputes. These instances are illustrated by the recent announcement from the Department of Justice, which announced the prosecution of the “Largest NFT Scheme Prosecuted to Date.”
When it comes to marketing a particular NFT project or concept, influencers or celebrity endorsements in the context of NFTs and cryptocurrency, more broadly, are an area for private actions against such promoters, as illustrated by the NFT lawsuit against Shaquille O’Neal.
A Burgeoning Area With Wide-Ranging Legal Considerations
At RICHT, our NFT law practice is part of LexoCrypto™, our dedicated and multidisciplinary service offering that focuses on the intersection of cryptocurrency and blockchain with the law. We aim to provide clients with NFT legal advice, offering much-needed clarity and capitalizing on opportunities within the complex and risk-filled NFT landscape.
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… an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby [1] a person invests his money in a [2] common enterprise and is [3] led to expect profits [4] solely from the efforts of the promoter or a third party… Such a definition…permits the fulfillment of the statutory purpose of compelling full and fair disclosure relative to the issuance of the many types of instruments that in our commercial world fall within the ordinary concept of a security…. It embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.
SEC v. W. J. Howey Co.
SEC Notifies NFT Marketplace, OpenSea, of Likely Lawsuit
The Securities and Exchange Commission (SEC) has served the best known marketplace for non-fungible tokens, OpenSea, with a notice that it is likely to sue it for securities law violations, according to the company.
Are NFTs Securities Offerings? Two Artists Sue the SEC to Find Out
‘Song-A-Day’ Man artist Jonathan Mann and Law Professor Brian Frye have sued the SEC to help provide regulatory clarity for digital artists who use blockchain technology and NFTs.
USPTO & U.S. Copyright Office Report On NFTs
The report examines current and future applications of non-fungible tokens; how intellectual property laws apply to NFTs and assets associated with NFTs; intellectual property-related challenges arising from the use of NFTs; and potential ways to use NFTs to secure and manage intellectual property rights.
SEC Files Charges Against NFT Project ‘Stoner Cats’ Starring Ashton Kutcher, Mila Kunis and More
The LLC connected to the animated Web3 series, which also stars Jane Fonda, Seth MacFarlane and Chris Rock, agreed to pay a $1 million penalty and return payments to buyers of the NFTs.
Yuga Labs Has Won Its Lawsuit Against Artist Ryder Ripps for His Copycat Versions of Bored Ape Yacht Club NFTs
The court found that Ripps and his collaborator had infringed on the company’s trademark.
Q&A: Bitcoin Ordinals, Inscriptions, and Digital Artifacts
Since early 2023, the Bitcoin community has been abuzz with the introduction of “digital artifacts,” or essentially non-fungible tokens (NFTs) on Bitcoin. This guide answers the most pressing questions about what Bitcoin NFTs are, how they work, what the on-chain data shows, and potential benefits and concerns.
NFT Projects Beware: Top Shots Class Action Could Set Precedent
A judge says it is plausible Top Shot Moments are securities, and the decision could change the entire NFT industry
Hermes wins U.S. trademark trial over 'MetaBirkin' NFTs
A Manhattan federal jury on Wednesday concluded that an artist’s non-fungible token versions of Hermes’ famous Birkin bags violated the French fashion house’s trademark rights.
Frosties NFT Creators Charged With ‘Rug Pull’ Investor Fraud
Two 20-year-old Los Angeles men were charged with defrauding investors of more than $1 million by creating a series of NFTs and abandoning the project after selling out of the tokens.
How NFT Giant OpenSea’s $3 Billion Month Compares to Amazon, eBay and Etsy
NFT’s industry has seen an enormous rise in popularity in the year 2021. There was more than $2.5 billion in non-fungible token sales volume in the primary and secondary markets during the first half of 2021, and volume has only accelerated since. Breaking the record of the first half of 2021, in August 2021 alone, OpenSea, the most popular NFT marketplace, saw more than $3 billion in NFT sales volume.
A Legal Primer on Social Tokens
Social tokens hold incredible promise for celebrities, brands, creators, and the agencies that support them, but there has been little if any coverage of the legal issues raised by this new technology. This primer aims to do just that: give folks diving into the space, and the lawyers supporting them, some of the key issues and risks to consider.