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Are your IP contracts “NFT compatible”?

Vincent FAUCHOUX
Managing Partner
fauchoux@ddg.fr

What is the common thread between:

  • The extraordinary fundraising of 680 million dollars, this Tuesday, September 21, of the French “Fantasy Football” start-up Sorare, now valued at 4.3 billion ;
  • The sale on September 9, of a batch of 101 digital drawings of monkeys with a jaded look 24 million dollars (20.3 million euros);
  • The Coca Cola virtual vending machine and the Gucci “Virtual 25” sneakers?

All these projects and transactions were realized using NFTs (Non Fungible Token), an immaterial object generated by the blockchain.

If the phenomenon of NFTs is not new (the first NFTs would have appeared in 2016), many companies, especially in the art and luxury industries, saw it as an opportunity to organize the rarity of their product (a quality highly sought after by a niche audience), and thus increase their value, to use the disintermediation specific to the blockchain on which the NFT is based, to promote traceability in certain markets where counterfeits are legion (the NFT being by nature unique), or simply, to take advantage of the benefits in terms of communication for such projects.

What is an NFT?

Technically, the NFT represents a unit of identification data or metadata created by an automated technical operation and associated with a “smart contract”, i.e. a computer program or a computerized transaction protocol, recorded in the register of a blockchain.

In practice, NFTs are always linked to – but quite distinct from – a tokenized immaterial object, which can have various manifestations: a digital creation (potentially protectable by copyright), a file of some kind, or a diverse right.

There are debates on the legal qualification of this new legal “UFO”: the NFT can be qualified as an immaterial title indissociable from the tokenized immaterial object (it guarantees its uniqueness, authenticity and value), or even as a sui generis property right.

However, the NFT cannot be assimilated to a new intellectual property right (as it is an object generated by a purely technical operation), unlike the tokenized immaterial object on which it is based – the underlying immaterial asset of the NFT – (e.g. a photo, a 3D drawing, a graphic work) which can obviously be protected by an intellectual property right.

What are the challenges and contractual adaptations to be expected?

NFTs are emerging as a new form of commercial exploitation that presents potentially important economic stakes for companies.

This new technological reality of NFTs can no longer be ignored by the company, in particular when drafting its contracts relating to intellectual property rights, which will have to be adapted in the future to expressly cover this new form of exploitation, preferably targeting NFTs by name.

For example, the commercial exploitation of an NFT of a 3D stylized representation of a piece of jewelry, a car or a photograph of a famous soccer player will require the prior agreement of the author of this creation (e.g. the artist or photographer) so that it can be tokenized, and be subject to the commercial exploitation and monetization adapted to NFTs. It seems difficult to argue that the exploitation of a Lionel Messi trading card can be assimilated to the global and digital exploitation of this same object, in the form of NFT.

Companies planning to conduct NFT projects must therefore ensure that all intellectual property rights relating to the intangible object intended to be transformed into an NFT are indeed granted by the person authorized for this purpose, including the right to tokenize this object, which is a prerequisite for any exploitation in the form of NFT.

For current contracts, it is therefore advisable to carefully analyze the clauses of the transfer of rights to verify whether they can include technological evolutions unforeseeable at the time of the signature of the digital contract such as NFTs. If not, it will be necessary to adapt the current contracts by amendments dedicated to NFT exploitation, and to provide for specific stipulations in future contracts to expressly cover NFTs.

Intellectual property contracts will obviously not be the only ones impacted by this new phenomenon of NFTs. New innominate contracts, in particular with the development of new technical intermediaries (who will proceed to the tokenization of the immaterial object, and to its sale) will develop in practice.

Thus, we must now take into account the reality of NFTs, a large-scale economic phenomenon and a source of potential value and visibility for companies. However, this new phenomenon, with its as yet undefined contours, requires particular vigilance, starting with a targeted study of contracts, particularly intellectual property contracts, and a rapid adaptation of existing models.

Vincent FAUCHOUX / Lucie TREGUIER

Vincent FAUCHOUX
Managing Partner
fauchoux@ddg.fr


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