NFT Licences: first impressions about the new “Can’t Be Evil” Licences
Recently, the American company “a16crypto” has publicly released 6 variants of NFT licences, which are free to use (as such or as templates): the texts of the licences are at everyone’s disposal under a Creative Commons CC0 1.0 Universal licence. These licences are oddly named “can’t be evil” (to allude to Google’s famous moto) and will normally be referred to by their acronym “CBE”, followed by the specific licence identifier.
Many actors of the NFT ecosystem should be thankful for such initiative. Indeed, to date, too many NFT projects (e.g. the CryptoPunks) were launched without properly addressing the copyrights protecting the NFT Media (namely the associated artwork, images, video, content or other works of authorship) linked to the corresponding NFT(s).
The first main added value of a16crypto’s endeavor is therefore to raise awareness about the copyright issues relating to the minting of NFTs and their offering for sale, and to stress the necessity to deal with such issues by way of a proper licensing scheme. It also allows lawyers to better appreciate the complexity of the matter, and to benefit from the results of what must have been intensive brainstorming and problem-solving cogitations.
Here are our first observations about these CBE licences, from an EU/Belgian perspective.
1.- The CBE licences are not Creative Commons licences.
This must be immediately stressed, as the licences are obviously inspired by the work of Creative Commons.
One of them, the CBE-PUBLIC (or BCE-CC0), even includes a Creative Commons CC0 by reference, but it adds some extra-clauses as well: some restrictions, a disclaimer, some clarifications about the scope of the licence and an applicable law/arbitration clause.
All the other licences are inspired by Creative Commons as they offer a “prism” of different texts that can be sorted from the more to the less permissive (from the lincensee’s point of view) as follows:
- CBE – EXCLUSIVE: this licence grants the licensee very broad rights to use and exploit the NFT media (display, copy, distribute, modify, sublicense), including for “commercial” purposes, on an exclusive basis, which means that the author retains no exploitation rights.
- CBE – COMMERCIAL: this licence is similar to the previous one, except that it is nonexclusive. The author of the NFT media retains his/her IP rights, allowing him/her to also exploit such media (which means that, for instance, the author could mint another NFT with the same media).
- CBE – COMMERCIAL – NO HATE: this licence is the same as the CBE-COMMERCIAL, except that it forbids the use of the NFT Media for certain reprehensible purposes. The author also retains the right to terminate the licence in such case.
- CBE – PERSONAL: the spirit of this licence is to allow the NFT owner to only use the NFT media for personal uses: no commercial use, no creation of derivatives, and sublicensing is only authorized as far as it is necessary to allow the licensee to display the NFT media (as a profile picture or as a virtual belonging in the metaverse for instance).
- CBE – PERSONAL – NO HATE: this licence is the same as the CBE – PERSONAL, with the same “hate speech” restriction as detailed under n°3.
The CBE licences differ however from the Creative Commons licences in several important aspects, as illustrated below.
2.- CBE licences are not royalty-free
Contrary to the Creative Commons licences (and the special case of the CBE-CC0 excepted), the CBE licences are not explicitly royalty-free.
In fact, they do not address the remuneration of the author at all : the authors of the licences probably presumed that the price of the licence would be included in the price of the transferred NFT (unless otherwise specified in the commercial terms of the contract).
However, this is problematic under Belgian mandatory law, as any copyright exploitation agreement must encompass explicit clauses regarding the remuneration of the author (and this applies also if the remuneration is a “lump sum” or is included in the price of a service or a physical property transfer).
At EU level, one should also remind that article 18 of the new Directive (EU) 2019/790 (on copyright and related rights in the Digital Single Market) provides that “Member States shall ensure that where authors and performers license or transfer their exclusive rights for the exploitation of their works or other subject matter, they are entitled to receive appropriate and proportionate remuneration”, which could also raise some concerns and generate further invalidity risks (for a comment on the Belgian transposition of this article, see here).
3.- Link between NFT ownership and NFT Media licence
The CBE licences are more complex than the CC licences because they intend to address the specificities of NFTs, amongst others, by creating a legal bound between the “ownership” of the NFT and the licence relating to the corresponding NFT media (The NFT and the corresponding NFT media being commonly referred to as the “NFT Project”).
The rule set in the CBE licences is that the licensee is the owner of the NFT: the further resale of the NFT triggers the transfer of the licence to the new buyer and the termination of the reseller ’s licence.
The CBE licences also address the thorny sublicensing issue: in case of resale of the NFT, the sublicenses granted by the reseller (to the extent such sublicensing is allowed) are also terminated. This choice made by the drafters of the CBE licences is understandable, but it nevertheless represents a big risk factor for the sublicensees. This implies that the sublicence contract must be carefully drafted as well.
4.- Derivatives: another sensitive issue
The notion of derivative work is not consolidated in the EU (for instance, whereas French law provides for an explicit definition, Belgian law does not). By authorizing the creation of derivative works, the original author also authorizes the generation and co-existence of different works sharing the same original features, which could lead to confusion as to copyright ownership (or even dilution) and to awkward situations when it comes to enforcement.
With regard to an NFT, several stakeholders might want to create derivatives : 1) the original creator of the NFT Media, 2) the first buyer of the NFT (first licensee), 3) the second-hand buyers in the resale chain (next licensees in line) and 4) another NFT owner who bought an NFT from the same “series” minted by the Creator (referred to as the “Other Project NFT”), which could share some common original features with the considered NFT, features that could therefore be reuse” in their own derivative works based on such “Other Project NFT”.
This is organized as follows in the CBE licences:
- Except the “CBE-EXCLUSIVE” (where the creator retains no right), all the other CBE licences provide that the creator retains the right to create future derivative works of the licensed NFT Media;
- Except the two “PERSONAL” licences:
- the CBE-Licences allow the licensee to create derivative works;
- the subsequent lawful owners of the Project NFT may create their own derivatives of the NFT Media;
- owners of Other Project NFT may also create their own derivatives of the Other Project NFT Media.
In other words, a lot of derivatives could be created in parallel and/or further down the timeline by different stakeholders.
5.- What is “commercial” ?
This question has given rise to many debates (and frustrations) since the creation of the Creative Commons licences, “non commercial” being one of their key differentiating features. The Creative Commons licences explicitly provide that “NonCommercial means not primarily intended for or directed towards commercial advantage or monetary compensation”, and the organization published a report and guidelines on the notion.
The “commercial” CBE licences do not define what “commercial” means, but they grant a right “for personal and commercial use”, including the right to “display as a profile picture, display on products or services using the NFT Media or NFT Media Derivatives (as defined below), display on sold merchandise, use in your original content, or to display in a physical or digital museum”. On the other hand, the “Personal” CBE licences only allow “personal non-commercial uses”, with the right to “sublicense such rights solely to third parties to enable the right to display the NFT Media” (including as a profile picture).
One could observe that the CBE licences place the cursor at slightly different place, as the differentiating feature is “personal non-commercial uses” which seems more restrictive than mere “non-commercial uses” used in the Creative Commons licences. It however still leaves room for interpretation and does therefore not avoid the “grey area” that such notions usually generate.
6.- What is “hate speech”?
The “no hate” feature in some CBE licences (which is a novelty comparing to the Creative Commons licences) is probably de most astonishing one.
A Belgian lawyer’s first reaction could be to frown his/her eyebrows, as “hate speech” has no legal definition per se and its penalization is currently subject to intense debates (mostly because it also affects the fundamental right to freedom of speech). Likewise, at the international level, the United Nations reminds us on its website that there is no universal definition of hate speech under international human rights law, and that the concept is still widely disputed, especially in relation to freedom of opinion and expression, non-discrimination and equality.
In the “no hate” CBE licences, the licences forbid the use of the NFT Media “in any way that constitutes unlawful, defamatory, harassing, abusive, fraudulent, racist, hateful, vulgar, cruel, illegal or obscene, or that promotes any such activity”, which is much broader than what is commonly understood under the term “hate speech”.
The scope of the “no hate” clause is therefore very wide and constitutes a major risk for the licensees, given that an infringement could lead to the termination of the licence. The clause explicitly provides that the creator determines “in Creator’s sole discretion” whether this provision is infringed, which is far from mitigating such risk. The clause further provides however that “Creator may designate another entity such as a decentralized autonomous organization (“DAO”) or committee of a DAO to make this determination in Creator’s place, in which case Creator will be bound by that other entity’s decision”, but this remains a choice that belongs to the Creator, and this could nevertheless give rise to further litigations.
We therefore would not be surprised if this feature has a repelling effect on candidate-buyers, which the creators could decide to avoid by refraining from using these “no hate” licences.
7.- US Law and arbitration
The CBE licences are far from being neutral when it comes to defining the applicable law and to select a dispute resolution mechanism.
Regarding the applicable law, they provide that the licences and any action related thereto will be governed by the laws of the State of New York, without regard to its conflict of laws provisions.
Regarding the dispute resolution, they provide that:
- the parties must try to resolve any dispute amicably during 90 days after the notice of dispute; and
- if the parties fail to find such amicable solution, the dispute must be settled by arbitration administered by the American Arbitration Association under its Consumer Arbitration Rules, the language being English and the place of hearings New York (or the country of the claimant if requested).
Obviously, this is far from practicable for Europeans, and we do not doubt that the governing law and arbitration clause will be the first to be adapted by European creators using the CBE licences as templates.
Furthermore, and more importantly, it must be stressed that in contracts between professionals and consumers (which is likely to be frequently the case between the creators and the buyers of NFTs), consumer law strictly regulates these aspects, and jeopardizes the validity of such clause in Europe.
Conclusion
From an EU/Belgian perspective, these licences are a very good source of inspiration as templates, but NFT creators would nevertheless be wise to seek legal advice to review and adapt them to their own specific projects and situations.
LINKS:
Access to the CBE licences: https://github.com/a16z/a16z-contracts/tree/master/licenses
Creative Commons’ “Defining noncommercial report”: https://creativecommons.org/2009/09/14/defining-noncommercial-report-published/
Creative Commons’ guidelines on “NonCommercial Interpretation”: https://wiki.creativecommons.org/wiki/NonCommercial_interpretation