As the public’s understanding of blockchain technology has expanded, new and innovative ways to fuse creativity with digital currency are being born. Selling and trading non-fungible tokens (NFTs) is among the hottest current trends in the arts and entertainment industry, with some NFTs capturing millions in revenue. The unique digital content is authenticated and then sold, garnering more value as it changes hands.
Because NFTs are a recent phenomenon, the legal issues involved can be tricky to sort out. At Hickey & Chung, our experienced, tech-savvy NFT lawyers can help you navigate the issues surrounding digital art transactions and their inherent risks and benefits.
What are NFTs?
NFTs are digital files containing 3D art, images, songs, videos, or other media or a digital representation of a tangible good. The NFT gets authenticated and verified on the blockchain’s public database, receiving a unique identifier that cannot be altered, duplicated, or deleted. The NFT can then be bought, sold, and traded just like any other physical commodity or collectible. A seller can double-check the number of times the NFT has been sold and who it was sold to.
Artists and entertainment professionals have hyped up the value of their NFTs, with some receiving significant sums of money. Some examples are a sports star who provides a digital card with a video showing their season highlights, a musician who shares an unreleased single, or a street artist who creates a digital 3D collage of their work.
What types of legal issues arise in connection with NFTs?
Laws and regulations around NFT are even less defined than laws around cryptocurrencies. As legal conceptions are formed around blockchain technologies, your NFT lawyer will need to be aware of emerging new trends in securities law, intellectual property law, tax law, and contract law, among others.
- Securities law — NFTs have not been named as
- Intellectual property law – NFTs may contain elements sourced from multiple parties, creating clashes around intellectual property. There may be some overlap with copyright law if the NFT creator uses third-party materials in their creation. In the case of work-for-hire agreements, an employer may own the work that an employee is attempting to sell as an NFT. The buyer must be sure that they are purchasing their NFT from the legal owner of the work. Fair use doctrines can cover the use of materials deemed to be in the public’s best interest. These typically include news reports, parody, criticism, teaching, and research. A good digital art attorney can advocate for ways in which NFTs can take advantage of the fair use doctrine.
- Regulatory issues – NFTs themselves are not currently regulated, but domestic and international laws regarding NFT transactions may be in place. Anti-money laundering and bribery laws may come into play, and NFT buyers may need to evaluate their compliance with global statutes.
- Income tax rules – The sale and purchase of NFTs is considered taxable, just like the transfer of any other type of property. They may even be assessed as “collectibles” under a higher tax rate. Those buying and selling NFTs should consult a tax specialist to know the consequences of their transactions.
- Contract claims – When buying and selling NFTs, it’s essential that you know the scope of your rights. Does the seller have the right to sell other copies of the digital art? Or has the buyer taken over the copyright? If the seller misrepresented the terms of the transaction or violated copyright law, a buyer may have legal recourse. They can sue for breach of contract or fraud. Buyers need to also confirm that an NFT is actually valid on the blockchain and not a forgery.
How an NFT lawyer can help
Hickey & Chung offers a wide array of services for those clients preparing to create, buy, or sell NFTs. Below are some of the areas in which we can provide invaluable legal insight:
- State laws regarding virtual currency
- Compliance with the SEC and FinCEN
- Compliance with anti-money laundering and money transmission regulations
- NFTs as regulated securities
- Tax assessment and planning
- Navigating royalties and intellectual property laws
- Creating corporate entities to house NFTs
- Strategies for protecting NFT assets
- Advice regarding the best blockchains for NFTs
- Creating blockchain contracts for NFT transactions
Why choose us?
Our NFT lawyers are prepared to answer all your questions and ensure that you are able to navigate the NFT landscape adroitly. As experienced attorneys in the field of cryptocurrency and blockchain tech, Hickey & Chung can help you navigate the rapidly evolving world of digital art transactions and asset acquisitions. We ensure our clients comply with state, federal, and international regulatory requirements while diligently protecting their intellectual property.
A Harvard Law School graduate, Brendan Hickey’s background is as a Federal Public Defender who worked on hundreds of federal and state criminal cases. He is an active member of the CJA (Criminal Justice Act) panel for the Northern District of California and has served as an instructor for the Northern District federal defense bar. His innate understanding of complex cryptocurrency regulations and the legal issues surrounding the creation, sale, and purchase of NFTs make him an exceptional advocate and strong asset for anyone attempting to navigate the world of digital art.
Naomi Chung obtained her degree from The University of Chicago Law School before embarking on the exciting journey of running her own criminal defense practice. She was named as a Northern California “Rising Star” by SuperLawyers in 2020. Ms. Chung is a trusted advocate for anyone seeking to protect themselves from fraud or breach of contract when it comes to buying and selling NFTs. Her knowledge and experience in the field of cryptocurrency, combined with her dedication to helping her clients to thrive, make her the right choice for legal representation.