NFTs from A to Z

April 27, 2022

Marketing Law Conference attendees: Scroll down for CLE materials

Jason Gordon, a partner at Reed Smith, was joined by Jordan Walbesser, senior counsel and director of legal business and affairs at Mattel Inc., and Mary Carragher, VP and chief counsel of global marketing and media at Mondelez International, Inc., to discuss what NFTs are and offer recommendations for mitigating the legal risks for using them as part of a promotion.

Key Takeaways

A non-fungible token (NFT) is a cryptographically unique set of data stored in a blockchain that verifies the authenticity and provenance of an underlying asset. It typically links to an image file, artwork, piece of content, or music/video file, and tracks sales, changes in ownership, and other details. However, owning one doesn't imply ownership of the associated content. Instead, NFTs are analogous to a letter of provenance for a painting or a serial number for a Louis Vuitton bag.

How NFTs are Made and Transferred?

NFTs are built on a blockchain — essentially a digital ledger that stores information in non-modifiable chronological order — in which once a transaction occurs it's recorded in the blockchain network. Others with access to the network can see the wallet that owns the NFT asset, but are unable to transfer the asset itself without a private cryptographic key managed by the owner. Legally, NFTs enable for the transfer of tangible and intellectual property rights, and grant rights or supply of services associated with the linked asset.

For more on this topic, see:

NFTs and Digital Ownership
NFTs 2.0: What’s Next?

Smart Contracts

Smart contracts are used to specify how royalties and payments are split when transactions related to the underlying asset of an NFT occur. Payments are typically paid in cryptocurrency and distributed to the appropriate parties' crypto wallets.

NFT Use Cases

Advertisers can use NFTs for branded and celebrity themed artwork and memorabilia, charitable giving, brand collaborations, and virtual experiences. For example, the NBA collaborated with Dapper Labs, a Vancouver-based block chain company, to create Top Shot — the NBA's blockchain-based virtual trading card platform where NFTs are linked to video highlights that users can buy, sell, and collect. Attached to the NFTs are unique digital serial numbers that indicate authenticity and how rare the highlight is.

Action Steps

For brands and agencies looking to sell NFTs, use them as a prize for a sweepstakes, or leverage them for a general campaign, Gordan, Walbesser, and Carragher recommend the following:

With NFT payments being made in cryptocurrency, make sure your brand or clients are set up and willing to be responsible for managing their crypto wallets. Companies that are hesitant to hold crypto in their treasuries can leverage intermediaries that can convert cryptocurrencies to Fiat currencies.
When using an NFT as a prize for a sweepstakes or contest, make sure you're managing the winner's expectations in terms of what they're getting. Leverage terms and conditions, disclosures, and extra information about the limitation of rights, and the value of the NFT.
If an artist creates a piece of content independent of your brand's intellectual property, make sure the necessary rights to that content are included in the agreement between that artist and the brand/agency.

CLE Materials

Source

"NFTs from A to Z." Jason Gordan, partner at Reed Smith LLP; Jordan Walbesser, senior counsel and director of legal business and affairs at Mattel, Inc.; Mary Carragher, VP and chief counsel of global marketing and media at Mondelez International. One-Day: ANA Law & Public Policy Virtual Conference, 4/27/22.

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