login-customizer domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/natiopq9/public_html/wp-includes/functions.php on line 6131The post Breaking News – Hermès Makes History With First NFT Trademark Trial Victory appeared first on The National Law Forum.
]]>A New York City jury just returned a verdict in favor of Hermès in a historic dispute between the luxury fashion house and digital artist Mason Rothschild over Hermès’ alleged trademark rights relating to Hermès’ famous Birkin handbag. The jury awarded Hermès $133,000 in total damages for trademark infringement, dilution, and cybersquatting.
The jury finding that the First Amendment did not shield Rothschild from liability in connection with his MetaBirkins NFTs project is significant, particularly as this matter involved the first trial by jury to consider the interplay of free speech and trademark protection in the context of NFTs. This decision, which may be appealed, provides guidance for artists, brands, and others seeking ingress into metaverse, including to what extent “real world” intellectual property rights apply to and may be enforced in virtual worlds.
Throughout the dispute over this past year, the parties have contested each other’s characterization of the MetaBirkins NFTs. To Hermès, the MetaBirkins NFTs are merely the instruments of a “digital speculator” looking to exploit one of its most exclusive assets via NFTs. In contrast, Rothschild argues that the MetaBirkins NFTs project, a series of 100 NFT images that depict a range of reimagined Hermès Birkin bags featuring a variety of colorful fur, is digital art and a commentary on the famed BIRKIN bag, consumerism, and animal cruelty within the fashion industry. As a result, he argues that the MetaBirkins NFTs are artistic works that should be shielded from liability under the free speech principles of the First Amendment of the Constitution. The nine-member jury disagreed, finding that the MetaBirkins NFTs were more like commodities that are subject to trademark and other laws, rather than artwork. A factor that may have influenced the jury’s decision was evidence suggesting that Rothschild may have seen the MetaBirkins NFTs as a “cash cow.” This may have cast doubt on the authenticity of his characterization of the MetaBirkins NFTs as an art project.
Although the jury found the MetaBirkins NFTs to be infringing, the final disposition of this dispute remains pending with the possibility of appeal. Given the importance of the issues at stake, the outcome of this case is bound to be subject to debate regardless of any appeal.
Moreover, while no NFT-specific legal test appears to have emerged from this case and the legal landscape for IP in the Metaverse (and beyond) continues to lack clear guidance, this case has nonetheless provided insight on how courts (and juries) may view the interplay of IP and NFTs. The ultimate outcome of this landmark case is likely to form the basis of the emerging law involving IP rights and NFTs.
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]]>Since the early days of the launch of the Bored Ape Yacht Club (BAYC) non-fungible tokens (NFTs), several celebrities have promoted the NFTs. On Dec. 8, 2022, plaintiffs Adonis Real and Adam Titcher brought a lawsuit against Yuga Labs, creators of the BAYC, alleging that Yuga Labs was involved in a scheme with the “highly connected” talent agent Greg Oseary, a number of well-known celebrities, and Moonpay USA LLC, a crypto tech company. According to the complaint:
According to the complaint, as a result of the various and misleading celebrity promotions, trading volume for the BYAC NFTs exploded, prompting the defendants to launch the ApeCoin and form the ApeCoin decentralized autonomous organization (DAO). Investors who had purchased the ApeCoin allegedly lost a significant amount of money when the value of the coins decreased.
This case highlights the potential risks that may arise in connection with certain endorsements. In addition to the FTC, the SEC also has issued guidance on requirements in connection with promotional activities relating to securities, which may include digital assets, such as tokens or NFTs. Under SEC guidance, any paid promoter, celebrity or otherwise, of a security, including digital assets, must disclose the nature, scope and amount of compensation received in exchange for the promotion. This would include tv/radio advertisements and print, in addition to promotions on social media sites.
Article By Barbara A. Jones, William B. Mack, and India L. Sneed of Greenberg Traurig, LLP
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]]>The post Hackers Go Phishing in Beeple’s Deep Pool of Twitter Followers appeared first on The National Law Forum.
]]>After hacking into Beeple’s Twitter account, perpetrators tweeted links from the artist’s page, promoting a fake raffle for unique art pieces. The links would reportedly take the user to a website that would drain the user’s cryptocurrency wallet of their digital assets.
Phishing scams for digital assets, including NFTs or non-fungible tokens, have steadily increased, with funds as large as $6 million being stolen. Various jurisdictions have adopted privacy and security laws that require companies to adopt reasonable security measures and follow required cyber incident response protocols. A significant part of these measures and protocols is training for employees in how to detect phishing scams and other hacking attempts by bad actors. This incident is a reminder to consumers to exercise vigilance, watch for red flags and not click on links without verifying the source.
The remaining summaries of news headlines are separated by region for your browsing convenience.
The global COVID-19 pandemic brought many changes, including dire financial consequences of the shutdowns for museums. In April 2020, the Association of Art Museum Directors (AAMD) made a decision to ease the rules that dictate how museums may use proceeds from art sales. Until April 2022, museums were permitted to use the funds for “direct care of collections” rather than to procure new artworks for their collections.
This relaxed policy and some of the museums that followed it met with backlash on more than one occasion; others, however, advocate for its continuation, citing considerations of diversity and inclusion. Some further argue that a policy born out of financial desperation should be continued to provide museums with the means to overcome any future financial issues that may arise.
Given that “direct care” is vague and open to interpretation, opponents of the relaxed rules counter giving museums such latitude to decide on the use of the proceeds, as it can lead to abuses and bad decisions. While AAMD has returned to its pre-pandemic regulations, and museums have followed suit, it appears that the public debate around deaccessioning is far from over.
Former contemporary art dealer Inigo Philbrick was sentenced by a federal court in New York to serve seven years in prison for a “Ponzi-like” art fraud, said to be one of the most significant in the history of the art market, with more than an estimated US$86 million in damages. Philbrick stood accused of a number of bad acts, including forging signatures, selling shares in artworks he did not own and inventing fictitious clients.
As the U.S. government is studying whether the art market requires further regulations to increase transparency and to combat money laundering, New York City repealed its local law that required auctioneers to be licensed and required disclosures to bidders, including whether an auction house had a financial stake in the item being auctioned. While the abolition of the regulation was ostensibly to improve the business climate after the pandemic, some commentators note that the regulations were outdated and not serving their purpose in any event. As an illustration, a newcomer to an auction will likely struggle to understand the garbled pre-action announcements or their significance. Whether the old regulations are to be replaced with new, clearer rules remains to be seen.
The Parthenon marbles, also known as the Elgin marbles, have been on display in London’s British Museum for more than 200 years. These objects comprise 15 metopes, 17 pedimental figures and an approximately 250-foot section of a frieze depicting the birthday festivities of the Greek goddess Athena. What museum goers might not know is that these ancient sculptures were taken from the Acropolis in Greece in 1801 by Lord Elgin.
Previously, the British government, seeking to retain the sculptures, relied on the argument that the objects were legally acquired during the Ottoman Empire rule of Greece. However, for the first time, the UK has initiated formal talks with Greece to discuss repatriation of the Parthenon sculptures. These discussions are expected to influence future intergovernmental repatriation negotiations.
The highest court in Singapore has granted an injunction to a non-fungible token (NFT) investor, Janesh Rajkumar, who sought to stop the sale of an NFT that once belonged to him and was used as collateral for a loan. The subject NFT from the Bored Ape Yacht Club Series is a rarity, as it depicts the only avatar that wears a beanie. Rajkumar now is seeking to repay the loan and have the NFT restored to his cryptocurrency wallet. The loan agreement specified that Rajkumar would not relinquish ownership of the NFT, and should he be unable to repay the loan in a timely manner, an extension would be granted. Instead of granting Rajkumar an extension, the lender, who goes by an alias “chefpierre,” moved to sell the NFT. The significance of the Singapore court’s decision is two-fold: the court has (1) recognized jurisdiction over assets cited in the decentralized blockchain, and (2) allowed for the freezing order to be issued via social media platforms.
A recent raid on an unauthorized antiquities dealer in the city of Modi’in by the Israel Antiquities Authority recovered hundreds of artifacts of significant historical value, including jewelry, a bronze statue and approximately 1,800 coins. One the coins is a nearly 2,000-year-old silver shekel of great historical significance. The coin is engraved with the name Shimon, leader of the 132–136 C.E. Bar Kokhba revolt.
Investigations are ongoing to determine where the antiquities were obtained. The Antiquities Robbery Prevention Unit intends to charge the dealer and their suppliers upon obtaining this information.
Article By Jana S. Farmer and Meenka Maharaj of Wilson Elser Moskowitz Edelman & Dicker LLP
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]]>The post The Coming Blockchain Revolution in Consumption of Digital Art and Music: The Thinking Lawyer’s Guide to Non-Fungible Tokens (NFTS) appeared first on The National Law Forum.
]]>We believe it is time to address the pros and cons of NFTs from a thoughtful, legal perspective. NFTs are not all evil nor are they a panacea for artists and musicians. Here are our thoughts on the most common questions we have received from our clients about NFTs.
NFTs are non-fungible tokens issued on a distributed ledger such as a blockchain. They are similar to cryptocurrencies like bitcoin in that they can be identified individually and are authenticated through a decentralized system of nodes via a consensus protocol. However, they differ from cryptocurrencies in that they are each unique, indivisible, and “non-fungible.”1 NFTs are stored in “smart contracts,” which are automatically executable code that run on top of the distributed ledger on which the NFT is recorded. They provide a method of “provable uniqueness” and ownership for pieces of digital art, images, music and other content. NFTs are provably unique because each image and piece of content is linked to a single token stored in a smart contract on the distributed ledger and its ownership can be irrefutably established. While others may have copies of the same content, only one person can own the specific token authenticating ownership of the content. Currently, most, but not all, NFTs operate on the Ethereum blockchain. NFTs may help realize the long-touted but practically elusive goal of making blockchain technology a powerful tool to protect artists’ rights to benefit from their creations without the need of intermediaries and to protect investors by helping establish provenance of art works.
NFT purchasers often are collectors who view NFTs as a way to support their favorite artists, actors, musicians, and athletes. While there have been some recent high profile large dollar sales, most NFT sales are at a reasonable price that provides a much-needed way for artists, collectors, and musicians to monetize their work. As with collectors of many items (antiques, baseball cards, art) many collectors purchase NFTs because they hope they will increase in value and will be a good investment. The legal and regulatory analysis of an NFT will be heavily influenced by how it is intended to be used and how it is marketed. Whenever there are high-profile stories of ordinary people getting rich from new technology, some bad actors will try to take advantage of the situation.
Given recent high-profile stories of people getting rich from new technology, there have been media reports of bad actors who will try to take advantage of the situation.2 If you are an artist or musician who is interested in issuing NFTs as a way to monetize your creative content, you need to be careful on how you proceed. For instance:
Prospective purchasers of NFTs should keep in mind that, while the NFTs may have some similarities to other collectibles, such as artwork, comic books, music, or trading cards, they also differ from those traditional physical assets in important ways:
As with any new product or service, there is some uncertainty about the regulatory landscape for NFTs. Nevertheless, there are some clear rules to follow. If you are a lawyer with clients in this space, here are some top areas of the law that you need to be familiar with. It is important to realize that plaintiffs, prosecutors or enforcement agencies have sought to hold lawyers responsible for advice in other areas of the fast-developing legal framework for digital tokens and cryptocurrencies where that advice was in hindsight considered to have been overly aggressive.
As with other blockchain-based tokens, the question of whether a given NFT might be a security will be highly dependent on the facts and circumstances. Being categorized as a “security” could subject an NFT to detailed registration and disclosure requirements, or alternatively to suitability requirements and offering restrictions for transactions exempt from registration. Complying with the registration requirements of the Securities Act would be impracticably expensive, while offering restrictions could make NFTs unsuitable for certain anticipated use cases such as facilitating artists’ rights and royalties. The sale of a one-off NFT that only confers ownership over a piece of art likely would not be considered an offering of securities. However, more complicated transactions related to NFTs could easily cross the line and become securities offerings. For example, projects where large numbers of NFTs are minted and sold and where the issuer creates a platform to support secondary trading of the NFTs could potentially be viewed as a securities offering. Similarly, NFTs that are “fractionalized” and sold to individual investors are also likely to be considered securities.4 To do so, the NFT itself is held by the owner or a custodian and fungible digital tokens that collectively represent 100 percent of the ownership of the NFT are created and sold to third parties. For NFTs minted on Ethereum, the NFT would be created using the ERC-721 standard and “ownership” tokens would be created using the ERC-20 standard.
Finally, if the NFTs or ownership tokens being sold will entitle the holders to a royalty payment or dividend stream related to the underlying music or art, such digital tokens could be deemed securities if the tokens are considered to represent an investment in a common enterprise with an expectation of profits to be derived from the entrepreneurial or managerial efforts of others under the Howey test.5
The Security and Exchange Commission’s (SEC) regulatory guidance and enforcement activities over blockchain-based tokens of all types have evolved rapidly in recent years and continue to evolve to keep pace with technological innovation. Issuers of NFTs and platforms supporting the sales and trading of NFTs should be mindful of the rapid evolution within the recent past of the SEC’s view of digital tokens and the circumstances that could cause it to regard a token as a security even if the token has elements of utility tokens. Lawyers advising clients on NFTs should be familiar with no action letters, and regulatory guidance related to initial coin offerings (ICO), decentralized autonomous organizations, and “utility tokens” and “security tokens,” including the “Framework for “Investment Contract” Analysis of Digital Assets.” Lawyers should pay particular attention to the numerous SEC enforcement actions.6 Lawyers should also be mindful of the SEC statements in the context of ICOs that articulate an expectation that securities lawyers, accountants and consultants as gatekeepers have a special responsibility to help prevent violations of securities law in the design and offering of digital tokens. Moreover, if an NFT (or ownership token) is a security, a transaction that does not prompt regulatory scrutiny could nonetheless result in private litigation, because state and federal anti-fraud statutes typically apply even to securities that are exempt from registration requirements.
Even if an NFT is not a security, if the NFT may reasonably be expected to have secondary market trading and liquidity, a lawyer should also consider whether the NFT is a “commodity” under the U.S. commodity laws. A commodity is typically defined as a reasonably interchangeable good or material, bought and sold freely as an article of commerce, which includes all services, rights, and interests in which contracts for future delivery are traded presently or in the future. In several enforcement actions, the Commodity Futures Trading Commission (CFTC) has taken the view that bitcoin and virtually all other primary digital currencies that are not securities are commodities subject to the anti-fraud and anti-manipulation jurisdiction of the CFTC. Because CFTC-registered trading venues now offer futures contracts and other derivatives with Bitcoin and Ether as the underlying assets, it is now established that those digital assets are in fact commodities under U.S. law.
With respect to intellectual property laws, we recommend that lawyers ensure that the NFT issuer controls all of the rights in the content that are necessary for the reproduction and distribution of the NFT. For example, the owner of rights in a sound recording also would need to control or have license rights to the underlying musical composition performed on the sound recording. The rights in the music composition that were granted to make and distribute the sound recording may not extend to the creation and distribution of one or more NFTs. Although fair use and first sale rights also would apply to the creation, reproduction and distribution of NFTs, no court decisions have yet addressed the application of those doctrines to NFTs. NFT creators and distributors should be quite careful in relying on those doctrines given the current lack of precedent with respect to their application.
Similarly, the distribution of images that utilize trademarks such as product logos generally will require a license from the trademark owner and typically would be outside the scope of any existing trademark license. Brand owners already have entered the NFT markets and are likely to vigorously object to unauthorized uses of their trademarks as part of an NFT.
The owner of an NFT, like the owner of a unique work of art, generally will own only the digital item itself, and not any underlying intellectual property rights, which typically remain with the creator of the work, or their designee. The owner of the NFT therefore will have limited rights to exploit ownership of the NFT, apart from resale of the NFT itself, unless additional license rights are included with the NFT.
As with most all commercial transactions, transactions involving NFTs will need to consider state and federal consumer protection laws, especially restrictions on unfair, deceptive (and abusive) acts and practices. These broadly construed laws generally prohibit actions that cause unfair harm or mislead parties to transactions. Federal and state regulators have issued various warnings to consumers about the uncertainty of the cryptocurrency industry, and we expect those regulators would have equal concern about the NFT marketplace, especially given its novelty and lack of general consumer understanding. As a result, those involved in NFT transactions should pay particular attention to representations in marketing and other disclosures to ensure their accuracy and thoroughness.
NFTs may implicate other laws depending on their particular characteristics. For example, to the extent an NFT is linked to a cryptocurrency (such as ownership tokens) or other monetary value, state money transmitter laws might be implicated. Forty-nine states have money transmitter laws on their books, and some (but not all) of those laws apply to activities involving cryptocurrency, such as holding cryptocurrency on behalf of others, receiving it for transmission to a third party, or issuing it. If such laws are triggered, a license would be required (unless an exemption or partnership with a licensee applied) and various obligations would apply, such as minimum capital, recordkeeping, examinations, and disclosures.
At the federal level, the same activity that could trigger state money transmitter laws may also trigger an obligation to register with the Financial Crimes Enforcement Network (FinCEN) and implement an anti-money laundering program. FinCEN has issued guidance explaining that it regulates “administrators” and “exchangers” of cryptocurrency and has continued to expand its regulatory oversight of cryptocurrency transactions, including recent proposals to impose new reporting and recordkeeping requirements. Although FinCEN has issued little guidance on NFTs specifically, earlier this month the Financial Action Task Force (FATF), a global anti-money laundering body, proposed revisions to its virtual asset guidance that could subject certain NFTs—such as those that enable the transfer or exchange of value on secondary markets—to regulation. Although FATF has not finalized the proposed revisions, it is unlikely these attempts at regulation will fade, so NFT issuers and exchanges should proceed accordingly.
NFTs can be a true win-win for both the sellers and purchasers, as well as for the artists and musicians who use them. The close relationship of many NFTs to works of art, and their popularity with artists and musicians may provide a basis to hope that NFTs will not suffer the challenges faced by the ICO market. However, care should be taken to ensure that the NFT transactions are implemented with clear and transparent terms, and a full understanding from all as to the laws that apply, the underlying nature of the product and how it provides true provable uniqueness.
1 NFTs created using the ERC-721 standard are indivisible.
2 See David Gerard, NFTs: crypto grifters try to scam artists, again (Mar.11, 2021).
3 See James Beck, Can NFTs Crack Royalties and Give More Value to Artists?, CONSENSYS BLOG (Mar. 2, 2021).
4 See here
5 SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
6 See SEC v. Ripple Labs, Inc., et al., Case No. 20-cv-10832, Southern District of New York, complaint filed December 22, 2020.
Copyright 2020 K & L Gates
Judith Rinearson, Mark H. Wittow and Daniel Charles (DC) V. Wolf contributed to this article.
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