Welcome to Web3 Water Cooler, a moderated Slack chat on a hot topic in crypto. This week’s participants are Orca Protocol’s Chase Chapman, Austin Hurwitz of Venice Music, and IP lawyer Nuzayra Haque-Shah.
Introduction
NFTs are a web3 innovation, but the intellectual property frameworks around them were lifted from a web2 world. That leaves web3 founders trying to build communities around NFTs with a major decision to make: What structure should they use to produce content and build a loyal user base?
At present, there are three broad buckets to pick from. They can remain with the standard traditional copyright, where the issuer owns all IP and buyers only receive rights for personal use. That centralizes creative control in the issuer and also puts pressure on the creator to figure out ways to create value.
One alternative that is gaining traction is the Creative Commons Zero license, which allows artists to place their work into the public domain so anyone can build on it — and profit from it. This somewhat muddies the web3 story of a user-owned internet: rather than specific NFT holders holding rights to a property, nobody gets exclusive rights. Still, NFT projects like Nouns and Loot have already used CC0.
Finally, there are many projects in between that give commercial rights or limited commercial rights to NFT holders. These let the issuer keep discretion over how community members can build on and monetize NFTs, including setting limits on monetization. But it also allows creators the latitude to change the terms entirely.
So what should a builder or founder do? What is the latest on using IP to set your community and business up for success? How can different ownership models create new kinds of incentives? We held a private Slack chat with DAO contributor Chase Chapman, web3 advisor Austin Hurwitz, and IP lawyer Nuzayra Haque-Shah to discuss the future of NFT intellectual property. (The conversation has been lightly edited.)
The legal landscape for NFTs
Moderator
The questions I want to reach are: Do NFT holders need ownership and intellectual property rights over their NFTs for web3’s vision of a user-controlled internet to become reality? And what could that mean for creation and collaboration among creators and the communities that gather around them?
But before we get into the future, @Nuzayra, can you give us a sense of where the IP landscape stands today?
Nuzayra Haque-Shah
Let’s begin with the basics:
- 1) Understanding what copyrights are 2) How can copyrights be granted, transferred, licensed etc. to NFT holders?
I think this would help make clear what’s happening in the NFT space right now, since many creators don’t really know what rights they have, what rights they can grant and the implications of that.
First, copyrights are a bundle of rights. It’s not just one right like trademarks or patents. So copyright licensing or assignment is not as simple as it is with other forms of intellectual property.
A creator of original work has the following rights: 1) right to reproduce, 2) right to create derivatives/adaptations, 3) right to distribute and publish 4) right to perform, and 5) right to display.
It’s a bundle, and a creator can give away all the rights or only some of the rights in that bundle. It’s up to the creator.
These rights can be granted through a license (limited use for licensee) or a full assignment (original creator has no more control). And this is done through written contracts. This is reflected in a NFT project’s Terms of Use.
The current landscape is a mix…there are those that say their NFT holders own “all commercial rights” and there are those that only give away minor rights. For example, Yuga Labs allows current holders to create [adaptations] and derivatives of their artwork for commercial ventures. But they don’t grant the other rights in their copyright bundle.
There are also projects like Women Rise that provide limited rights to commercialize the artwork in their NFTs up to a certain dollar amount. If you go beyond that threshold, you have to pay royalties to the creators.
Important to note though — projects that say “all commercial rights” are super vague because it could literally mean that they are also giving their holders the right to use their brand name for commercialization, which is definitely not what any NFT project wants.
Moderator
So, you’re saying it’s super complicated.
Nuzayra Haque-Shah
Haha. Yes and no. Creators need to grasp the fundamentals, because with NFTs it’s fundamentally about IP. You are, in effect, creating, purchasing, and selling a package of IP rights.
Communities are confused about commercial rights
Moderator
@Austin and @Chase, what obstacles or limits do you see in today’s commercial environment? And how are communities adapting in response?
Chase Chapman
One major challenge I see emerging is that copyright is complicated (as @Nuzayra noted).
When people start taking part in these communities (whether that means purchasing an NFT or creating derivative projects), I think there’s a very high threshold for understanding every part of what IP in this setting means. From that angle, I think CC0 has been very attractive because it removes some of that complexity. Of course, that brings other challenges.
If we want people to have real ownership and control, these kinds of things have to be understandable. It seems like the current landscape really does not have that.
I think CC0 has been very attractive because it removes some of that complexity.
Nuzayra Haque-Shah
Agreed — for people, it’s hard to tell the difference between a license (usually revocable) and a full transfer or assignment of rights.
Austin Hurwitz
Agreed. The subtlety of these licenses is getting lost.
Chase Chapman
Absolutely. When we consider projects like Nouns, where the whole aim of the project is to spread the meme, this feels pretty clear and CC0 makes a lot of sense. Where it becomes harder is when the project is more advanced in how they approach IP and that nuance around different kinds of rights starts to become really important. Are there examples of projects that are not CC0 that have done a really strong job of explaining that nuance? I can’t think of any off the top of my head.
Austin Hurwitz
Great question, @Chase. Bored Ape Yacht Club and Doodles have both done serviceable jobs explaining their license structures. The baseline assumption from holders (right or wrong) is that they have full commercial rights. To @Nuzayra’s point — that in itself is a problem because almost no projects are handing over the full bundle of copyright rights.
To the earlier question: “Do NFT holders need to have ownership and intellectual property rights over their NFTs for web3’s vision of a user-controlled internet to come to fruition.” The answer is probably somewhere in the middle and depends on the goals of the creator and their community.
Commercial rights are there to protect creators. To let them create without worrying about someone exploiting their work. They give brands room to build credible businesses.
CC0, on the other hand, fits very closely with the ethos of web3. By placing creations in the public domain, it makes them highly composable. Ideas can spread at a faster pace. By surrendering central control you’re gaining the ability to be multi threaded and decentralized. The project can expand in unexpected ways. To @Chase’s example with Nouns, CC0 is a great chance to spread ideas memetically.
Deciding who controls creation
Moderator
Let’s tug on that thread, @Austin. While CC0 is unlikely to make NFT investors very happy, how do communities regard it? More specifically, how is Nouns innovating — and how might that show up in other projects?
Austin Hurwitz
I’d argue that many investors are okay with, and even welcome, CC0. That works as long as the expectations around what they were purchasing were set before the buy.
Nouns is a strong illustration of that. Nouns are designed to spread Nouns. As brand equity rises, the value of their NFTs should rise too. Even though anyone can create a derivative of an on-chain noun, investors still retain on-chain provenance of the original.
There are a number of fresh ideas built into Nouns. To begin with, they have paired culture (pixelated avatars) with a DAO (shared treasury). Sharing culture generates a flywheel. The more people who learn about Nouns, the more people who will want to buy a Noun, which then adds value to [users] and the DAO.
By surrendering central authority, Nouns can spread in many different directions.
The second innovation is this: rather than 10,000 PFP projects that all drop at once, one Noun is minted each day. Forever. This gradual release grows the community slowly and helps make sure the people who join the DAO are aligned with the mission.
Third, because Nouns is open source, it is available to the public right away. That means anyone can use their code and fork it for a project of their own. Many derivatives, including Lil Nouns, have used the Nouns framework to build their own CC0 DAO projects.
Finally, there is the DAO itself. Nouns have built up a treasury worth more than $45M. Owning a DAO lets you take part in governing the treasury. So far, the treasury has backed projects like a Bud Light Super Bowl commercial appearance, sponsorship of an esports team, a sunglasses line, and a coffee bean subscription!
By surrendering central authority, Nouns can spread in many different directions.
Moderator
There’s a major underlying issue here about who can be a creator of what. In the case of these expanding IP universes, web3 projects depend on NFT holders, and even some non-holders, to serve as creators who help flesh out the world and increase value. Is this a matter of resources or imagination? Put another way, do the original artists have particular ideas they want to see but simply can’t carry out alone? Or do they genuinely want to be surprised by the applications?
Nuzayra Haque-Shah
I think there [are] advantages to letting your holders commercialize the NFTs to some degree. It makes them feel like they have a stake in the project, or ownership. Also, if the derivative works or projects made by holders become successful, that brings more attention to the original project.
The original creators can only come up with so many ways to grow the brand. But if holders can innovate with the underlying artwork, you are essentially building a mastermind at that point, bringing together a varied set of ideas, resources and skill sets.
What type of ownership most aligns with web3?
Moderator
So, returning to the original question: Do NFT holders need ownership and intellectual property rights over their NFTs in order to support web3’s vision of a user-controlled internet? Or is placing IP into the public domain even better?
Austin Hurwitz
From both the holder and creator point of view: it depends. It’s similar to closed and open source. Both can lead to users having control and ownership. How far that goes depends on their rights. Different goals require different approaches.
Commercial rights are closed ecosystems. They make sense when creators have a central vision they need to carry out and tightly manage. A business has to be able to guide how its IP is used so it matches its broader strategy. This may also be acceptable for holders so long as their uses stay within the limited license.
CC0 is similar to open source. It is the right choice if the goal is maximum decentralization and proliferation. Much like Ethereum began centralized and then moved to decentralize quickly, CC0 projects are relying on the creative power of their community to produce outcomes they could not achieve centrally. As a holder, you are making this bet because you expect that maximizing proliferation will benefit you.
Chase Chapman
I think it’s worth stepping back to separate ownership, IP rights, and the idea of a user-controlled internet.
Personally, I see IP rights as one part of what we think of as “ownership” tied to an NFT. Other things that might be tied to “ownership” include governance power. For instance, owning a Noun means you can vote on how the treasury is deployed. Even something like royalties flowing back to your NFT could be considered another part of ownership.
So I don’t believe NFT holders need a particular kind of IP right attached to an NFT in order to support web3’s idea of a user-run internet ‒ because IP is only one part of the ownership equation.
Over time, I think we may begin to see more web3-native IP frameworks. I’m not fully certain what that will look like, but I’d expect embedded attribution, royalties, splits, contextual rights, etc. to get built into the platforms and protocols we use.
IP is only one part of the ownership equation.
Examples of innovation
Moderator
How do you all expect collaboration between creators and communities to change? And what innovative projects or models should people be watching?
Chase Chapman
That’s a huge question! I think the boundary between creator and community will likely keep getting less distinct.
Projects I’m watching:
Songcamp is always expanding the limits of what collaborative co-creation can be, and it has been absolutely amazing to see them unite artists.
Metalabel is doing some truly innovative work around unbundling the creator economy and moving the narrative away from “content all the time” toward intentional drops from groups of people with shared context.
Nouns came up a lot in this discussion. The Nouns model is both simple and sophisticated, which makes it useful for understanding where the space may be going and what’s possible.
Nuzayra Haque-Shah
I think collaborations between communities and creators can take different forms depending on what makes the most sense for a given creator. From a legal standpoint, creators are free to grant or license certain rights. So there are no restrictions there.
As @Chase noted, there [are a] couple of moving parts here in addition to basic IP ownership. Being part of a DAO — with a right to vote on major decisions, receiving royalty from secondary sales, etc. could be appealing features for holders even without owning any IP in the project.
I don’t think there is a right or wrong approach here. It depends on the aims and mission of a project — based on that they need to develop an IP strategy that benefits them and their holders.
And people also like real world utility too — so if creators offer that instead of IP rights, that is still a good benefit.
So it really comes down to the creator — what benefits/utility they want to provide and whether holders want that benefit.
Austin Hurwitz
To @Nuzayra’s point about utility — I expect to see more creators and their companies anchoring projects in non-speculative benefits. CPG Club is a great example of a membership NFT community built as a consulting agency and incubator. Members get access to deal flow and can apply for non-dilutive grants to build their own projects.
We will see more cases where creators may first steward projects and then work to decentralize quickly (similar to Nouns).
But I also expect many creators will build companies with limited rights for their holders. It still marks a leap forward in ownership for community members from the web2 model. We are gradually shifting from participatory to ownership driven.
We will see more cases where creators may first steward projects and then work to decentralize quickly.
Moderator
One final question: What should web3 founders weigh when choosing whether to launch something of their own or build on existing IP?
Austin Hurwitz
What are they trying to achieve? If the goal is to bring a brand’s single-minded vision to fruition, founders should try to keep as much control of the IP as they can. That would mean launching their own project.
If the goal is to test the tech, spread an idea, or build on a predecessor’s vision, then iteration makes sense. In every case, the brand matters less than some other aim.
It all depends on the intended outcome and how much control it takes to get there.
Nuzayra Haque-Shah
Keep in mind that when you work with someone else’s IP, you’re operating on borrowed ground. Unless the IP rights are fully transferred, you’re using a license that includes limits and conditions — and it can also be withdrawn.
As a founder, it’s important to assemble your own portfolio of copyrights and trademarks. You can buy out other people’s IP, but building a whole business around licensing is not ideal. A blend of licensing and ownership is far better. That lets you develop on what is already succeeding in the market while also having original works that are exclusive to your brand.
Then you can also license your IP to others, which broadens your revenue streams. It also opens space for innovation because you’re not boxed in by an outside company telling you what you can or cannot do with the license.
5 key takeaways for builders
5 Key Takeaways for Builders:
- NFT creators hold a set of rights — the rights to reproduce, create derivatives/adaptations, distribute and publish, perform and display — and they can keep or transfer them, in part or in full, to NFT holders and/or others. The rights setup they pick is ultimately driven by what can help create value. Founders need to make their rights arrangements clear to community members to reduce confusion and frustration. Austin notes that projects like Nouns have built a flywheel effect by using CC0. Still, there is no universal NFT IP strategy for web3 builders — and founders can even create within other brands. Creators do not need to surrender IP to give people a sense of ownership in the community. As Chase says, “IP is just one element of the ownership puzzle.” DAO memberships and royalty splits can also be effective ways to convey ownership.