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FEATURED STORY November 15, 2022

The Can't Be Evil License: Creating Order In The "Wild West" NFT Space

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In a prior post, we wrote about the importance of reviewing the terms governing the sale of an NFT to determine what rights, if any, are included in the sale in order to commercially exploit the asset associated with the NFT, and the confusion that emerges in interpreting such terms through the lens of copyright law. In an attempt to remove this confusion and bring NFT licenses in line with the mechanism of U.S. copyright law, Silicon Valley venture capital firm Andreessen Horowitz, or "a16z," in consultation with IP lawyers and other NFT operators, has released a set of six free and public, U.S. copyright law-specific NFT licenses denominated the "Can't Be Evil" license ("CBE License" or "License"), a spin on Google's "Don't Be Evil" corporate code of conduct.

The CBE License is modeled after the Creative Commons license, which provides a standardized public copyright license enabling the free distribution of a copyrighted work with varying degrees of permission granted by the copyright owner.


Chart

The chart above summarizes the six types of CBE License. The most permissive license is CBE-Public, which is essentially a public domain grant of the asset associated with the NFT, subject to the terms of the Creative Commons CC0 1.0 Universal. The remaining five licenses go from restrictive to permissive in ascending order, with licenses that permit personal use (with a version where the license will be terminated if used on hate speech, and another version without this restriction); licenses that permit non-exclusive commercial use (again, one version with, and another version without, the hate speech restriction); and finally, the exclusive license where the copyright owner does not retain the licensed right.

The actual terms of the six Licenses and the legal primer can be found here. The primer provides that the "License may be tailored by creators of NFT projects to suit their specified needs." Some provisions may require consideration prior to adoption of the License to see if they need such tailoring. For example, with respect to the exclusive and non-exclusive commercial licenses, the buyer is expressly granted the right to create a derivative work, but must also agree to a covenant not to sue the NFT creator (for the exclusive license, only up to the time prior to the license grant), other subsequent buyers, or other licensees, even if their derivative works are very similar or possibly identical to the buyer's derivative work. Although this would provide comfort to buyers and subsequent buyers of the NFT in one respect, the scope of the covenant appears to require careful examination, particularly in regards to the rights of an exclusive licensee, since it is unclear what other licensees would exist outside of the exclusive license, and the covenant might interfere with one's ability to advance a valid copyright infringement claim.

The CBE License is non-transferrable, but if the NFT is lawfully sold, then all rights associated with the NFT are terminated, and the NFT and its underlying rights will be transferred to the subsequent buyer. Another feature of the CBE License is the ability to sublicense. But, much like the termination of license described above, the sublicense is subject to automatic termination once the NFT is sold. As to the ability to use the derivative works already created, the terms of the CBE License seem a little ambiguous, but it is noted in a16z's article that "[a]ny derivatives . . . created can continue to be used if they do not include copyrightable material from the original artwork." So it appears that the intent is for a seller or a sublicensee to be prepared to stop using any derivative work upon a sale unless the derivative work does not contain copyrightable elements of the original, which may be difficult to determine.

The termination of sublicense in the preceding paragraph appears to have been inserted with the interests of a subsequent buyer in mind, because a new buyer may not wish to invest in an NFT with prior strings attached. Although this invites some uncertainty in the duration of the sublicense, which may make the NFT less attractive to sublicensees, it would also not be ideal to the seller if the fact that the NFT is encumbered makes it difficult for the NFT to sell. In this fashion, the sublicensing provision appears to strike a balance among competing interests. It is noted that "once transparent and on-chain sublicensing regimes are widely adopted, more open and permissive sublicensing without automatic terminations will be possible."

The CBE License also attempts to address the not infrequent issue of stolen NFTs by providing that the license rights must be "lawfully" transferred in order for them to attach. This would mean that even if the blockchain says someone owns the NFT, unless the sale is deemed legitimate, licensed rights will not be held by that person. Though this language appears to provide some assurance to the legitimate NFT owner in exercising his or her rights, it would still likely entail an off-chain examination of competing claims to ownership (especially if it involves a subsequent buyer of the stolen NFT), requiring the aid of lawyers and possibly the involvement of a trier of fact. The primer also notes that "the Creator may choose to instead provide that the ownership of the NFT (and the licensed rights that attach to such ownership) will simply be based on the records of the relevant blockchain, in order for the Creator to avoid becoming part of a dispute over the right to exercise the rights under the license by different persons claiming ownership of the NFT" but that "this alternative may still not be enough to avoid liability or involvement for the Creator in a stolen NFT scenario." Thus, there still does not appear to be a simple solution to deal with the issue of a stolen NFT.

Finally, any disputes between the buyer and the NFT creator "arising out of, relating to or in connection with these Terms, including with respect to the formation, applicability, breach, termination, validity or enforceability thereof" is subject to a 90-day good faith dispute resolution, and if that fails, to exclusive arbitration. This means that a claim between the creator and the buyer is not subject to judicial review, and cannot be appealed if either party dislikes the outcome at the arbitration, making it harder to develop case law concerning the CBE License.

Being that they are the first iteration of these licenses, the CBE License may undergo further tweaks and developments as they are put into actual use, and some web3 projects have begun adopting it already. But overall, the CBE License appears to be a helpful guide and represents a laudable effort at providing a template to bring some order in the increasingly chaotic NFT ecosystem.

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

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