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NFT Royalty Rights
NFT Royalty Rights

NFT Royalty Rights

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Are You Concerned Regarding Your Rights As An NFT Creator or Owner?

The creator of Opensea, one of the largest NFT marketplaces has acknowledged that it is up in the air whether secondary sale fees are enforceable. In other words, if you create an NFT and build a smart contract into the NFT which mandates a 10% royalty to yourself upon resale and the NFT is in fact resold, who enforces the 10% royalty?  It is undeniable that Opensea’s shared storefront allows for the input of a royalty for a secondary sale, but the path to receiving and enforcing the royalty is unclear.  Opensea has standards, and, generally speaking royalties are platform specific, but whether these platforms have made the necessary efforts to protect secondary sales of #NFTs is up in the air.

What this means is that you could create an NFT, hire someone to draft an air tight smart contract and have the smart contract memorialized within the metadata of the NFT, but receiving the royalty is not guaranteed. The courts combined with the government will likely get involved, but it would be nice if there was a preexisting decentralized regulatory strategy to address this issue.  I personally believe that whether royalties are paid should be NFT and asset centric via code/metadata because if we think too far outside that box then why would we have the box a tall.  We should be careful when applying financial regulations to NFTs because it could alter the composition of the art.

Let’s not forget that traditional art doesn’t typically list the price tag front and center.  Considering NFTs are driven by cryptocurrency, therefore, it will be interesting to view how various governments classify them.  The boom and inevitable subsequent bust (clam down all assets ebb and flow) of NFT’s will be scrutinized.  We should think bigger though — Maybe this price front and center aspect of NFTs is what art needs at this time.

One idea if for Decentralized Autonomous Organizations (#DAO) to tackle this issue and protect their communities.  That being said, DAOs are not legal entities, therefore they may not be able to enforce the rules they create even though they are likely in the best position to design the rules.

The issue of unpaid royalties isn’t exactly running rampant within the industry … YET.  Considering #NFTs are really just a set of standard, it may not be hard to get around some of the aspects of smart contract, which means this issue will likely rear its ugly head in the near future.  If this issue does come to be, the Federal Trade Commission (FTC) will be there to regulate unfair and deceptive practices, State District Attorneys will have regulatory power to protect against financial harm and the DMAC has a Notice of Takedown Policy.  How those regulatory bodies will apply the law and still allow NFTs and Blockchain to flourish is yet to be seen.

In the future there will be energy and effort exerted towards whether current laws and regulation should apply.  For example, if everyone is contributing to the value of an NFT project does that knock out the “efforts of others prong of the Howie Test?  Further, clear chain of title and province is a positive aspect of securities law, which might actually make the regulatory compliance worthwhile for the NFT community. It is undeniable that utilizing the current regulations is the easier route and also the route of least resistance. No one likes a when innovative technology demands new laws for themselves. 

If you are interested in understanding and exploring your rights regarding Non Fungible Tokens or if you feel that your rights have been violated please call Quattrochi and Torres at(407) 452-4918.