NFT Legal Issues: Intellectual Property and Securities Concerns

[cryptolaw_takeaway]NFTs raise complex legal questions spanning intellectual property, securities law, and consumer protection. While purchasing an NFT provides token ownership, it typically does not transfer copyright or other IP rights to underlying content. Fractional NFTs and NFTs with revenue-sharing features may constitute securities requiring registration.[/cryptolaw_takeaway]

Understanding NFT Ownership

Non-fungible tokens represent unique digital assets recorded on a blockchain. However, the legal rights conveyed by NFT purchase depend entirely on the terms of sale—not the technology itself. Common misconceptions lead buyers to believe they acquire rights they do not actually receive.

Typically, NFT purchases provide:

• Ownership of the specific token on the blockchain
• Ability to display the associated content (in many cases)
• Right to resell the token on secondary markets

NFT purchases typically do NOT automatically provide:

• Copyright to underlying artwork or content
• Rights to create derivative works
• Commercial use rights
• Exclusivity in the underlying content

Intellectual Property Considerations

Copyright ownership remains with the creator unless explicitly transferred in writing. An NFT purchase is generally a license, not an assignment of rights. The scope of that license varies dramatically between projects.

Some NFT projects (like Bored Ape Yacht Club) grant broad commercial rights to holders. Others grant minimal display rights. Many projects have vague or nonexistent terms, creating uncertainty about purchaser rights.

NFT creators should clearly document the rights granted and ensure they actually own or have licensed the underlying content before minting NFTs.

Securities Law Analysis

While a single unique digital artwork NFT is unlikely to be a security, certain NFT structures raise securities concerns:

• Fractional NFTs: Dividing NFT ownership into fungible tokens creates investment dynamics resembling securities
• Revenue-Sharing NFTs: NFTs entitling holders to royalties or revenue may constitute investment contracts
• NFT Collections with Roadmaps: Projects promising future development and value appreciation based on team efforts may satisfy Howey
• NFT-Based DAOs: Governance rights combined with profit expectations create securities risk

The SEC has not issued comprehensive NFT guidance but has brought enforcement actions against NFT projects marketed as investments.

Royalty Mechanisms

Many NFT marketplaces implemented creator royalties—automatic payments to original creators on secondary sales. However, royalty enforcement remains voluntary and inconsistent across platforms. Legal enforceability of royalty claims against non-compliant marketplaces remains uncertain.

Projects relying on royalty revenue should understand that enforcement depends on marketplace cooperation, not blockchain mechanics.

Consumer Protection Issues

NFT sales may implicate state and federal consumer protection laws:

• Deceptive marketing claims about rights or utility
• Failure to disclose material information about projects
• Wash trading to manipulate apparent value
• Rug pulls abandoning projects after sales

State attorneys general have investigated and pursued action against NFT projects for consumer protection violations.

Practical Guidance

For NFT creators:

• Clearly define and document rights granted to purchasers
• Ensure ownership or licenses for underlying content
• Avoid investment-focused marketing language
• Comply with consumer protection requirements regarding disclosures

For NFT purchasers:

• Review terms of sale before purchasing
• Understand that most NFTs do not convey IP rights
• Evaluate project viability beyond speculative potential
• Be cautious of projects emphasizing investment returns

This article provides general information about NFT legal issues. Legal analysis depends on specific project terms and circumstances. Consult qualified legal counsel for guidance on your NFT project or purchase. Seth Goettelman is licensed in Wisconsin and Florida.