Nathan Apodaca, also known as 420doggface208 on the popular social media video site TikTok, recently announced that he was selling an NFT of his virally iconic skateboard-riding, Fleetwood Mac-lip synching, cranberry juice-swilling 2020 TikTok video. Bidding for the NFT starts at $500,000. If you’ve seen the video, you may be surprised to learn that Fleetwood Mac’s “Dreams” and Ocean Spray’s logo are absent from the NFT version.

Unless you’ve been living under a digital rock, you’ve probably come across this somewhat new form of digital collectible. If not, you can learn more here, here, or here. It’s clear from the $69 million price tag digital art piece recently fetched, NFTs provide a way for creators to capitalize on a seemingly insatiable market. Calling the crypto craze a “digital gold rush” is not far-fetched.

Proclamations abound that NFTs are a massive untapped revenue source and are here to save the arts and entertainment industry. While the financial upside for sellers (copyright owners/licensors) is tremendous, it’s uncertain how the smart contracts that form when an NFT is acquired will impact those purchasers (NFT owners). Are the restrictions in the smart contract consistent with U.S. copyright law or are purchasers at risk of facing punitive measures beyond copyright protections? Transactions on a blockchain are immutable, so do NFTs open the door for harsh penalties enforced on NFT purchasers who are never put on notice of what terms they violated?

First-sale doctrine

One specific issue to monitor is whether NFT smart contract terms reach beyond the first-sale doctrine. The first-sale doctrine, codified at 17 U.S.C. §109, establishes the clear right for purchasers of copyright works (e.g. songs, albums) to sell copies of that work without seeking the original seller’s consent. In other words, the copyright holder can control the initial sale by setting the price and choosing distributors to sell copies of their copyrighted work. However, for example, once I buy Fleetwood Mac’s Rumours on vinyl (which this author can confirm he does indeed own a copy of), I can freely transfer that copy. No need to get consent from Mick, Stevie or (most thankfully not) Lindsay to sell my copy to a friend or a used record store.

But imagine in a not-too-distant future in which the Mac releases an NFT version of Rumours. It’s possible that the smart contract controlling the purchase bars me from selling to certain sellers, via certain platforms or otherwise restricts my transfer rights in an overreaching or even hostile manner. One of the intoxicating elements to the crypto craze in general is the wild, investment-like nature. Purchasers are seeing large returns within weeks of their initial investment. However, if smart contracts controlling NFT sales are more prohibitive than my first-sale doctrine right to sell my vinyl copy to my local record shop (don’t worry, I’d never sell my copy), potential purchasers may start to shy away, and industry skepticism may set in.

IP licensing for NFTs

Back to 420doggface208, why didn’t he include the song or the logo in the NFT if he was allowed to include it in his TikTok?

For the song, TikTok has a license to use the song and that license allows users of TikTok to upload songs for use on TikTok. That license is likely very narrow; TikTokers do not have the right to take their TikTok videos w/ songs included and then sell it in some other medium or version. Fleetwood Mac no doubt loved the resurgence in their streaming numbers, but apparently not enough to let Apodaca use “Dreams” in the NFT (more on this later).

As for the juice, despite Ocean Spray’s public embrace of Mr. Doggface, his use of the logo in the NFT without consent is trademark infringement, a clear attempt to profit off of the brand’s logo without any license to do so. Or so a lawyer for OS may claim.

What does the future hold?

As the NFT market grows, many artists and creators will benefit from a hot, emergent revenue stream. Works of digital art and music are selling for eye-popping figures, and we haven’t yet scratched the surface regarding licensing revenue. NFTs have the potential to breathe new life into older works, presenting an ocean of new licensing opportunities for use within third party NFTs. Despite the fact that smart contracts have been designed to simultaneously and instantly kick all interest holders their piece of the pie, significantly reducing transaction costs and delays in receiving payments, it appears no such licensing deal was struck here for “Dreams” or the wave logo. Once intellectual property holders grasp how relatively quick blockchain-based payments are triggered, the aforementioned proclamations may come to fruition. Soon, they will realize that like any gold rush, it’s best to be the one selling the picks and the shovels.