The Implications of Recent Law for NFTs


It goes without saying that current and future legislation will have a massive impact for NFTs. While this is true of practically any commercial industry, the burgeoning NFT space is especially vulnerable to the effects of legislation. 

This is mostly because NFTs are based on the relatively novel blockchain technology which has proven to be divisive among both consumers and lawmakers alike. While some are fully in support of NFTs, others are on the fence or outright hostile to them, and with the recent lawsuits and regulations that have unraveled in relation to NFTs, the very future of the industry could be at stake. 

The String of Curious Cases 

In the last year, fashion watchers and NFT fans alike were captivated by the lawsuit brought by fashion house Hermes against NFT creator Mason Rothschild after initially filing a complaint against him in 2022. The reason for these legal actions was that Rothschild was selling NFTs called ‘MetaBirkins’. As the name would suggest, these NFTs were essentially digital representations of Hermes’ iconic Birkin bags in a variety of colours and patterns. 

This was achieved without the permission of the fashion house and naturally, it tried to block their sales. The lawsuit sparked intense discussions about trademarks and how they related to NFTs. Did Rothschild have the right to create the NFTs even though he wasn’t connected to the actual makers of the Birkin bag or was this a case of infringement? In early February, however, a jury ruled that Rothschild’s activities were indeed copyright infringement. 

Just like with the initial case, the verdict has sparked debate online, mostly regarding whether or not it was a fair one. But beyond these debates lies a larger issue; what does this mean for the industry? It is no secret that a lot of NFT collections are derivative. 

A quick look at any major NFT marketplace will show collections based around popular culture and some well-known brands, many of which are being distributed without explicit permission from the trademark holders. After all, NFTs are partially built on online and fan culture and a huge part of this is spoofing, memeing, and being directly influenced by others. 

This is to the point that NFTs exist that are clearly based on others. Take the ongoing lawsuit between Yuga Labs, the creators of the Bored Ape Yacht Club, and Ryder Ripps, an artist who created RR/BAYC. Ripps, who has a famously contentious relationship with Yuga Labs, has said that his works, which are very similar to the Bored Ape Club in look and even name, are more of a parody and are protected by the law. This case is still in court and is yet to be resolved. 

Then there is the debate of what NFTs are in the first place. Cryptocurrency, for years, was subject to the same debate; are they securities? Are they investment tools? NBA Top Shot, a popular marketplace that deals in basketball-themed NFT content, will be heading to court to face a class-action lawsuit which alleges that its NFTs are securities. NBA Top Shot had tried to have the lawsuit dismissed but a judge determined that some of the assets it offered were indeed securities. 

“Ultimately, the Court’s conclusion that what Dapper Labs offered was an investment contract under Howey is narrow. Not all NFTs offered or sold by any company will constitute security, and each scheme must be assessed on a case-by-case basis,” Judge Victor Marreo says.

The Implications of These Cases

On the surface, these would all appear to be unrelated lawsuits floating about the NFT space. But, a deeper look will show that they are shaping the future of NFTs as we know them. As NFTs achieve more mainstream success, they will have to move beyond their roots as semi-obscure blockchain-based assets. 

In doing this, the legal parameters will need to be set and this will happen through incoming legislation. This legislation, inevitably, will be shaped by legal precedents like what we have seen so far. Take the Hermes vs. Rothschild case; its ruling does not only mean that Rothschild himself cannot make Hermes-themed NFTs for sale, but that in the future, corporations will have legal backing to go after NFT creators who make similar digital asset collections. 

The NBA Top Shot ruling does not simply mean that Dapper Labs (its parent company) has to face its impending lawsuit, but that there is now some legal precedent that NFTs are indeed securities, and if they are indeed securities, they will be subject to existing securities law and that will have a massive ripple effect on the industry. 

So, if a legal line is drawn in the sand when it comes to the NFT trademark (as in the case of Yuga Labs and Ryder Ripps), we will see many more lawsuits within the industry itself. Therefore, creating an industry standard where these lawsuits will determine what we can and cannot do within the NFT sector for better or for worse. 

There is a reason why blockchain-related lobbying and regulation have been hot-button issues for years; A single piece of legislation can completely upturn existing an NFT projects’ business model and one lawsuit precedent can release the floodgates for a thousand more. 

This means that as NFT industry stakeholders, it is imperative that we advocate for pro-NFT regulation and stay abreast of regulations that are unfolding. 


By Tokoni Uti | Original link