CryptoKitties header art from cryptokitties.co

Canadian company Dapper Labs Inc. has a new license to share with the world: version 2 of the "NFT License". This license relates to a special kind of Ethereum "token" pioneered by the company using their popular game/marketplace: CryptoKitties (further information here).

Dapper Labs is the creator of CryptoKitties, a popular Ethereum-based cat trading game/market. The company is backed by Google Ventures (GV), Samsung NEXT, William Mougayar (prominent Toronto crypto investor), Union Square Ventures and other well-known investors.

Dapper Labs is trying to do something ambitious. They're trying to create a new kind of license for a new kind of cryptographic asset (specifically, ERC-721-related tokens/artwork). An example of what this is aiming to cover is: you buy a creature in their game (for about $3), and it is represented using a unique combination of artistic elements (created by someone else), and then you use that creature's image on t-shirts you sell online.

This is a very interesting effort and I'm pleased to see CryptoKitties attempting to push forward on the legal side of they're work (and share it with the public). Unfortunately, version 2 has some quirky issues that might make it unsuitable for commercial use.

This is a fascinating license for those with an interest in IP and the future of blockchain-based assets. Below are a few observations about some of the interesting provisions.

An Interesting Definition of "Own"

The NFT License includes a fascinating definition for the word "own":

““Own” means, with respect to an NFT, an NFT that you have purchased or otherwise rightfully acquired from a legitimate source, where proof of such purchase is recorded on the relevant blockchain.”

The authors decided to make ownership contingent on having the proof of purchase be recorded on a blockchain. This definition appears to exclude people who obtained the NFT from a retail store if they paid cash or used a credit card. It's also unclear what they mean by a "relevant blockchain". Does that mean the Ethereum blockchain where the NFT lives, or the blockchain where the payment was recorded (e.g. Bitcoin blockchain)? Either way, this definition explicitly limits the scope to NFTs purchased using cryptocurrency.

Presumably the authors intended their definition to be a strong stand in favour of cryptocurrency purchases by giving additional rights to people who pay using crypto and less rights to people who pay using other methods. Although perhaps they mean "proof of purchase" in the sense of a proof of transfer (e.g. Transfer event).

I suspect that future iterations of this license will drop the caveat about "proof of purchase be recorded on a blockchain" because I'm not sure what additional clarity it provides over "otherwise rightfully acquired from a legitimate source".

Ownership vs. License

Section 2 contains an acknowledgement that the Creator "... owns all legal right, title and interest in and to the Art, and all intellectual property rights therein." But then the agreement licenses out those rights. So which is it? Does the Creator own everything or does the licensee own something? If the Creator has all of the "title" and "interest in the Art" then what is left to the licensee?

This section brings up interesting legal questions about the nature of IP and licenses that depend on the jurisdiction where they apply. But if a license is an "interest in" the "Art" then there appears to be a contradiction. This is a minor point but it would be easier to read if this was cleaned up a bit.

How Many Dollars? For What Use?

One of the interesting ideas of the license is to restrict commercial use to those who earn less than $100,000 (gross) per year (from it?). But what kind of dollars? The license is supposed to apply worldwide and I assume they mean United States dollars, but the license doesn't specify. Someone might take the view that a Canadian businesss and Canadian "Creator" ought to be limited to $100,000 Canadian (since that's the default for contracts in Canada and similar rules exist in other countries). This is an unusual oversight (perhaps intentional?) because most commercial software license agreements specify the currency explicitly to avoid this problem. In a blog post the company describes the license as being for "USD $100,000" but the agreement doesn't say that and it's problematic to have commentary like this elsewhere (although there's no entire agreement/merger/integration clause in the license).

Another potential "gotcha" with this term is that it reads:

“... provided that such Commercial Use does not result in you earning more than One Hundred Thousand Dollars ($100,000) in gross revenue each year.”

Is the above meant to limit the commercial use to any business that earns less than $100k? Or is it meant to limit it to revenue specifically related to the NFT? What about a store that sells t-shirts that earns $95,000 per year and then they make $6,000 per year on a t-shirt with an NFT artwork on it? Have they violated the terms? Who should they pay for the excess (or for the entirity of it)? This could leave potential licensees in a situation of suddenly infringing copyright without any ability to license the artwork commercially (and the statutory damages that might come along with that). Perhaps the goal is to specifically limit commerce to low dollar values but I'm not sure that's the case because there's a part in section 5 that involves emailing the creator to ask for negotiations. The final sentence of the license is an ominous note to potential (inadvertent?) infringers:

“... you will be responsible to reimburse Creator for any costs and expenses incurred by Creator during the course of enforcing the terms of this License against you.”

Hopes

I have never seen a license that refers to "hopes" but this license has it in section 4 ("Restrictions"):

“... including, without limitation, giving away in the hopes of eventual commercial gain ...”

Someone's "hopes" of "eventual commercial gain" would be very tricky to prove. This is unusual in licenses because the point of a license is to make clear what's ok and what's not. To the extent that a license isn't clear it will be less likely to be used and more likely to result in litigation. Licensing is about commercial certainty.

Simplifying The License: The First Section

The first section of the license is a mix of preamble, background, and irrelevant commentary. I'm sure that a future version of the license will cut down the first article. One irrelevant line in the first section:

“DLI intends to use this License in each of its current and upcoming apps (including CryptoKitties®) to help ensure that NFT owners enjoy broad and meaningful rights in the art associated with their purchased NFTs.”

It's very unusual to state future intent like this inside a license agreement. It's especially strange in a license that the creators want other people to use (since it mentions a specific company and product). Unless the license isn't intended to include the first section but it's unclear to me that that's the case, and if it is the case, it ought to be separated from the license (as is done with popular licenses like the GPL).

How Is This License Licensed?

The NFT License is posted online and the company that made it encouraged the public in a blog post to "include it in your terms of use and VOILA!". But the license is itself a copyrighted work owned by the creator, Dapper Labs Inc. (or perhaps, the law firm that developed this). Partway through the first clause of the license there are licensing terms:

“When a Creator leverages this License, the Creator should replace the word “Creator” with the name of its company or organization and add a contact email in section 5. Other than the foregoing modification, DLI does not permit other changes to this License. If a Creator wishes to make other changes to this License, it may not refer to the resulting license as the NFT License, or any variant thereof.”

The license itself imposes limitations yet the creators (on a different website, Medium, see blog post above) are encouraging people to include it in their terms of use agreements. I hope they clarify later how exactly thr license is licensed and how people ought to make use of it.

There's More To Say

This license engages with some complicated global (i.e. jurisdiction-specific) legal issues. This blog post is just a few observations and potential problems, but this license touches upon so many issues that a book could be organized around it.

This license is a great attempt at a complex subject and it's commendable that Dapper Labs is trying to encourage commercial licensing, since that's one missing element for wider adoption. Companies live and die by licensing. It's important and deserves a lot more attention than many crypto industry builders have been giving it. That said, I suspect that the issues with this license are likely to put off any actual commercial use (or at least, commercial use for which someone has obtained legal advice). The complexity is due to both unusual drafting decisions and the complicated legal-technical landscape that it sits in. Licensing is challenging enough when it comes to well-understood legal rights like copyright in images. Pro-small enterprise commercialization of hybrid blockchain-generative art? That's hard. This license needs more work.