MUSICIANS: This NFT checklist could save you a lot of pain (and money)

Committing to a pitched NFT is a risky commitment, so make sure you are making the right decision by knowing what questions to ask.

A guest post by Chris Castle of Music Tech Solutions.

If you’ve been pitched to lend your name to an NFT platform or promotion, or if you are an NFT promoter who wants to attract artists to your program, there are some issues that should get addressed. Obviously, discuss all this with your lawyers since this isn’t legal advice, but the following are some issues that you may want to consider before you commit to anything.

1.  What artist rights are being granted and to whom?

2.  Does grant of rights match the project summary and are license agreement, smart contract, marketplace/auction TOS and cryptocurrency rules all consistent?  Has a subject matter expert been engaged to produce a report stating that the smart contract code implements the actual deal or needs to be revised?

3.  What royalty is paid and to whom and when?  Does artist, previous owner or charity participate in resale revenue after initial sale? Are any state or federal relevant tax rules implicated?

4.  Are there exploitation or marketing restrictions on the NFT that would prevent the NFT and artist name being used in ways that are offensive to the artist, at least during the artist’s lifetime? Could heirs enforce these rights?

5. Are there any third party payments involved like producer payments, production company overrides, or any third party rights involved, re-recording restrictions. Will any letter of direction be required, e.g., for producers?

6. Have you cleared publishing? 

7.  When does NFT terminate?  (On resale, transfer by owner, term of years)

8.  What is the governing law and venue?  (And how to enforce)

9.  Who maintains the blockchain and who is responsible for policing it? What happens if they fail to do so? (See my post with Alan Graham on this subject.)

10.  Is artist asked to make representations, warranties and indemnity?  Can the artist make such reps and warranties?

11.  Is indemnity capped?  

12.  Who will cover artist’s costs of defense?

13.  Is there insurance?

14.  Can license agreement or smart contract be revised unilaterally?

15.  Is the NFT or NFT collection comprised of “generative art” or artwork created by machines, algorithms, artificial intelligence, and related technologies (i.e., potentially not capable of copyright protection)? What are implications for name and likeness rights.

16.  What assurances have been given to identify purchasers of NFTs to enforce terms or prosecute breaches for first or subsequent sales?

17.  Are any union rules implicated (e.g., SAG-AFTRA Basic Agreement Par. 22A)? See my post on NFT union payments.

18. Is NFT or any NFT cash flows implicated in any sanctions placed on persons related to the Russian Federation?

19.  Has NFT seller or marketplace obtained legal opinion regarding whether the NFT constitutes a “security” that would require sale by a registered securities broker-dealer or other regulatory oversight?

20. Are any state securities laws, tax laws or regulations, or “doing business” laws implicated or reporting obligations triggered?

Each NFT raises its own questions, so this checklist is just a starting point.