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Several major companies like Lowe’s, Lego, UnderArmour, Acura, and Tommy Hilfiger & DKNY, have been turning to the metaverse to grow their current businesses by creating and using NFTs to expand their offering of products and services to their customers, old and new. The media and several data sources seem to indicate there are signs of a consumer slowdown or looming recession following the COVID-19 pandemic and perhaps even the current state of affairs in the U.S. and around the world. When expanding or launching any new product or service, there are certain legal considerations every business owner should keep in mind.
If you are a business owner and have been thinking about growing your business in the metaverse or using NFT’s, or have already started doing so, here are just a few critical things to consider or add to your business “to do” list:
- The metaverse is not above the law and neither are NFTs. Businesspeople and lawyers like myself will often say things like “technology moves much more quickly than the law”, or “the law always has to catch up to emerging or new technologies or technical advancements”. While there may be some truth to these statements, certain loopholes that currently exist in the law will surely be closed or become regulated by a governmental entity somewhere in the world EVENTUALLY. As a result, we must all observe not only any current laws, but any updated or additional laws that concern the digital world in its current and evolving state. The metaverse and NFTs are NOT an exception to established federal laws, such as copyright or trademark law, or state-level contract law or common law protections that pertain to an individual’s name and likeness or right of publicity. If you are considering launching your own line of NFTs or creating a presence in the metaverse to expand your business, take some time to consult with your attorney and learn what you need to do to protect your brand in the metaverse, while simultaneously respecting the legal rights of other entities and individuals.
- Use a contract to hire graphic designers and other freelancers. Don’t make the mistake of thinking a freelancer’s invoice for services is legally the same thing as a signed contract between you and that freelancer. It is NOT the same thing AT ALL, legally or otherwise. Invoices and contracts are 2 different documents with 2 different purposes. An invoice, unlike a signed contract, is not legally binding on anyone and cannot force anyone to do anything. Unless you are currently employing a part- or full-time graphic designer or other technical team member who will be helping you create and launch your new NFTs in the metaverse, I strongly recommend using a professional services agreement or independent contractor agreement to hire any creative or technical freelancers. Ask your attorney to draft one of these for you; sometimes, for an additional fee, you can even ask the attorney to create a custom template that you can re-use for a limited time for other freelancers you want to hire. If you decide to do this, I recommend hiring your attorney once a year to simply look over the contract and make any necessary updates to any provisions, services, compensation, or company information. Hiring your lawyer to draft a services contract for any freelancers you hire will ensure that your company’s intellectual property rights are protected to the fullest extent of any local or federal laws, and ensures all rights to any content being made by any freelancers remain with you and your company and NOT with the freelancer. If you are currently employing a graphic designer or any technical staff, this is generally understood to be the case: any content created by the employee during the course of their employment remains property of the employer unless you and your employee agree otherwise IN WRITING.
- Make a list of your NFT’s notable characteristics in preparation for federal registration. Several companies like the ones I mentioned above are actively registering their NFTs and other digital products and services for U.S. copyright and trademark protection. Why? Because early registration ensures their proprietary brands and content will be given the highest level of protection available, as early as possible. Early registration also helps deter competitors from illegally copying or misusing a brand’s unique advertising and promotional content and brand identifiers. Infringers, or copycats, illegally use registered content or brand identifiers to promote or sell their knockoff versions of a signature product or service all the time. This content can consist of photos, videos, sonic or music jingles, logos, slogans, and other brand identifiers that are designed to indicate the source of a particular brand of products or services. Early registration also gives companies the legal grounds to sue any infringers who copy or misuse their content or brand identifiers in the metaverse, or anywhere, really, depending on the registration. By making a list of your NFT’s notable characteristics ahead of time, you and your attorney can save valuable time and money by working together to determine how your customers are finding and identifying your products or services and filing the appropriate legal applications before you launch your new NFTs in the metaverse. And wouldn’t it be nice to be able to use the ™, ℠, ®, ℗, and © symbols as soon as you launch your new NFTs, just like the major brands do? I think so!
- Do not launch any NFTs anywhere until you have certain legal protections in place. Don’t give in to the FOMO on the NFT boom. I personally don’t see NFTs or the metaverse going anywhere soon and my guess is they are both here to stay for the long haul. It is NEVER a good idea to skip or postpone legal housekeeping in order to “get ahead of the curve”, whether we are discussing NFTs or any other content pertaining to your business It is never a good idea to launch your new NFT or any content without any legal protection in the pipeline. If you have already thought about creating or using NFTs to expand your business into the metaverse, or have considered hiring someone to do this for you, then it is time to talk to your attorney about it.
- Add “Content Registration” to your business plan or budget as a line item. Every business owner has, or should have, an operating budget. Very often, entrepreneurs will budget for obvious business expenses, like staff hires, purchasing equipment, or leasing space, but very rarely do they budget for legal expenses connected to their promotional or commercial activities in the real world, much less the metaverse. Adding a line to your business’s budget for necessary legal expenses connected to these activities can help you plan ahead for necessary legal expenses connected to filing critical trademark and copyright registration applications and attorneys’ fees. Planning ahead for these costs is necessary and important for any business to thrive and grow. The last thing any business owner wants is to get stuck with excuses for why you didn’t register your content, especially when you are already in a situation where someone has stolen your content or is using it on the internet and social media to sell knockoffs of your product or service. Legally speaking, being on the offensive is much cheaper in the long run than being on the defensive, so plan ahead, budget for legal expenses, and register early!
Postponing critical legal steps in connection with NFTs or expanding your brand into the metaverse will only set you on a painful path of uncertainty, chasing copycats, initiating disputes, diluted branding, and potential lawsuits. Applying for brand registration and drafting contractual agreements with any third parties working for you early in the process can save you lots of pain, time, and money in the long run. An easy way to avoid most of these pitfalls is to keep your attorney in the loop of your NFT plans and let us be part of your plan and process for your grand debut into the metaverse. Think of your attorney as your brand’s “bodyguard”. It is your job to grow your business and our job to protect your interests as you grow it. Excuses don’t win lawsuits or resolve disputes, but a valid, federal copyright or trademark registration, or a series of the same, can be a powerful step toward a quick resolution of a dispute or legal judgment in your favor. Take the steps to protect your company’s content and brand identifiers so your legal investment can protect you in return!
By Lorraine Galvis, Esq.
NFTs, or “non-fungible tokens”, are fairly new to the marketplace, but growing in popularity at a record pace. From a legal perspective, there is still much to be learned about this developing technology and its vulnerabilities. However, this gap of knowledge has not slowed down interest or participation from creatives, entrepreneurs, or artists, who have begun creating NFT content and are looking to meet the desire of fans and collectors to own or hold NFTs. As an attorney, my goal is always to evolve with my clients and find ways to help them at every level of their growing business. For our tech and artistic clients, all signs inevitably point to their involvement with NFTs at some point.
Though we are still learning about NFTs and how they work, many clients come to us for answers when it comes to protecting their creations… and we like to have some answers or guidance for them! The U.S. provides creators with access to federal protection from copycats and the unauthorized use of their creative works and brand identifiers through two main legal systems: copyright law and trademark law. Copyright law gives you the power to legally go after people who illegally copy and distribute your drawings, designs, photographs, music, film, videos, books, web designs, and much more. Trademark law gives you the power to go after people who illegally copy or use your registered (keyword!) name, logo, slogan, or jingle to sell the same products or services, which inevitably creates confusion and misleads your customers, potentially affecting sales and your reputation. Trademark protection applies to physical goods, like t-shirts, jewelry, or downloadable music, for instance, and digital goods, like NFTs and the clothing you’d buy to dress your avatar online.
How do you get access to this incredible legal power? You REGISTER. In order to sue someone for copyright or trademark infringement, you would be best positioned to do so if you actually OWNED the copyright or trademark to the content or brand identifier you are suing for or looking to defend. Allowing others to copy or use your content or brand identifiers without your consent or permission can have serious consequences on your business. Find an attorney who is experienced with trademark and copyright registrations and let them help you figure out what the best approach is to protect your content, including that new NFT project you’re considering or working on or already planning to launch soon!
Let’s take Martha Stewart’s 2021 Halloween collection for example. If you click on her website and browse her collection, both the website and the content she is selling or auctioning is unique, but actually pretty cool! She has NFTs that are auctioning or selling for anywhere from $1-4k. One of her higher-priced NFT items (over $15K) includes “NFT animation of the original Martha costume portrait, digital files of the portrait and the animation, physical print of the portrait signed by Martha, and a signed note from Martha to [the] auction winner” as part of your purchase.
Several elements of this NFT offering on Martha’s website qualify for federal protection under U.S. copyright and trademark law. For example, the physical photo itself is eligible for copyright protection. By registering the original photograph, Martha reserves, or basically owns, the right to create and distribute prints of this photograph for sale or reproduction, just like the website says. Martha can also license, or give or assign, this right to any other person or entity she wishes, allowing that person or entity to also sell or reproduce her registered photograph on their website or any other physical or digital platform (depending in the terms of the license).
Martha Stewart also owns several trademarks for several of the products she makes and sells under her widely recognized brands, from pillows, to a TV show, to her arts and crafts collections, to recently NFTs. Both the names and logos of her products and services are registered with the USPTO. As of the date of this article, Martha Stewart, whose net worth is approximately $400 million, owns at least 48 active trademarks in the United States.
Want Martha Stewart-level success with your content? A good place to start is to take the time and legal steps to protect the content and brand identifiers you create. If you don’t give your content and commercial or public identity its rightful value, how can you expect anyone else to invest or see what you see as valuable? Talk to your attorney and find out how you can register your creative works, including your new NFT collection, for federal U.S. protection.
Though I’m not sure the worst of the pandemic is behind us (we are still on high alert because of these new variants), it seems like more and more people are returning to their regular lives and activities before the COVID-19 storm hit us. Plus, it’s SUMMER!!!! Myself included, those regular activities may also include going back to work, weekend brunches with friends, family barbecues, weekend getaways, and outdoor happy hours. Yay! However, if you own and run a small business like I do, then you probably also need to start thinking about rebuilding your business, catching up with bills, growing your revenue stream, or all three! I recommend setting aside some cherished fun time for a little legal housekeeping. This is a critical time to tie up any loose ends connected to your company’s formation or trademark registrations.
Many of my clients suffered devastating blows to their business and income as a result of the COVID-19 pandemic, but not all is lost. Many freelancers and small businesses, including some of our entertainment, e-commerce, and business clients grew in ways they never expected or anticipated. As a result, freelancers and entrepreneurs, now more than ever, are needing new business contracts in order to hire vendors, contractors, or to strategically partner with other people or businesses to provide a new or wider array of products or services to current and new customers. Other people or businesses who already have these types of contracts in place have been asking us to revisit and tell them what their contracts specifically say about their obligation to continue providing services during COVID-19 or any public health emergency. It is no surprise that many of the contracts we have seen say NOTHING specifically about what happens (i.e., do we keep working, will we get paid, are we obligated to stay committed to this vendor, agency, or contractor, etc.?). If we are lucky, the closest guidance we often see is simply a boilerplate “force majeure” clause that typically does not include the words “COVID-19”, “pandemic”, or “public health emergency”. In recent months, we have spent a great deal of time working with current and new clients to draft and update a range of work agreements – NDA, independent contractor, employment, professional services, and vendor agreements – to say what happens to the work relationship if something like COVID-19 ever happens again.
What is not surprisingly true about freelancers and small businesses who either suffered significant losses or thrived unexpectedly during the pandemic, is that both groups used the downtime from the lockdowns during the pandemic to focus heavily on their digital presence. Many have begun, developed, or increased their online presences exponentially by creating new social media accounts, dedicated business websites. As a result, freelancers and entrepreneurs have also created new or improved brand identifiers, such as new logos, music, or artwork, to promote and sell their product or service. Investing in their online identities has also allowed them to better market their products or services more widely and directly to fans and customers beyond their usual audience, to people around the world.
Despite the efforts and growth I have seen from a lot of freelancers or small business owners (many of whom have since hired us to help them with these business flaws), many of the freelancers and small businesses we consult are either still operating their businesses without solid work agreements in place or having taken the steps to properly register their business entities or brand identifiers (i.e., logos, slogans, jingles, product or service names). Some have started new businesses using a business name or alias (also known as a DBA), without first running a proper, prior search, which risks using a name that already belongs to someone else. Others have chosen business names that were available for registration, but have not completed important steps to complete forming their business entity. For example, if you recently formed a limited liability corporation, or an “LLC”, you (and any partners, or “members”) also need to a) publish an ad about your new LLC in 2 local newspapers and b) draft and sign an operating agreement within 120 days of forming your LLC. If you recently formed an S-corporation, or “S-Corp.”, then you (and any partners, or “shareholders”) also need to a) draft and sign a shareholder agreement and b) complete and sign certain IRS forms like Form 2553, among others. If you have not yet formed a business entity, an experienced attorney can help you determine which structure is best suited for your particular business or enterprise and properly complete the steps above. A decent attorney may charge you anywhere from $500 – $2,500 for these services, depending on how many partners, assets, filing or publication fees are required.
Increasing your exposure on the internet and growing your brand using social media is a must for all businesses, especially after COVID-19. However, this transition also highlights the need to protect the content and artwork you are using to identify your products or services online. This is where trademark registration comes in! Increase your chances for an approval of your application by selecting (or making up!) a name that has nothing to do with your business’s product or service. Think “Xerox” for paper or “Apple” for computers. What is a Xerox anyway? It’s a completely made up name we now use to refer to photo copies. What does Jamba mean? I have no idea – probably because it’s made up! – but I know they serve a mean cup of juice! Be creative, make up a name, and maximize your chances for federal trademark protection of your branded product or service. Once granted, U.S. federal protection of your brand of products or services lasts for 10 years. Trademark registration services provided by an experienced attorney generally cost anywhere from $900 – $1500, depending on the number of marks you want to register, the amount of industry classes you want to register your trade- or service mark in (e.g., restaurant services and t-shirts = 2 classes), how many brand identifiers you are looking to register (i.e., your logo, slogan, jingle, or product/service name, or all of the above – each a “mark”), and whether your application is challenged by the U.S. trademark office, which may require your attorney to prepare a formal legal response.
For many, the cost of legal services may appear daunting, expensive, or simply not something you want to invest in now or ever, especially after the losses stemming from the pandemic. It can and often is more expensive to fix legal errors or omissions than to prevent them. Properly forming your company and registering your trademarks and service marks can save you loads of time and money in the long run, especially when it comes to dealing with third-party disputes and defending your brand from copycats and counterfeiters. A business needs legal support like a person needs health care. Think of legal fees as a positive, healthy investment in your business. If you don’t defend or protect it, who will? Lawyers are essential to starting and running successful companies; we are here to help you, not hurt you. Do not wait until a legal issue arises to take care of these basic business housekeeping items. By doing so, you will be better able to focus on growth and on doing what you love doing the most with the peace of mind that your business and its brand(s) are properly registered and protected.