Welcome to Web3 Water Cooler, a moderated Slack chat about a trending topic in crypto. This week’s participants are Orca Protocol’s Chase Chapman, Austin Hurwitz of Venice Music, and IP lawyer Nuzayra Haque-Shah.

NFTs are a web3 innovation, but the intellectual property frameworks surrounding them have been borrowed from a web2 world. This leaves web3 founders looking to build communities around NFTs with a big choice to make: What structure should they use to generate content and build a loyal user base?

Right now, there are three broad buckets to choose from. They can stick with the traditional standard copyright, in which the issuer owns all the IP and buyers just have the rights for personal use. This centralizes creative control with the issuer and also places pressure on the creator to find ways to generate value.

An alternative model picking up steam is the Creative Commons Zero license, which lets artists put their work into the public domain so that anyone can iterate on it — and make money from it. This somewhat complicates the web3 narrative of a user-owned internet: instead of specific NFT holders having rights to a property, no one gets exclusive rights. Nonetheless, NFT projects such as Nouns and Loot have already adopted CC0.

Last, there are a whole bunch of projects in the middle that bestow commercial rights or limited commercial rights to NFT holders. These allow the issuer to retain discretion over how community members can iterate on and commercialize NFTs, including placing caps on monetization. But it also gives creators the freedom to alter the terms altogether.  

So what’s a builder or founder to do? What’s the latest on how to use IP to set your community and business up for success? How might different ownership models drive new kinds of incentives? We held a private Slack chat with DAO contributor Chase Chapman, web3 advisor Austin Hurwitz, and IP lawyer Nuzayra Haque-Shah to talk about the future of NFT intellectual property. (The conversation has been lightly edited.)

Jeff Benson

The questions I want to get to are: Do NFT holders need to have ownership and intellectual property rights over their NFTs for web3’s vision of a user-controlled internet to come to fruition? And what might that mean for creation and collaboration among creators and the communities that form around them?

But before we talk about the future, @Nuzayra, can you give us a sense of where the IP landscape currently stands?

Nuzayra Haque-Shah

Let’s start by addressing the basics:

  • 1) Understanding what copyrights are
  • 2) How can copyrights be granted, transferred, licensed etc. to NFT holders?

I think this would help clarify what’s going on in the NFT space right now, as a lot of creators don’t really know what rights they have, what rights they can grant and the implications of it.

Firstly, copyrights are a bundle of rights. It’s not just one right like trademarks or patents. So copyright licensing or assignment is not as straightforward as it is with other forms of intellectual property.

A creator of original work has the following rights: 1) right to reproduce, 2) right to create derivatives/adaptations, 3) right to distribute and publish 4) right to perform, and 5) right to display.

It’s a bundle and a creator can give away all the rights or some of the rights in the bundle. It’s up to the creator.

These rights can be granted by way of license (limited use for licensee) or full assignment (original creator has no more control). And this is done by written contracts. This is accounted for in a NFT project’s Terms of Use.

The current landscape is a mix…there are those that say their NFT holders own “all commercial rights” and there are those that only give away minor rights. For example, Yuga Labs allows current holders to create [adaptations] and derivatives of their artwork for commercial ventures. But they don’t grant the other rights in their copyright bundle.

There are also projects like Women Rise that provide limited rights to commercialize the artwork in their NFTs up to a certain dollar amount. If you cross that threshold, you have to pay royalties to the creators.

Important to point out though — projects that say “all commercial rights” are super vague because it could literally mean that they are also giving their holders the right to use their brand name for commercialization, which is definitely not what any NFT project wants.

Jeff Benson

So, you’re telling me it’s super complicated.

Nuzayra Haque-Shah

Haha. Yes and no. Creators have to understand the basics, because with NFTs it’s all about IP. You are essentially creating, buying and selling a bundle of IP rights.

Jeff Benson

@Austin and @Chase, what challenges/limitations do you see in the current commercial landscape? And how are communities innovating in light of these? 

Chase Chapman

One of the big challenges I see unfolding is that copyright is complex (as @Nuzayra highlighted).

When people begin participating in these communities (whether that means buying an NFT or building derivative projects), I think there’s a very high bar for understanding all of the elements of what IP in this context looks like. From that perspective, I think CC0 has been very appealing because it strips away some of that complexity. Of course, that comes with other challenges.

If we want people to have true ownership and control, these types of things need to be legible. It feels like the current landscape really lacks that.

I think CC0 has been very appealing because it strips away some of that complexity.

Nuzayra Haque-Shah

Agreed — for people, it’s confusing to figure out the difference between a license (usually revocable) vs a full transfer/assignment of rights.

Austin Hurwitz 

Agreed. The nuance[s] of these licenses are being lost.

Chase Chapman 

Totally. When we think about projects like Nouns, where the entire point of the project is to proliferate the meme, this feels pretty straightforward and CC0 makes a lot of sense. Where things get difficult is when the project is more sophisticated in how they think about IP and that nuance around different types of rights starts to become really important. Are there examples of projects that are not CC0 that have done a really good job of communicating that nuance? I can’t think of any off the top of my head.

Austin Hurwitz 

Great question, @Chase. Bored Ape Yacht Club and Doodles have both done serviceable jobs communicating their license structures. The baseline expectation from holders (right or wrong) is they have full commercial rights. To @Nuzayra’s point — that in itself is an issue because almost no projects are giving away the full bundle of copyright rights.

To @Jeff’s earlier question: “Do NFT holders need to have ownership and intellectual property rights over their NFTs for web3’s vision of a user-controlled internet to come to fruition.” The answer is likely somewhere in the middle and dependent on the goals of the creator and their community.

Commercial rights exist to protect creators. To enable them to create without fear of someone taking advantage of their work. They allow for brands to create credible businesses.

CC0, on the other hand, is highly congruent with the ethos of web3. By establishing creations in the public domain, it makes them highly composable. Ideas are able to proliferate at an accelerated rate. By giving up central control you’re getting the ability to be multi threaded and decentralized. The project can grow in unexpected ways. To @Chase’s example with Nouns, CC0 is a great opportunity to spread ideas memetically.

Jeff Benson 

Let’s pull at that thread, @Austin. While CC0 is unlikely to make NFT investors very happy, how do communities feel about it? More specifically, in what ways is Nouns innovating — and how might that manifest in other projects?

Austin Hurwitz 

I’d contend many investors are fine and even encourage CC0. So long as the expectations on what they were buying were established before purchase.

Nouns is a great example of this. Nouns exist to proliferate Nouns. As brand equity grows, so too should the value of their NFTs. While anyone can make a derivative of an on-chain noun, the investors ultimately still have on-chain provenance of the original.

There are several novel ideas behind Nouns. For starters, they’ve combined culture (pixelated avatars) with a DAO (shared treasury). Spreading culture creates a flywheel. The more people who know about Nouns, the more people who will want to purchase a Noun, which then adds value to [users] and the DAO.

By giving up central control, Nouns is able to proliferate in a myriad of directions.

The second innovation is: Unlike 10,000 PFP projects which all release at the same time, one Noun is minted per day. Forever. This slow drip builds their community slowly and ensures individuals who join the DAO are mission aligned.

Third, because Nouns is open source, it’s readily available to the public. Meaning anyone can take their code and fork it for their own project. Many derivatives like Lil Nouns have used the Nouns framework to create their own CC0 DAO projects.

Lastly, the DAO itself. Nouns have amassed a treasury of over $45M. By owning a DAO you are able to participate in governance of the treasury. To date, the treasury has funded projects such as an appearance in the Bud Light Super Bowl commercial, sponsoring an esports team, creating a sunglasses line, and a coffee bean subscription!

By giving up central control, Nouns is able to proliferate in a myriad of directions.

Jeff Benson

There’s a big underlying question here about who can be a creator of what. In the case of these expanding IP universes, web3 projects are relying on NFT holders (and even some non-holders) to act as creators to fill out the world and add value. Is this a question of resources or imagination? Put differently, do the original artists have specific ideas of what they’d like to see but just can’t accomplish this on their own? Or are they truly hoping to be surprised by the applications?

Nuzayra Haque-Shah

I think there [are] benefits to allowing your holders to commercialize the NFTs to some extent. It makes them feel they have a stake in the project, aka, ownership. Also, if the derivative works/projects created by holders see success, that draws more attention to the original project.

The original creators can only have so many ideas on how to grow the brand. But if the holders are able to innovate with the underlying artwork, you’re basically creating a mastermind at that point, pooling in a diverse set of ideas, resources and skill sets.

Jeff Benson 

So, coming back to the original question: Do NFT holders need to have ownership and intellectual property rights over their NFTs to facilitate web3’s vision of a user-controlled internet? Or is putting IP into the public domain even better?

Austin Hurwitz 

From the perspective of both the holders and the creators: It depends. It’s analogous to closed and open source. Both can result in users having control and ownership. The extent of which is dependent on their rights. Different goals call for different tactics.

Commercial rights are closed ecosystems. They make sense when the creators have a central vision they need to execute on and tightly control. A business needs to be able to shape the uses of their IP to reflect their overarching strategy. This may also be acceptable for holders as long as their uses fit within the limited license.

CC0 is akin to open source. It is the right option to achieve maximum decentralization and proliferation. Similar to how Ethereum started centralized and then moved to rapidly decentralize, CC0 projects are betting on the creative forces of their community to drive outcomes they could not do centrally. As a holder, you are taking this bet because you expect the maximizing proliferation will benefit you.

Chase Chapman

I think it’s worth taking a step back to parse out ownership, IP rights, and the notion of a user-controlled internet.

Personally, I consider IP rights one element that may be included in what we think about as “ownership” associated with an NFT. Other things that might be associated with “ownership” are things like governance power. For example, owning a Noun means you can vote on how the treasury is deployed. Even something like royalties going back to your NFT might be considered another element of ownership.

So I don’t think it is necessary for NFT holders to have a specific type of IP right over an NFT to facilitate web3’s vision of a user-controlled internet ‒ because IP is just one element of the ownership puzzle. 

I think over time we might start to see more web3 native IP frameworks. I’m not entirely sure what that will look like, but I’d imagine built-in attributions, royalties, splits, contextual rights, etc will become baked into the platforms and protocols we use.

IP is just one element of the ownership puzzle. 

Jeff Benson

How do you all see collaboration among creators and communities evolving? And what innovative projects or models should people pay attention to?

Chase Chapman

That’s a big question! I think the line between creator and community will probably continue to blur.

Projects I’m watching:

Songcamp is constantly pushing the boundaries on what collaborative co-creation can look like and it has been absolutely amazing to watch them bring artists together.

Metalabel is doing some really innovative work around unbundling the creator economy and shifting the narrative away from “content all the time” to intentional drops by groups of people with shared context.

Nouns came up a lot in this discussion. The model for Nouns is simple and sophisticated, which makes it great for understanding where the space might be headed and what’s possible.

Nuzayra Haque-Shah

I think collaborations between communities and creators can look different depending on what makes most sense for a particular creator. From a legal perspective, creators are free to grant or license out certain rights. So there’s no restrictions there.

As @Chase pointed out, there [are a] couple of moving parts here along with basic IP ownership. Being part of a DAO — with a right to vote on major decisions, getting royalty of secondary sales, etc. could be attractive features for holders even without owning any IP in the project.

I don’t think there’s a good or bad approach here. It depends on the goals and mission of a project — based on that they need to formulate an IP strategy that benefits them and their holders.

And also people like real life utility too — so if creators provide that in lieu of IP rights, even that’s a good benefit.

So it really just depends on the creator — what benefits/utility they want to deliver and if there’s demand from holders for that benefit.

Austin Hurwitz

To @Nuzayra’s point regarding utility — I expect to see more creators and their companies grounding projects in non-speculative benefits. CPG Club is a great example of a membership NFT community built as a consulting agency and incubator. Members receive access to deal flow and can submit for non-dilutive grants to build their own projects.

We will see more instances where creators may initially steward projects and work to rapidly decentralize (similar to Nouns).

But I also expect many creators will build companies with limited rights for their holders. It still represents a leap forward in ownership for community members from the web2 model. We are gradually moving from participatory to ownership driven.

We will see more instances where creators may initially steward projects and work to rapidly decentralize.

Jeff Benson

One last question: What considerations should web3 founders make when deciding whether to start their own thing or iterate on existing IP?

Austin Hurwitz

What is their objective? If it’s to see a singularly focused vision of a brand come to life, then founders should look to maintain as much control of the IP as possible. This would mean creating their own project.

If it’s to experiment with the technology, proliferate an idea, or expand upon a predecessor’s vision, then iterating is appropriate. In each use, the brand is secondary to another objective.

It comes down to a desired end result and how much control is required to achieve it.

Nuzayra Haque-Shah

Remember that when you’re acting on someone else’s IP, you are working on borrowed grounds. Unless there is a full transfer of IP rights, you are operating on a license that comes with limitations and restrictions — not to mention it can be revoked.

As a founder, it’s crucial to build your own portfolio of copyrights and trademarks. You can buy out other people’s IP, but an entire business relying on licensing is not that great. A mix of both licensing and ownership is much better. That way you get to build on what’s already working in the market and at the same time have original works that [are] exclusive to your brand.

And then you can also license out your IP to others, increasing your revenue sources. It also creates room for innovation as you’re not restricted by an outside company telling you what you can or cannot do with the license.

5 Key Takeaways for Builders:

  • NFT creators have a bundle of rights — the rights to reproduce, create derivatives/adaptations, distribute and publish, perform and display — that they can (partially or fully) retain or give away to NFT holders and/or others. The rights structure they choose is ultimately based on what can facilitate value creation.
  • Founders must make their rights agreements clear to community members to mitigate confusion and anger.
  • Austin points out that projects such as Nouns have created a flywheel effect by using CC0. 
  • However, there’s no one-size-fits-all NFT IP strategy for web3 builders — and founders can even build within other brands.
  • Creators don’t have to hand over IP to provide a sense of community investment. As Chase puts it, “IP is just one element of the ownership puzzle.” DAO memberships and royalty splits can also be effective ways of imparting ownership.