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Moonbirds, IP Rights & Consumer PRotection

A recent decision by the Proof Collective Team to move Moonbirds to a creative commons (CC0) license has been met with significant pushback from the NFT community (at least from what I have seen on NFT Twitter!). Following the announcement, the floor price of Moonbirds fell several ETH, with the lowest sale recorded at 13.61 ETH, before quickly bouncing back to a floor currently sitting at 16.99 ETH.

In this post, I discuss why this decision weakens any existing intellectual property (IP) rights that Moonbirds NFT holders might have. I further discuss why decisions like these, although well-intentioned and legal, are in line with a trend I have seen across the NFT space with troubling consumer protection implications. 


1. Weakening of IP Rights for Moonbirds NFT Holders

I will focus the IP rights discussion on copyright since CC0 dedicates copyright in a work to the public domain and waives all associated rights to the fullest extent possible.

As a starting point, who owns the copyright? The copyright in the Moonbirds NFT is owned by the artist and/or team behind the project. Contrary to what some NFT holders believe, ownership of an NFT is not ownership of copyright in the art tied to the NFT.

Owners of Moonbirds NFTs have commercial use rights associated with the NFT. Ownership of a specific Moonbirds NFT allows one to make duplicates/derivatives of that NFT, print the image on a t-shirt, key-chain, poster, etc. for commercial purposes. This type of commercial right is unique, and I have really only seen such rights distributed in this manner in the NFT space. Stated differently, I can’t go to a store, purchase a painting, and commercialize that painting without infringing on the copyright of the artist who made that painting.

So why exactly does moving Moonbirds to a CC0 license weaken any IP rights existing holders may have? Certainly an argument can be made that a creative commons license still allows Moonbirds NFT holders to commercialize their NFT but also, other NFTs in the collection that they do not hold. In my opinion, Moonbirds NFT holders now have a weaker IP right in their NFT for two reasons.

Firstly, one of the things that gives an IP right value is exclusivity/scarcity. If I purchase an NFT, and know that outside of the NFT artist/team, I alone can commercialize that NFT, that is certainly worth something. That scarcity/exclusivity no longer exists when anyone, anywhere, with no investment in the project, can commercialize the NFT in question.

Because of the commercial use rights granted to me via an NFT, I arguably have standing to sue if someone starts to commercialize or use my NFT. It is not unheard of in the NFT space to spend exorbitant amounts of money to purchase a highly coveted NFT because of what it represents. One example of this is a Golden Bored Ape Yacht Club NFT, which generally fetches a USD price north of $1 million. In the case of Moonbirds NFT, inappropriate use of that NFT, including creating a counterfeit NFT with the same image, and using it with a verified Hexagon-shaped Twitter profile picture, is completely acceptable. The CC0 model sees no issues with copyright misappropriation of this sort.

I want to make it clear at this point that I have no issue with and am actually inspired by artists/teams that dedicate their works to the public domain, effectively shedding what they perceive as antiquated IP rights that do not accord with Web 3.0 values. As I discuss in the next section, my issue with this particular decision is that it happened after the mint and when significant secondary sales of the NFT had already taken place.  

2. Consumer Protection Implications

I’ll begin with two specific experiences I have had in the NFT space without shaming the projects in question:

  • Example 1: A project promised a free “airdrop” to all NFT holders by a certain date. When the date in question came around, the project founder decided it would be too expensive to airdrop the NFT to all holders, and instead set up a free claim page. This was in October 2021, when GWEI on the ETH network was consistently over 100. The result? I paid several hundred dollars to claim a “free” airdrop.

  • Example 2: A project promised that holders who owned an NFT with a specific trait would get the opportunity to mint a second limited NFT for only 0.025 ETH. After months of accumulation and rising floor prices, the mint price of the second NFT was raised to 0.06 ETH to cover “unexpected” costs.

Regardless of the specific situation, the consumer protection issue can broadly be summarized as follows:

  • Consumer mints/purchases an NFT with an expectation of “X”. This “X” is the consideration which flows to the consumer in exchange for them spending money (in this case, ETH) on the NFT.

  • The NFT project turns around and changes “X” into “Y”. Simply put, the consumer does not receive what they paid for as the rights accompanying that NFT are unilaterally modified.

Why is this so egregious? One reason is because these violations of consumer rights occur on such a small scale that no single individual is willing to litigate the issue. For example, the costs associated with filing a claim in Example 1 above outweigh the actual amount I spent on gas claiming the NFT. Many times, the collections themselves are so small that a class action is not feasible. Holders of the NFT are also generally reluctant to even mention the word lawsuit, because it would result in the floor price dropping immediately – it is often much easier for them to exit quietly, often in a loss, and move on.

A second reason this is egregious, particularly in the case of Moonbirds is because the team has made a unilateral decision (not very “Web 3.0”-like) to effectively weaken/abolish the IP rights of existing holders without any discussion or vote from the community in question (at least as I understand it). Make no mistake, as holders of the IP rights tied to the collection, the Moonbirds team are likely well within their legal right to do this.

However, I particularly have an issue with a team touting the blockchain as the true measure of authenticity (see Kevin Rose’s Twitter post here) when the rights flowing from ownership to the NFT are not immutably tied to the smart contract/NFT, but exist within “Web 2.0” and can be unilaterally modified.

3. Some Proposed Solutions

Taking a step back, the decision to move the Moonbirds NFT collection to a CC0 is likely legal and certainly not the worst thing to happen in the NFT space. In fact, many reading this would consider the consumer protection issues to be low-hanging fruit in the bigger scheme of things. However, I am a strong proponent of holding ourselves to a higher standard, especially if we have any chance of being taken seriously and truly want to distinguish Web 3.0 as a better model than existing structures. 

I would propose the following:

  1. Rights accompanying an NFT should be immutably tied to the NFT and/or smart contract via code. Where this is not possible, mechanisms for changes to holders’ rights should be agreed upon pre-mint (i.e., majority holder consensus). This, and this alone, is truly in line with the ethos of Web 3.0; and

  2. Changes to NFT holders’ rights that happen post-mint should be voted on by the NFT community itself. I do not believe the rights of the “few” who have spent their hard earned-money on an NFT should be reduced for the benefit of the “many”.

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