Fine Print: A Proposed Artist’s Contract for NFTs
By Yayoi Shionoiri & Ryan Su
The USD 69 million sale of Beeple’s Everydays: The First 5000 Days (2021) at Christie’s in March catapulted the digital art community into the public eye and the mainstream art market. The basic concept behind NFT (non-fungible token) art is straightforward: information about the artwork—such as caption data, ownership data, and even supplemental information such as exhibition history—can be recorded onto the blockchain and looked up whenever an artwork changes hands to ascertain the artwork’s authenticity and provenance. While the technology underlying an NFT is mostly secure, aspects of buying and selling NFT artworks are still in development as artists and collectors navigate this fast-developing marketplace.
Platforms such as Nifty Gateway that allow for the purchase and sale of NFTs include code-based “smart contracts” in which some agreed-upon conditions have to take place before a transaction is allowed to occur. For example, one condition could be that the artist must be paid a resale royalty every time the work changes ownership, which protects interests of artists when, presumably, the prices of NFT artworks increase. However, during the NFT boom of 2021, artists, collectors, and auction houses may not have devised contingencies for such “smart contracts.” Additionally, “smart contracts” may not necessarily fulfill traditional contract formation requirements. In these circumstances, the only way forward is to rely on a physical set of terms “off-chain” (i.e. in writing) that supplements and governs the transaction and which is enforceable under the law. To that end, we are offering a template for a simple “Purchase and Sale Letter Agreement for NFTs” that artists can modify and use.
We have taken inspiration from Seth Siegelaub’s and Robert Projanksy’s The Artist’s Reserved Rights Transfer and Sale Agreement (1971), which was formulated at a time when artworks were being auctioned off for astronomical sums in a rising market and artists had seemingly lost control of their market. The contract aimed to get a collector’s commitment to providing the artist a resale royalty should the artwork appreciate in value, and to bind subsequent purchasers to the same. The contract had to be physically pasted onto the artwork as a form of notice. In the current context, there are groundbreaking examples of artists collaborating with art lawyers including Nancy Baker Cahill’s NFT drop of the augmented-reality project Contract Killers (2021) with an agreement architected by Sarah Conley Odenkirk, and other art lawyers including Alana Kushnir and Megan Noh who are hard at work protecting artists’ rights in the space.
Our proposed “Purchase and Sale Letter Agreement for NFTs” uses the standardized language and non-negotiable terms and conditions of an “adhesion contract,” and confirms the parties’ mutual agreement so that it can be included on a webpage. It is intended to be applicable to a specific online transaction where “wet signatures” (i.e. in ink on paper) are not obtained. Alternatively, a modified version could include the normal fields for parties to affix their individual signatures at the end of the contract, so that it has the more formal qualities of a legally binding contract. This may be particularly useful for jurisdictions whose courts may find that parties had not agreed to all the provisions in the adhesion contract because it was not signed.
The proposed “Purchase and Sale Letter Agreement for NFTs” would contain details of the artwork, the percentage of artist royalty for each resale, and the obligations and rights of the artist and of the buyer. In particular, the copyright in the actual artwork does not transfer to the buyer and is retained by the artist, as should be the standard with physical/non-digital artworks.
Parties may also opt to include a choice of law and jurisdiction clause, which may be useful to ground jurisdiction and law to a place the artist is familiar with, or whose courts may be particularly sympathetic to their cause. We often call this the “homeground advantage,” as it may be particularly onerous for an artist to enforce such a contract in a place foreign to them or governed by foreign law. It also bears stating that NFTs may be subject to regulatory controls in certain countries, and choosing the law and courts of such a place may render the contract void and could expose an artist to liability. A sample clause is as follows:
“Choice of law and jurisdiction.
Parties agree that this agreement shall be governed by the law of [insert a national or state law] and parties hereby submit to the exclusive jurisdiction of the courts of [insert country or state].”
Today, during the NFT boom, there is a wave of artists who have been using NFTs to authenticate and distribute their creations and also make statements on the systems of power, inequality, and the free market. At the same time, there are legions of scammers minting other people’s artworks as NFTs. Additionally, some collectors have experienced technical instability and difficulty with NFTs, including being shut out of the blockchain and NFTs sometimes disappearing from their digital wallets. These are just some of the problems faced by new entrants joining a quickly developing market. For these reasons, a standard contract would be good to protect all parties involved.
We would like to offer our simple contract, formulated during this pandemic between New York and Singapore, as an additional voice in this conversation to provide security to artists.
PURCHASE AND SALE LETTER AGREEMENT FOR NFTS*
This letter agreement confirms certain details regarding the purchase by you, and the sale by me, of the NFT with the details below. By purchasing the NFT, you acknowledge and agree to the terms and of this letter agreement.