Contracts generally have a common goal – to provide deal certainty to the parties. In a series of articles, Chris Pulham, a Partner in Memery Crystal’s Commercial IP and Technology team, investigates what this means for Artwork NFTs in an on-chain world.
You have purchased your NFT and want to sell it, but where do you go and what terms apply?
In the current market, artwork NFTs are sold by private agents, through established auction houses (such as Christie’s and Sotheby’s) which have expanded into the NFT market for famous artists, or for the less well-known artists and other collectibles on NFT marketplaces focussed on artwork NFTs and collectibles, such as OpenSea or SuperRare. Future articles will feature a deep dive into some common auction house and marketplace terms and conditions.
Private agents and auction houses tend to apply their own sale conditions to regulate the sales process, and, depending on the type of service they provide, any assurances which they would be making to the parties. By way of example Beeple’s First 5000 Days was sold under Christie’s auction house online Conditions of Sale:
These high-value transactions will benefit from bespoke off-chain legal advice.
Sales made on the NFT marketplaces will be subject to the specific terms and conditions for sales made on that marketplace. There are no standard terms, and each marketplace will have different terms applying that will regulate the NFT being traded.
Importantly, these terms apply in addition to any terms embedded in or linked to the NFT itself (which I explore in my first article in this series). These sale terms are often an umbrella set of terms which can be – and are – used for the sale of everything from fine (physical) art, precious (physical) artefacts and NFTs of intangible, digital artworks. This means that the standard terms may be generic and may contain terms that are not relevant to your transaction, and conversely may not include terms that you might have found helpful.
As a seller it is essential to understand what representations and commitments you are making, and what risks you are taking on, by entering into a contract. For example, is there an automatic resale royalty for the artist built into the NFT’s smart contract which will be triggered by the sale? Or is the seller obliged to pay royalties under a separate obligation, out of the proceeds of the sale?
Commentary
Each of these contractual layers adds complexity, sometimes obscuring even the most fundamental aspects of the contract, such as: which country’s law apply if there is a dispute?
Before committing to a transaction, both the buyer and the seller need to understand the implications for them of all the terms which will apply to the contract. In particular, if the asset is of high value, whether you are a buyer or a seller, you may wish to seek advice from a lawyer experienced in digital assets, on the terms of the transaction and implications for you.
In the next article Chris explores an important but often overlooked layer of contractual terms – the contract with the NFT host.
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Are you looking at the emerging world of crypto and considering how it affects your business? Have you launched a currency or created NFTs, or are you considering doing so? Do you need to understand more about the legal issues behind crypto, NFTs or the technology, including regulation, tax, or intellectual property? Have you encountered any difficulties and are looking for advice or redress?
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Should you have any questions, or wish to discuss any issues raised in this article, please get in touch with the author of this article Memery Crystal’s Chris Pulham. If you are having any issues in relation to an NFT you have purchased or sold please get in touch with Rosenblatt disputes partner Laura Clatworthy.
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