Emerging Litigation Podcast

IP Protection, Secure Transactions, and Bored Apes: NFTs with Cameron Pick

• Tom Hagy • Season 1 • Episode 97

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NFTs – or non-fungible tokens – have taken the digital world by storm – or perhaps just a downloadable picture of a storm – promising to revolutionize not only the way we perceive, protect, purchase, and own digital assets, but how we might even buy a house or other assets in the real world. 

These unique digital certificates, recorded on a blockchain, exploded onto the scene in post-pandemic 2021 with record-breaking sales and widespread media coverage. One of the most amazing examples is "The Merge" by the anonymous artist Pak, which sold for a staggering $91.8 million. 

The Bored Ape Yacht Club is another fascinating story. This collection of 10,000 unique, cartoonish apes, each with its own distinct features, became incredibly popular in 2021. Owning a Bored Ape would become a status symbol in the NFT community.

However, the meteoric rise of NFTs was followed by a significant downturn, leading many to question the future of NFTs. While the initial hype and astronomical prices may have subsided, the underlying technology and potential of NFTs remain promising.

For insights into this evolving landscape, listen to my conversation with Cameron Pick of Marshall Gerstein. An experienced expert in intellectual property law with a focus on emerging technologies, Cameron advises clients on a range of legal issues related to NFTs, blockchain, and cryptocurrency. He holds a J.D. from Duke University School of Law and a B.S. with honors in electrical engineering from the University of Illinois, Urbana-Champaign.

This podcast is the audio companion to the Journal on Emerging Issues in Litigation. The Journal is a collaborative project between HB Litigation Conferences and the Fastcase legal research family, which includes Full Court Press, Law Street Media, and Docket Alarm. The podcast itself is a joint effort between HB and our friends at Law Street Media. If you have comments or wish to participate in one our projects please drop me a note at Editor@LitigationConferences.com.

Tom Hagy
Litigation Enthusiast and
Host of the Emerging Litigation Podcast
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Tom Hagy:

Welcome to the Emerging Litigation Podcast. This is a group project driven by HB Litigation, now part of Critical Legal Content and VLEX Company's Fast Case and Law Street Media. I'm your host, tom Hagee, longtime litigation news editor and publisher and current litigation enthusiast. If you wish to reach me, please check the appropriate links in the show notes. This podcast is also a companion to the Journal of Emerging Issues and Litigation, for which I serve as editor-in-chief, published by Fastcase Full Court Press. And now here's today's episode. If you like what you hear, please give us a rating.

Tom Hagy:

Nfts, or non-fungible tokens They've taken the digital world by storm, or maybe just a downloadable picture of a storm. They promise to revolutionize the way we perceive and own digital assets. As today's guest explains, these unique digital certificates recorded on a blockchain have enabled artists, musicians and collectors to tokenize there's a new word their creations and sell them as limited edition digital assets. I think a presidential candidate recently did that. But what exactly are NFTs and why have they garnered so much attention? Well, in 2021, the NFT market exploded, with record-breaking sales and widespread media coverage. One of the most iconic examples is the merge by the anonymous artist, pac. I think I'm saying his name. It could be Pac. Anyway, it's P-A-K which sold for brace yourself $91.8 million. That's almost twice what I make in hosting the Emerging Litigation Podcast. This digital artwork was sold to nearly 30,000 collectors on the NFT marketplace Nifty Gateway, for those of you interested. Each bought a piece of the NFT. They merged them to increase ownership.

Tom Hagy:

Another notable collection is CryptoPunks. Who doesn't like that name? That's a set of 10,000 pixelated profile pictures. Some of these digital avatars have sold for millions of dollars, with CryptoPunk number 5822 fetching $23.7 million. Not to be outdone. Well, it was outdone, but CryptoPunk number 7523 sold for $11.8 million. What's in your wallet?

Tom Hagy:

The Bored Ape Yacht Club is another fascinating example. This collection of 10,000 unique cartoonish apes and who doesn't love apes? I know I do Each with its own distinct features, became incredibly popular in 2021. Many celebrities and high-profile individuals purchased these NFTs, which offer their owners exclusive access to events, merchandise and other perks. Owning a Bored Ape has become a status symbol in the NFT community, and who doesn't need a status symbol? I know I do. However, the meteoric rise of NFTs was followed by a significant downturn. The market value plummeted by over 90% since its peak in 2022, leading many to question the future of NFTs. But who knows, you know, maybe things can change. While the initial hype in astronomical prices may have subsided, the underlying technology and potential of NFTs remains promising. See, I was watching something the other day about a couple of experts. I think that was probably the 1970s, and one guy was saying how the internet.

Tom Hagy:

That's just going to be a passing phase. It's going to go out like CB radios for those of you old enough to remember that breaker 911. I don't know what that means. While the other expert was saying imagine if they're all connected, how we can talk to each other through them and even buy things. So maybe that's where we are now. And speaking of humor, nobody was.

Tom Hagy:

Nft aficionados do have a sense of humor. Their jokes come in the form, of course, of memes. The website nfteveningcom posted some of its favorites recently. One shows the face of an extremely anguished and disappointed grade school kid at his desk with the caption it's career day. And your dad walks in with his NFT collection. See, that's only something that the kids can find. Anyway. In another one, the first frame shows a mom and a dad gasping in horror, as the wife says I can't find them Still gasping. The husband asks if she's referring to their NFTs. No, she replies the kids. She remains in anguish as the husband exhales in relief. Another meme shows a father wearing virtual reality goggles and his son facing a blank wall. The father says one day, son, this will all be yours. The next frame shows a museum hall filled with digital paintings, and there's a whole sub-thread of memes sub-memes I don't know if that's a word, did I just make it up Called the right-click save memes, which are variations on why would I pay X amount of money for this JPEG when I could just right-click and save it for free? While amusing, these are based on public perception more so than reality, but you get the point.

Tom Hagy:

The NFT market also faced numerous legal and regulatory challenges. Point the NFT market also faced numerous legal and regulatory challenges, particularly regarding the classification of NFTs as securities. The SEC has been actively investigating NFT marketplaces, including OpenSea, to determine whether certain NFTs meet the criteria of securities under what is known as the Howey test, not How-we-test Howey as in you know, a nickname for Howard the Howey Test. Additionally, nft marketplaces have faced class actions, such as one against OpenSea by users who alleged that the platform offered unregistered securities and misled users. I read an article about that by our guest, cameron Pick, with Marshall Gerstein. He's an experienced expert in intellectual property law with a focus on emerging technologies. He advises clients on a wide range of legal issues related to NFTs, blockchain and cryptocurrency. Cryptocurrency is about to get hot, apparently. That's what they're saying. Cameron is a frequent speaker at industry conferences and has published numerous articles.

Tom Hagy:

Legal implications of digital assets. I'm laughing because I had to say that four times to get it right, because I made up a word called implications. What are the legal implications? Okay, while earning his JD Cameron, can I call you? Cameron was a member of the Patent Law Society at Duke University School of Law. Before joining Marshall Gerstein, he worked as a patent extern US Patent and Trademark Office. He has his JD from Duke University School of Law and a bachelor of science degree in engineering. I'm doing that from memory because I apparently deleted it from my script. He has that degree from University of Illinois, urbana-champaign. You can read some of Cameron's interesting articles on his firm bio page, which I've linked to in the show notes. And now here's my interview with Cameron Pick of Marshall Gerstein. I hope you enjoy it. Just a quick health note, though. Sounds like I still had a cold when I did this one, so you'll notice the change in my voice. It's coming now. Cameron Pick, thank you very much for talking with me about this today.

Cameron Pick:

Thanks so much for having me.

Tom Hagy:

Let's give kind of a quick kind of basics about NFTs for our listeners, who really don't understand what they are, and I've only gotten a better understanding of it by talking to you. So what are they and can you give us some examples?

Cameron Pick:

The easiest way to think about it is that NFTs are essentially a digital receipt or certificate of authenticity that's recorded on a blockchain, so it gets all the benefits of blockchain technology, which means that it's decentralized and it has the security and immutability benefits and it's protected by cryptography. The essential idea behind NFTs is that they're a digital or online receipt showing proof of the asset that you have, and that asset can be many different things. It can be digital art, so before people own physical art, but there are a lot of online images that could have value and there just wasn't really a great way to capture that value. Nfts can be used for tickets. Again, they're a digital receipt and it's a better way to avoid counterfeiting. They can also be used for backstage passes or for fan engagement for different artists.

Cameron Pick:

And then they can also be used as video game pieces. So some video games are very popular and they'll actually sell different pieces in the game, like a weapon or a castle or a car, something like that. But the game creator was always in control of who could buy the assets, what they'd be priced at and whether or not someone could transfer them on the secondary market. But by having this on a blockchain through NFTs. The NFTs are available to anyone, so the creator is no longer in control of these.

Cameron Pick:

Another good example of the use of NFTs can be for real property. You can actually sell your house through an NFT and that can solve a lot of issues related to title. You can make it more liquid and it can allow for quick and easy sales. And you can actually break up NFTs and sell fractions, so it can allow for people to speculate on real estate that they wouldn't have been able to in the past, where someone can break their NFT up that represents their property into fractions, like, let's say, 1%, and other people can purchase those and kind of speculate on a home or on commercial real estate.

Tom Hagy:

Can we talk about ownership rights? So you talked about the underlying assets a bit. How can a creator of an NFT retain certain rights like copyrights and others?

Cameron Pick:

So kind of the default is that the creator does retain the copyright and other IP rights, like trademark or any patent rights. But certain NFTs can have it baked into them that when you do transfer the NFT that you transfer the copyright along with it. But that's not really the default. The default is that when you buy the NFT you would own the asset. So if I'm buying digital art, I would own that image and I'd have the right to resell that image but I wouldn't necessarily be able to reproduce that image or make derivative works off of it.

Tom Hagy:

How do you know, trace the authenticity or provenance of NFTs? How can the ownership be verified?

Cameron Pick:

So NFTs are verified on a blockchain, and the blockchain is essentially a public ledger. There's a few different blockchains I think the most popular ones are Ethereum and then Solana and this public ledger is maintained by thousands of computers or nodes that each store a copy of the blockchain, and so the way the verification works is that if each of them store that copy and have a consensus, essentially that you're the owner of the NFT, then it's recorded in the ledger and anybody can see it.

Tom Hagy:

It seems like, from what you're describing, that it's pretty hard to counterfeit or to commit fraud here, but like it's almost uncrackable but nothing is. Are there additional security measures you would recommend to protect NFTs?

Cameron Pick:

So far, nobody's ever been able to change what's stored in these public blockchains. No one's been able to hack a blockchain in a similar way that people have hacked servers in the past. But the vulnerabilities aren't really on the blockchain itself. The vulnerabilities are on the users that are maintaining these. The users have to maintain their keys and if anybody has access to those keys, then they can take the NFT, and there's no way to really undo the operations on a blockchain in a similar way that a bank can undo transactions that are just stored on their server. So if someone tricks you, causes you to give them access to their keys, they can steal the NFT. There wouldn't really be any way to get them back.

Tom Hagy:

So it sounds like a lot of data breaches and things like that. It seems like the humans are the vulnerability which leads to kind of old school crime where you get people to sign things or you scam them. So old school criminals are going to have a future still staying on intellectual property rights, how are they protected in secondary market transactions?

Cameron Pick:

NFTs don't necessarily have to transfer over IP rights but they can, and there's certain examples of NFT projects where they have transferred them over. One example is Bored Apes. So Bored Apes is some project where they sold different cartoon images of apes. That actually became very popular. It kind of went viral for a bit of a time, and when you transferred the board ape itself, you also received the, the copyright to do whatever you want with it. And I think actually seth green was going to make a tv show off the board ape that that he bought because he had the copyrights to it, but something went wrong with that. I don't think he ever ended up making that show.

Cameron Pick:

But there are different ways to transfer the copyright with the NFTs, and so Andreessen Horowitz, for example, proposed this idea of can't be evil licenses that can be tied with NFTs and these licenses hand over different rights. There's essentially, I think, six different licenses with different flavors of what types of rights are being transferred whether they're display rights, distribution rights, making derivative works rights, distribution rights making derivative works and users can pick and choose what they want to be able to transfer and then include that in what's called a smart contract, which sets out the terms for the NFT and those terms are stored on the blockchain. So when the NFT is transferred, those terms are automatically transferred and everyone can see exactly what those terms are, and then the can't be evil licenses.

Tom Hagy:

They are what they sound like.

Cameron Pick:

Yeah, so this came from Creative Commons licenses, which are open source licenses that were referred to as don't be evil licenses, basically allowing people to have open source access to different software, but in exchange that they would attribute it to the original creator or they would follow the terms that that creator wanted to have them follow. This was changed to can't be evil for blockchain technology because it's placed in code. And because it's placed in code, someone can't ignore the terms in the same way that they could with a physical contract.

Tom Hagy:

Is there anything else you would say about what should be included in NFT contracts?

Cameron Pick:

I think it's just important to have the terms included in the smart contract so that way it is on the blockchain and it's not in some kind of private communication that doesn't necessarily get followed through. But having the terms in a smart contract on the blockchain keeps them on this ledger forever.

Tom Hagy:

Can you talk a little bit about how these things are valued and pricing? How is that done? Is that strictly kind of a free market issue?

Cameron Pick:

Yeah, it's a free market issue. I think it's similar to trying to value physical artwork, which can be very difficult to do. I mean, I know I don't really have a good understanding of why certain art is very valuable and others are not. I think that's similar for NFTs. It's just about how popular they are when it comes to digital art and how excited people get about the project. But then for things like if it is an NFT representing physical property like a car or a house or something like that, I would think the values would just be the same values.

Tom Hagy:

What can you tell people about the size of this market? This is big business and there's some big players in it. We had chatted before about recent developments with OpenSea. What can you tell us about the market size and what happened with them?

Cameron Pick:

The market got really hot for a little while in 2021. And that's when a lot of these kind of digital art NFT projects launched. The market's really cooled down recently, but it's very cyclical. Markets really cooled down recently, but it's very cyclical, so it might heat up again in the 2021 market. Nfts were mostly digital art, but they can be all these different things, and so the market might move towards tickets or video game assets or other types of NFTs like backstage passes or having VIP access with certain celebrities or influencers. I could see the market moving towards something like that, but right now the market's really cooled off substantially.

Tom Hagy:

Well, cameron. Thank you very much. That concludes this episode of the Emerging Litigation Podcast, a co-production of HB Litigation, critical Legal Content, vlex Fast Case and our friends at Lost you Media. I'm Tom Hagee, your host, which would explain why I'm talking. Please feel free to reach out to me if you have ideas for a future episode and don't hesitate to share this with clients, colleagues, friends, animals you may have left at home, teenagers you've irresponsibly left unsupervised, and certain classifications of fruits and vegetables. And if you feel so moved, please give us a rating. Those always help. Thank you for listening.