Episode 67 of the Public Key podcast is here! “Code is Law” is one of the big myths when it comes to IP Law and blockchain. Today, we are joined by Moish Peltz (Partner, Co-Chair of Emerging Technologies & Blockchain Practice Group, FRB Law) to demystify this myth and explain how the courts will approach copyright and IP protection laws to emerging technology like blockchain, NFTs and AI-generated AI content.
Public Key Episode 67: Code is not law when it comes to blockchain and intellectual property
“Code is Law” is one of the big myths when it comes to IP Law and blockchain. In this episode, host Ian Andrews talks to Moish Peltz (Partner, Co-Chair of Emerging Technologies & Blockchain Practice Group, FRB Law) to demystify this myth and explain how the courts will apply copyright and IP laws to emerging technology like blockchain, NFTs and AI generated content.
In the episode, Moish explains recent cases between luxury brands and NFT creators, and how those cases will impact the industry as regulatory, legal and tax requirements increasingly cause NFT marketplaces to phase out creator royalties.
Moish also touches on how the music industry still faces challenges that were first presented by file sharing sites like Napster, and highlights current and future legal cases that will shape the blockchain and NFT industry forever.
Quote of the episode
“And so, I think we’ve seen maybe over the past three years, courts and attorneys have been increasingly required as part of their day-to-day jobs to understand these technologies, to pull them apart and to either advise clients in the context of an attorney or as a judge to understand the principles and make a determination on some issue relevant to the issues presented by blockchain.” – Moish Peltz (Partner, Co-Chair of Emerging Technologies & Blockchain Practice Group, FRB Law)
Minute-by-minute episode breakdown
- (2:35) – Moish discusses his early Bored Ape Yacht Club NFT purchase and the IP capabilities the BAYC community
- (6:35) – The concept of “code is law” and its limitations
- (9:45) – Is serving court documents via airdrop legal and are legislators and the courts adapting to blockchain in the legal system
- (11::37) – Overview of the Hermes trademark infringement case and its IP implications for the broader NFT industry
- (21:12) – The legal challenges of AI-generated content and copyright ownership for content, music and Hollywood
- (31:02) – Challenges and unresolved issues in the NFT and Music industry
- (37:05) – Future legal cases to watch in the blockchain and NFT industry
Check out more resources provided by Chainalysis that perfectly complement this episode of the Public Key.
- Website: Falcon, Rappaport & Berkman LLP: Emerging Technologies & Blockchain Practice
- Blog: WAGMI! At Last, a Legal Victory for Cryptocurrency | Ripple vs. SEC
- Moish Twitter: Digital assets, web3 and IP law at @frblaw.. Collector of BAYC #8611
- Bloomberg Article: MetaBirkin NFT Artist Appeals After Hermès Trademark Case Loss
- Article: The Bored Ape Yacht Club partners with round21 to launch a digital + physical series
- Announcement: FRB Law Digital Asset Recovery And Enforcement Practice
- Blog: Bitfinex Hack Money Launderers Plead Guilty
- YouTube: Chainalysis YouTube page
- Twitter: Chainalysis Twitter: BuildCareers at Chainalysising trust in blockchain
- Tik Tok: Building trust in #blockchains among people, businesses, and governments.
- Telegram: Chainalysis on Telegram
Speakers on today’s episode
- Ian Andrews * Host * (Chief Marketing Officer, Chainalysis)
- Moish Peltz (Partner, Co-Chair of Emerging Technologies & Blockchain Practice Group, FRB Law)
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Hey, everyone. Welcome back. This is Ian Andrews, host of Public Key. Today, I am joined by Moish Peltz, partner at Falcon Rappaport & Berkman LLP. Moish, welcome to the podcast.
Hello, Ian. Thanks for having me on.
All right. So you’ve got an incredible background. We’ll try and include a screenshot in the show notes of this. You’ve got some musical instruments, but I want to talk about these basketballs that are kind of above your head on top of the bookshelf because I think it’ll set a good frame for the discussion that we’re planning to have today about intellectual property.
Yeah. So, yeah, go ahead.
I was going to say tell me about the basketballs. What’s the story behind them?
Yeah. So these basketballs, I believe they were one of the first merchandise items offered by Yuga Labs Bored Ape Yacht Club, which were a collaboration with this company, round21, which is another blockchain company that’s making merch for different crypto companies. And so, they’re a collab between Bored Apes and round21 to create a Bored Ape branded basketball. And so, those were offered as benefits to early Bored Ape holders.
And so, that makes you obviously an early Bored Ape holder.
It does. Since mid-2021, I got in pretty early and loved the concept of what they were doing and was just learning more about different NFTs at the time and saw them and thought that was my first big NFT purchase.
And I think one of the things that was unique at the time, and maybe has been trend setting since is the team at Yuga Labs basically granted commercialized ability to the holders of the NFT, meaning if you own one, you can put it in a movie like Seth Green is doing. You can print your own t-shirts. You can do pretty much anything. What have you been doing with your Bored Ape?
Yeah. That’s exactly right. I mean, as an IP attorney, the notion and concept of having access to the intellectual property rights represented by the NFTs was one of the things that really drew me to Bored Apes in the first place back in June ’21, when that was kind of a new idea.
And so, as I noticed a lot of my clients getting into that space and trying to commercialize the IP rights represented by their NFTs, I started thinking, “Well, what can I do with my NFT?” And so, certainly, I’ve used it in the context of business generation of just it being my PFP, my persona on Twitter, other social media places.
And then, I’ve created business cards using it for my legal services. We’ve even filed a trademark on behalf of our law firm for using it for legal services. And so, just as my client’s experiment, we kind of help them think through and strategize about the legal concepts that come up with using the IP rights represented by the NFTs, meet me as an attorney. And us, as a law firm, are doing that same thing.
It’s funny because my advice to anybody who comes to me and says, “Hey, I’m new to crypto. I don’t know anything. Where should I start,” my advice often to them is take a small amount of money, whatever you don’t mind losing. Could be $5, $10, $100. Go buy some crypto. You probably start on a centralized exchange. Then, you need to get a wallet, like a MetaMask, go connect it to a DeFi protocol, swap whatever you bought into something else. Just go experience it and learn how the tools work. And you’ve kind of taken this to the next level. With your practice here at the law firm, it’s amazing. I love that you’re that far into crypto. You’re not just advising from a distance.
Yeah. That’s exactly right. I agree with you. The only way to really learn these concepts in a really deep way is not to read about them. You have to experiment. You have to play with them. You have to engage with the technology. You have to see what’s coming down the pipeline. And from my perspective, in order to properly advise clients, here’s this new thing that’s coming down. How do you think about it from a legal perspective? How do you contract for it? How do you mitigate risk?
You have to understand it. You have to understand where things can go wrong. And so, I completely agree with what you said. The only way to really understand it and the best way for people to learn is to experiment and play with it and, yeah, buy a little bit in an amount that you’re okay losing, and just go out there and see what happens.
So shifting to your day job here a little bit and away from your NFT collection, I think one of the interesting comments that gets thrown around a lot in crypto is code is law. And there’s sort of this implicit and sometimes explicit assertion that anything that happens on chain, because it’s cryptographically provable, is therefore legally binding equivalent in some ways to a contract.
That’s not at all true to my understanding. Can you just talk a little bit about that? How should people approach this notion? When they hear someone saying code is law, what’s a sane reaction to that comment, in your opinion?
Yeah. And it is an alluring comment, and I do sympathize with it both as a user of these systems and representing clients is, well, the technology provides for ownership and transfer of ownership and ownership of digital assets. And the technology kind of is the land deed, the representation of ownership. So that is law. That is the final answer.
And I think as we’ve learned over the past couple of years that possession, while very valuable and perhaps determinative in some circumstances, is not always consistent with the legal title and the right to own something, the right to commercialize something, to do something else with it.
And so, you’re seeing this come up a lot in what is effectively now ownership disputes, and they’re generally governed by traditional legal principles. And courts are in fact engaging on these issues. And you see things, people are losing crypto through exploits and then suing the exploiter or things like that nature.
And so, a court is then has to come in and decide even though someone according to the blockchain has ownership, who is the party that should properly have ownership? And is that different than what the blockchain provides? And then, ultimately, how do you go about enforcing that?
Is your sense that courts, and I guess by extent legislators, are they starting to adjust to the existence of blockchain in this… I think I’ve read some things in the news where individuals have been served via airdrop to a crypto address where it was sort of an anonymous plaintiff in a case. But I don’t have a good sense for the broad sophistication level of understanding or adaption towards the existence of blockchain in the legal system and maybe particularly as it relates to intellectual property. What are some of the trends you’re seeing there?
Yeah. It’s really difficult because blockchain is such a global phenomenon that is not bounded by jurisdictions. And, of course, most courts are at least somewhat local in the sense that they’re jurisdictional. You have a court for the US or as a whole Supreme Court, you have federal system. You have courts for each state.
And so, when you’re thinking about the level of sophistication and understanding, it’s obviously going to vary by venue and jurisdiction and basically the issues that are before that particular court. And so, I just came back from an international legal conference where I was talking about blockchain. And same thing, I think there’s a varying level of understanding amongst attorneys depending on what industry they’re in, how much of that overlaps with blockchain technology, how much they’ve been called upon to really flex that muscle, understand it in context of their legal practice.
And so, I think we’ve seen maybe over the past three years, courts and attorneys have been increasingly required as part of their day-to-day jobs to understand these technologies, to pull them apart and to either advise clients in the context of an attorney or as a judge to understand the principles and make a determination on some issue relevant to the issues presented by blockchain.
And I’d say this probably a rocky start over the past few years. I think there’s cases where courts are getting that right and understand the technology. I think there’s cases where more understanding would probably be beneficial both to the blockchain industry but then also to the courts, to regulators, to other participants in the ecosystem.
I saw one of the recent cases, you had posted about it actually on your LinkedIn, was I believe a trademark infringement that Hermes filed against someone that had created an NFT project that was kind of derivative of the Hermes brand. Can you maybe overview that for us? And then, did the court get it right? Did they understand the issues? How did that all play out?
Yeah. The Hermes one is really interesting court decision. And that was a case where Hermes is really historic French fashion house, has this famous Birkin bag. And then, these bags are tens of thousands of dollars. And someone, this guy Mason Rothschild, this artist says, “I’m creating a MetaBirkin bag,” which is this fuzzy NFT version of it that he sold, I think a couple hundred NFTs that were basically digital MetaBirkin bags for the metaverse. And Hermes filed a federal district court action in asserting their trademark rights and particular asserting that they’re this famous brand that has… So there’s kind of like superpowers that come with being famous.
And so, they were asserting these powers. They were also asserted domain name. It’s a anti-counterfeiting domain name type action by the metabirkins.com domain name. And this case went to a jury.
So a jury sat down and heard the arguments, and ultimately decided… One of the necessary elements was that they decided that one of the counts was that this individual was acting in bad faith.
So I think this is a unique case where there was actually a finding of bad faith, and that kind of colored everything that happened here. So the judge actually didn’t decide… He decided that the case would go to the jury, but he didn’t decide on the merits whether there was or was not bad faith. The jury did.
And so, you think about all that had to go into the legal teams from this fashion house and the defense team for this artist understanding all of this… him creating a fake NFT version of a Birkin handbag and marketing it and all things that go along with that.
So the court, the attorneys, the jury had to get up on the level with all this to understand what was happening. I think this is a case that probably was decided correctly. It will obviously be appealed, and it’ll be interesting to see how an appellate court grapples with these issues, if anything changes on appeal. But this is what we have at the first instance at the trial level.
As a layperson here, not of two of us, the one that’s not the lawyer, I don’t think that if I went out and created a bag that looked arguably similar to an Hermes Birkin and I called it a Birkin or some derivative, Ian’s Birkin, and sold it on eBay or Etsy or something like that, I don’t think I would get very far. If I had any success with it at all, I’d get a call from the Hermes lawyers telling me to cease and desist and maybe process server asking me to show up in court.
So the twist here was obviously it was a digital only. There was no physical item or good. And so, I imagine that was probably a little bit of a hurdle, but I took away from some of the reading I did on this that it was also perhaps a joke or a classic internet troll where they’re sort of making fun of the bags. But then, obviously, they made money off of it. So I think this is where you lose some rights around parity. Maybe I’m mixing up issues here. Untangle this for me as the lawyer.
Yeah. So it is a complicated. There’s a convergence of both existing case law and existing uncertainty about what is free speech and what is commercial speech and what is protectable and what is not, and where the line is between something that is infringing under trademark law and then what is protected free speech.
There’s actually a Supreme Court case now, not about crypto, but about Jack Daniel’s bottles versus chewable dog toys. So it’s the same question, like what is a commercial product and what is a parody? Supreme Court is probably going to issue decision on that in the next month.
So that’s not doing crypto. There’s just uncertainty in the law about where is that line. And then, you throw on this crypto layer of, well, no, it’s really a bag for the metaverse. It’s not for the real… No one’s going to carry around this bag because it’s just an NFT.
But then, that ties into a real world issue, which every mega brand in the world right now is thinking about, “Well, are my trademarks for my physical products, are those sufficient or do I need to now start a new campaign of trademark applications to protect my items in the metaverse as only digital items?” And obviously, our world is becoming more digital. So how much of my physical stuff is going to be confusing with things that may or may not be digital?
And if Ian goes and creates something in the metaverse, that’s potentially competing with my physical item, where is that line? So there’s a lot of uncertainty that is caused by this. It isn’t just related to blockchain. But then, when you throw in the blockchain and just, I think, the general confusion it brings up in ordinary people, it certainly can create, I think, weird outcomes or unexpected outcomes or just ambiguity in what the outcome should be.
Yeah. Can I get a trademark on a digital item if I haven’t actually created it? Sort of carrying your conclusion the next step, right? So presumably, Hermes had not created an NFT collection of Birkin bags prior to this case. But could they have potentially been defensively applied to extend their trademark in some way to cover that case?
Yeah. So it varies by country. But in the US, there’s something called an intent to use trademark, which says, “I plan to use this trademark, but I’m not currently using it right now.” And for sure, a ton of companies have been doing that over the past couple years saying, “I don’t currently have a metaverse product on the market, but we’re going to be doing something in the future.” And so we’re going to file a defensive trademark to broadly cover where we’re going to be going. You do have to have a genuine intent to use the trademark in that kind of way. But assuming you kind of cross that threshold, you can file something today and more or less reserve your right to use that in the future. And then, you just have to make a filing in the future within a few years saying, “Here’s the actual use of it in the real world or in the virtual world.”
We kind of skipped over your current practice and what you’re working on. But I would have to imagine that that type of work is taking up a fair amount of your time these days.
Yeah. Helping brands think about Web3 strategy is definitely an element of what I’m doing. And I will say when the market was on fire and everyone was thinking about crypto and how much the metaverse was going to take off, there was a lot more of that.
And I think it is kind of rides the wave of the broader crypto markets, so to speak, just as a lot of the crypto economy does. But for sure, there’s still a lot of companies that are planning for multi-year timelines to do some sort of digital or metaverse-type experience or even as just a way to market their products or to have some sort of experiential brand kind of experience.
So there’s definitely a lot of that. And I expect that’s going to continue. Even this week, I think it was just yesterday, Apple announced their vision headset. So you think about how if the metaverse starts becoming another thing that all these companies are thinking about, “How are our items going to exist in a digital universe?” And so, all of the intellectual property protections that go along with that.
The Apple announcement, by the way, if people haven’t seen it, go watch the keynote. It’s on apple.com. One of the amazing features is that when you unbox one of these things, you turn the device around to your face, and it scans your face and creates a lifelike avatar so that then when you’re in a FaceTime call, particularly if you’re in a FaceTime call with another person wearing one of these headsets, you both have this 3D avatar that is lifelike. But you could pretty quickly then imagine, “Well, instead of it looking like me, I want it to have blue hair, and I want Spock ears and Dracula teeth.” There’s something crazy like that.
And then, you’re not really very far away from where we were a year ago talking about going from NFTs or PFPs to then avatars realized in a metaverse. I was blown away by the announcement yesterday. I don’t know if you looked at it closely.
I was also very, very impressed. Yeah. I have an Oculus, and I’ve experimented with it. And a lot of the things that I find frustrating with using it as much as I think it is a really great device, seem to be things that Apple is trying to solve. So I know it’s not coming out till early next year. But I’m really excited to see how that technology develops, and not just Apple, the whole ecosystem of AR and VR and tying that back into blockchain and metaverse type.
I think so. The other thing that struck me about the device is it has this pass-through screen basically on the outside so that people in the world around you see your eyes. But, obviously, it’s not really seeing your eyes. It’s a screen showing your eyes based on where you’re looking.
But again, you could imagine that being something that it doesn’t actually look like you in the real world. It could be your virtual avatar, which leads us right back-
Right. [inaudible 00:20:34] Bored Ape.
Yeah. Exactly. You could be your Bored Ape in the goggles on your face, which I think would be kind of amazing. So I’m excited for the possibilities that Apple’s bringing into the world with that device.
Related topic, you posted something recently about AI and can content be owned by an AI. What is the IP ownership of a system like ChatGPT? And I feel like there’s an intersection here to the conversation that we’re having about on chain digital art because it seems like the path. Cryptographic provability of both originally generated content or human-generated content maybe is a better way to put it, and LLM-generated content is something that we’re going to have to grapple with a lot. Can you maybe talk a little bit about the post and your position on this idea of AI-owned content?
Yeah. So it’s getting back to that legal ambiguity we were talking about before is if I create something, I take a pen and I draw on paper, that is presumptively original creative expression that is fixed on a tangible medium, which is the standard for copyright law. And that is protectable as copyright in the US. It’s just by virtue of creation. If I want to enforce it or sue someone, I can go to the copyright office and file for copyright registration.
And once I obtain that, I can go to court and say, “You are copying my original creation.” And that’s only one of the things that I have under this bundle of copyright rights, is to create duplicates of the original copyright content. And so, it’s really simple that when you’re a creator or a musician or there’s just like… We understand the legal rights that attach to creations of content in those circumstances.
And similarly, when we get to things that are not created by humans at all or entirely kind of autonomously created computer generated items, generally, those are perceived as not protectable, that there’s no original creative human authorship. So the copyright protections do not attach to that content.
And then, when we to generative content where there’s different ways to think about it, but we’re kind of grappling with, at what point is me as the operator of, say, a GPT-4 LLM, and I’m conversing with it, I’m giving it inputs, I’m taking that feedback, I’m either merging different parts of it together or continuously giving it feedback to generate the output that I’m trying to achieve, at what point is that human creation, and the language model is really just a tool that I’m using to create something original, but that is directed by a human or is this just something that is more on that non-human autonomously created side of things that there should not be protection for?
And so, I think the copyright office has started issuing guidance. There’s been a few different people that have through, more like adversarial litigation-type activity, has been trying to get some more clarity on where those lines are. But right now, we don’t have a lot of great answers as to exactly where that line is.
There’s an artist, Kris Kashtanova, that created this comic book, Zarya of the Dawn, that same thing. I believe they used Midjourney to generate this comic book, and they wrote the text and fixed the image. And the whole thing is… Kris compiled it all together, but it was through kind of Midjourney prompts and so forth. So the compilation, I think the copyright office said, “Well, the compilation is protectable, but each individual image may or may not be.”
So exactly where that’s guy… That’s currently being appealed, I believe, exactly how that falls out. And there’s a lot of other instances. And so, I submitted a copyright application for my blog article that I did on the website.
Same thing, just experiment and see where that line is for law firm creative content because if I used GPT-4, ChatGPT to generate content, and I’m a content marketer as I think same for you, the same, I’m sure, for a lot of organizations out there listening, if I just use ChatGPT to create content, is that protectable? Do I have copyright in that?
If someone knocks it off, do I have any leg to stand on to say, “Hey, knock it off,” or is it all just kind of a public good that now we have these language models that are just generating content that no one really owns?
And I think as a society, getting back to what is the purpose of copyright law, why are we even thinking about this at all, I think there’s kind of questions that we need to grapple with as a society. It’s like what we want to protect and why, and what we’re encouraging? And like a law and economics thing, what are the incentives we’re creating by giving people copyright registrations or not?
And I think on some practical level, which almost certainly doesn’t intersect with the legal opinions on this one, but on a practical level, it probably depends a lot if you view the AI as being a tool used by humans, like an augmentation or sentient or trending towards sentient because on one level, I could argue in the case of the comic book created image, well, you could have done that with Photoshop or something like Adobe Illustrator or something else in the Adobe tool suite and arrived at a similar outcome.
And in this case, the artist knew what they wanted and they were able to get to it quicker or more refined, less work or whatever it may have been, so better tool, but you still get the same outcome. It’s driven by the artist. On the other hand, you could say, “Well, no.” The person writing the prompt was merely prodding this sentient thing to produce content. They were like a benefactor rather than the original artist and commissioning an image. And that, I think, just throws the whole world of copyright upside down, I would have to imagine, right?
Yeah. I mean, I think it’s a problem that the existing laws can try and solve, but exactly where that line is of what is something that is created by the human and/or prodded versus what is not really hasn’t been decided in this context.
And so, it will be interesting to see courts are already grappling with this and trying to figure out how to set up that issue and how to decide. Even Microsoft Word, it’s just a blank canvas. It’s a technology tool that I use. How does that compare to now Photoshop is allowing you to draw a circle on an image in your… and just click generate something new. You can prompt within Photoshop.
So even if you’re using Photoshop, you can be using the technology in different ways. And the different ways you’re using it for perhaps different outcomes, maybe, that’s how you… Do we have to then sit there and divide through how the technology is used in different ways in order to determine whether and how copyright law attaches to your creation?
And I don’t know if you represent anyone in the TV movie industry. But obviously, they’re having… The writers are striking right now. And one of the big issues is on this idea of can studios use something like ChatGPT to author a script and what does that mean for the compensation for the human writers is a big open question.
Yeah, that’s right. But then, I agree with that. So if you’re a studio executive, you’re like, “Well, we don’t need the writers. Let’s just make the content ourselves.” All right. Even if the technology allows you to create human replacing content, you got to take a step back and think, “Well, what are these companies doing?” These companies are in the business of generating content, which is then typically they’re licensed or owned by the studio.
Then, the studio is going to go monetize that. And the reason they’re able to monetize that and exclusively license it to a Netflix for hundreds of millions of dollars is because they own the copyright in that.
So their whole business model is we generate content, we own the rights to it. No one else can exploit it except for us. And so, then we’re going to sell that to someone else and they’re going to pay us to exploit the content. So if now you no longer have exclusive ownership and exclusive rights over the created content because it’s created by an automated machine and not a human, and the copyright office says, “No, we won’t grant your rights to exclusive rights to have copyright to that, well, how does that impact really the whole content creation business model, not just for content marketing, but for exactly what you’re saying in the entertainment industry?
No. Yeah. So it raises all sorts of not just legal questions, but I think these legal questions feed directly into how do these language models upend the traditional notions of economic activity and generating revenue in a content business.
And I think coming back to where we started the discussion with NFTs and blockchain, it seems like we’re going to find ourselves quickly in a world where the creation of new medium to high quality content is largely free and instantaneous. Language models proliferate. Many people become capable at driving them. And we can create image and soon video. And obviously, we’re starting to see voice synthesis. So you get it in this world where it’s very easy to build a deep fake, the Apple Vision demo.
We’ve got real-life looking avatars that now we can plumb via text in voice synthesis behind them. It seems like it becomes very difficult to distinguish in the world what is real or created by someone that you trust and like or interested in their content versus a cheap knockoff, the Birkin, the MetaBirkin or a disinformation deep fake.
But it does feel like there is potentially a solution here in the universe of NFTs. A lot of people who I hear advocating for crypto blockchain broadly and NFTs specifically talk about this concept of digital scarcity, where the internet, it’s always been easy to copy any object infinitely at no cost in the digital realm.
And suddenly, this adds a layer where it’s not so trivial to do that. And suddenly, we can have accumulating value. So do you see these things like converging in some interesting way, or am I just drawing too big circles around the things I’m interested in and saying, “Oh yeah, it’s all coming together?”
No. There’s definitely two big circles. And sometimes, they intersect. I think people think they intersect more than they actually do. But I think you’re definitely onto something that the intersection of these two circles is definitely how does blockchain give us a tool to provide digital scarcity and to prove authenticity and to prove the source of authentic goods or services or personalities.
And so, I think there’s a role there. I don’t know that it’s really been solved yet, and certainly not at scale. But I think for sure when you’re saying even just something like NFTs, have already for the art market, you think about something like art blocks is an example of we have the randomized seed applied to the model to generate the art, and it’s fixed on the blockchain at the moment of minting of its creation. And you know that, that token always represents that authentic generative piece of art based upon the history of that NFT.
Well, that’s a perfect example of how this can be used in the art market for natively generative art. And so, you think about, “Well, okay, for digital assets, I can project forth how that can work for other digital assets.” But then, how do we then translate that to real world physical assets and prove authenticity in that context?
We’ve talked a lot about art so far. And I keep looking at the guitars and is it a saxophone that’s just over your shoulder?
Tenor saxophone. Yeah.
Nice. And looking at your CV, you started actually your career working in the music industry. And so, I’m curious how some of the music projects that were launched as NFTs worked out. I think Kings of Leon put out a whole album that was an NFT. I know a couple other artists had kind of a premium, almost like the box set of back in the day when people still sold CDs via NFT that delivered some royalty back to them.
I forget the artists that did that. But how has that progressed? Are people still looking at doing that with NFTs or have they backed off that reseller?
Yeah. I mean, there are definitely some very successful music projects. I think it kind of mirrors the general market shape of mid-2021 into 2022. People are making a lot of money selling music as NFTs or something else. And I think some of that’s waned. But I think exactly what we’re describing in is that the technology has shown that it’s a way for artists to reach their fans and to deliver different types of fan experiences in a way which perhaps wasn’t either as easy or possible at all prior to the use of technology.
Yeah. Before I went to law school, I worked at Atlantic Records and at a smaller record label management company. And this was during the era of file sharing. And so, that was a really interesting time to be in the music industry as the record labels were trying to figure out how to adapt and move away from CD sales.
And I think there’s a lot of parallels there with I think what’s happening now. I think especially BitTorrent was something that was a big issue then. You think about distributed, decentralized file sharing. I think there’s a direct parallel from that technology, I think, into decentralized blockchain technology in the way it works.
And so, the same way that media companies had to deal with that then and adapt and find a way. I think Spotify didn’t exist at the time. I actually worked very briefly with a company called Grooveshark, which was a pre-Spotify type file sharing company.
And same idea is, now, we’re in a new era where blockchain technology allows for the marketing and sale of media in a different way. And it changes the monetization model, and companies need to adapt and figure out how that works for them if it does at all. But, yeah, I mean, I worked at some really exciting projects over the past few years.
One of my favorite ones was there’s, in Decentraland, there’s a music festival. There’s a Decentraland Music Festival. And I worked with an artist that had NFTs that were sold as headphones. And if you bought the NFT and wore the headphone into a VIP area, the VIP area was gated. Only people that wore the headphones could access the area. And then, only people that were physically present in that virtual space, as much as that makes sense, could listen to the album released before it actually was released.
So you think about how you can combine all of the different topics we’ve been talking about, which is NFTs that are gating access and creating a revenue model for a metaverse listening session, and just extrapolating out how you could do that at a large scale. And we haven’t talked to NFT ticketing and all sorts of fun things that are impacting the music market [inaudible 00:38:02].
Does the royalties model work? This was the thing that I remember about the artist who sold NFTs that I think on a specific song was every NFT owner received a third of the total royalties. He was paid per song. He was redistributing that. And my head immediately went to, “Oh, this sounds like a hugely complex tax problem because of the crypto involvement plus the royalty structure and does this actually work in practice at all?” Any experience with either that project or other ones where they’ve tried to include royalty payments as part of the NFT to the purchasers?
Yeah. And look, for the artist I was working with in 2021, this was, I think, a big draw in the first place. This is why I think artists initially got really excited about NFTs and blockchain technology was, well, when I sell my art, I sell it once and I never get a royalty after any second or third sale and so on.
But on the blockchain, I do. At least that was the theory. And it turns out that it’s a lot more complicated than that. Just looking at the technology is that, you look at some of the marketplaces now that are kind of post open sea, and they’re getting rid of resale royalties. And so, there’s a whole issue there just in terms of technology, what is possible and what can be circumvented in terms of ministering royalties on chain. I know there’s EIPs and other kind of proposed solutions to advance beyond that. But right now, we’re kind of in this weird space.
And then, you look at on top of that, all the kind of weird legal issues in terms of you mentioned tax. It’s a great one. If people are getting resale royalties as listeners and let’s like listen to earn kind of model, yeah, who’s paying taxes on that? Great. I think also there’s securities law and other regulatory concerns that come with that. And there’s all sorts of things that just haven’t been solved.
There’s not like a Spotify where you’re just put in your credit card and it’s done. And it’s like a clean user interface and everyone knows what’s happening. So there’s a lot to go until we have a platform, I think, that is going to solve that for everyone and solve these tax issues and regulatory issues and so on.
We need someone to resurrect Napster and Grooveshark and figure all this out for us, right?
Maybe a Dow can buy their IP from someone.
Yeah. Exactly. So, hey, as we wind down the podcast, this has been an awesome conversation. But I’m curious, as you’re looking out over the remainder of the year into next year, where do you see some of the legal precedent? Are there any big cases out there that you’re keeping an eye on that we should be watching as well?
Yeah. I think you mentioned them. I think there’s the MetaBirkin’s case there. There’s the Yuga Labs Ryder Ripps’case. There’s a few other ones. I’m tracking all them. From the IP perspective, those are, of course, really interesting. Obviously, the securities laws and other regulatory cases like the Ripple and now over the past week, Binance and Coinbase, those I think are going to be probably more important in a macro perspective.
But me as the IP attorney, I get to focus on the cases that I think are more fun. And I think it’s going to be interesting to see, yeah, there’s some of these headline cases. I think even the MetaBirkin’s a really good example, but that’s a case that came out for this big famous brand and how can regular business people, like, what lessons can they take home from there?
So I think as you see these decisions being made and then trickling down to the broader ecosystem, I think that’s what’s going to be interesting and how the attorneys in the space adapt to that and how the businesses adapt and overcome some of these challenges that they’re seeing, both from a technological perspective and from legal perspective.
Awesome. Moish, how can people follow along with your exploration? You’re pretty good content creator. Twitter, the best way to find you?
Yeah. Twitter, I’m at @peltzm, so my last name, first initial, on Twitter. My website’s frblaw.com. It’s a website for my firm. You can find my profile there. And, yeah, thank you so much for having me on here. This was fantastic.
I love the conversation and all the education. Appreciate the time today.
Thank you. Take care.