The difficulties of exploiting IP through royalty-based NFTs

As expected, Rihanna's performance at the 2023 Super Bowl generated considerable press coverage, including publicity centred around the release of an NFT collection that grants holders of each NFT a percentage of future streaming royalties from the original recording of "Bitch Better Have My Money", the song with which Rihanna opened her halftime show.

The NFT collection comprises a percentage of the rights in the original recording of the song owned by one of the producers of that recording, Jamil "Deputy" Pierre - in short, owners of the NFTs receive royalties that would otherwise have been paid to Deputy as producer.  The NFT collection sold out in minutes, with the first royalty payments having been scheduled to be paid to the NFT holders on 16 February.

However, OpenSea, the largest marketplace for NFTs, has halted trading of NFTs in the collection, on the basis that the NFTs appear to be offering fractional ownership and future profit based on that ownership.  OpenSea and a number of other NFT marketplaces do not allow for the trading of such NFTs, although there are other marketplaces on which such NFTs may still be sold.

In addition to such potential difficulties in secondary sales of royalty-based NFTs via the most popular NFT marketplaces, other intellectual property issues arise with this model.  Firstly it is important to verify the ownership of the copyright in respect of which the promised royalties are payable - in the case of the "BBHMM" NFT release by Deputy, there was a clear connection between Deputy, one of the producers of the original recording, and the NFT collection; however, this may not always be the case, and it is important to ensure that the NFT in question does genuinely entitle the NFT holder to the share of streaming royalties claimed.

It is also important to consider how the NFT collection is marketed, to ensure that the NFTs do not infringe any trade marks or other IP rights associated with the underlying copyright work forming the basis of the NFTs. In the case of the "BBHMM" NFT collection, Rihanna's name and likeness are used predominantly in relation to the NFTs, and we have seen in the past that Rihanna is willing to pursue trade mark infringement and passing off proceedings to protect her name and reputation from unauthorised use - in this instance, since the NFT collection relates to an original recording made by Rihanna, use of her name is arguably lawful, although use of her image is perhaps not necessarily required to identify the copyright work forming the basis of the NFTs.  It is therefore advisable to seek legal advice in relation to the marketing of such NFTs in order to avoid possible infringement of other IP rights that may relate to the NFT collection.