On March 12, after weeks of online rumors and speculation, Yuga Labs, the company responsible for the Bored Ape Yacht Club (BAYC) and the Mutant Ape Yacht Club (MAYC) NFT collections announced its acquisition of CryptoPunks and Meebits from the well-known mobile software company Larva Labs. BAYC, a popular collection of 10,000 unique bored NFT apes, has generated more than $1 billion in total sales amid celebrities flocking to the NFT bandwagon. After this acquisition, Yuga Labs now owns 423 CryptoPunks and 1,711 Meebits. In this article we examine the details of the acquisition, what it means for emerging technologies companies, and specific issues related to intellectual property (IP) ownership and rights in NFTs.

IP Ownership

The acquisition shifts the IP ownership from Larva to Yuga; Yuga now owns the brand, the artworks and other IP rights for both collections.  As a result of the change in IP ownership, going forward CryptoPunks and Meebits holders will be granted the same commercial rights as BAYC owners. That means they will be able to commercialize their collectibles through a similar structure. Yuga Labs expects this development to increase the presence of the two collections on the metaverse and other related projects. Nonetheless, Yuga Labs acknowledges that Larva Labs’ projects are historical collections with established communities. It has therefore not adopted the “club” model it used for BAYC.

IP License

There is some confusion about the rights CryptoPunk owners hold with regard to their avatars and the associated licenses. When Larva Labs launched the CryptoPunks NFTs, its website did not discuss licensing terms or provide a content license or permissible use of the artwork or characters. Even their terms and conditions did not include licensing stipulations or touch upon copyrights or commercial usage. In December 2021, several CryptoPunks NFT holders expressed their frustration with the lack of communication and guidance from Larva Labs concerning licensing and IP issues. NFT holders, minters, acquirers, and other stakeholders were left to ponder several questions:

• What was the scope of the license?
• Under what circumstance could the license be revoked or terminated?
• What was the validity of the DMCA provisions?
• To what extent could license terms be adopted by an NFT minter after NFTs have already been issued?
• What were the legal implications of product recalls in the NFT context?

The acquisition of CryptoPunks NFT by YugaLabs should help provide clarity on some of these issues.

Structure and Model

Historically, there is a stark difference between the way Yuga Labs and Larva Labs have handled IP rights. Larva Labs initially retained the IP rights to its creations, while Yuga Labs granted commercial rights to NFT owners. According to Yuga, the acquisition bestowed upon CryptoPunks and Meebits owners “the same commercial rights that BAYC and MAYC owners enjoy.” The deal suggests that there are several ways to structure the sale of these NFTs. They can be sold on a standalone basis or combined with other offerings. An attorney experienced in digital technology, licensing, and transactions can provide valuable counsel for parties contemplating a similar transfer of assets.

DMCA Takedown Notices

The absence of clearly written legal terms and a bug in the purchase payment protocol prompted Larva Labs to issue a Digital Millennium Copyright Act (DMCA) takedown notice to the OpenSea NFT marketplace for the original CryptoPunks issue. OpenSea complied, delisting Version 1, which Larva had replaced with identical V2 avatars after correcting the bug. V1 CryptoPunks owners responded with a DMCA counter-notification challenging the legitimacy of the take-down notice and seeking reinstatement by OpenSea. V1 CryptoPunks were eventually reinstated, but it remains to be seen how Yuga will handle the issue moving forward. Will it allow CryptoPunk NFT owners to submit a counter-notification to an NFT marketplace in response to the minter’s takedown or will there be some other mechanism in place?

Conclusion

The acquisition of Cryptopunks by Yuga Labs has exposed serious loopholes related to copyright ownership and licensing with regards to NFTs. It has highlighted the importance of having well-defined licensing terms, as the ultimate financial potential of an NFT lies within the scope of commercialization terms in the relevant grant of license. As a rule of thumb, licensing deals are likely to favor well-established brands over new and generative business models looking to cash in on the NFT gold rush. Incumbents and new entrants to the NFT space should be cautious before entering into any licensing deal related to NFTs and be sure to consult an attorney with current expertise in NFTs, intellectual property, licensing, and their broader legal implications.

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