Lately, there has been a lot of buzz around celebrities endorsing or investing in NFTs. The trend raises several legal implications surrounding the minting of NFTs and the right of publicity. This article specifically delves into personality rights and outlines some strategies NFT minters should keep in mind while minting NFTs that are based on a celebrities’ likenesses, images, name, or personality.  

Background

It is important to understand the legal definition and nuances involved in publicity rights. The right of publicity (also known as ‘personality rights’) refers to an individual’s right to control the commercial use of their name, image, likeness (NIL), and other aspects of their identity. In essence, it allows a person to keep his or her image and likeness from being commercially exploited without permission or compensation. The right of publicity varies by jurisdiction. About half of US states recognize a distinct right of publicity, stipulating the scope of an individual’s right of publicity, the assignability of those rights, and the statutory damages for violating the right of publicity. Others view it as part of other protections such as the common-law right to privacy or statutes prohibiting unfair competition.

California has enacted the most comprehensive laws with regard to publicity. In the Golden State, a celebrity or well-known personality needs to prove four elements in order to prevail in a claim of violation of their right of publicity:

1. The defendant used the plaintiff’s identity
2. The defendant appropriated the plaintiff’s name or likeness to the defendant’s commercial or other benefits.
3. The appropriation was perpetrated without the plaintiff’s consent.
4. The appropriation resulted in an injury to the plaintiff.

The above test essentially aims to protect individuals’ proprietary interest in their own identity. The protected elements of a person’s identity include name, likeness, voice, signature, and other uniquely identifying traits.

Licensing

If NFT minters fail to obtain express permission to use an individual’s NIL, they may receive a cease and desist order demanding they discontinue all use of the individual’s persona. Some letters may demand monetary compensation or threaten legal action. There is a very real possibility that an NFT minter who depicts a celebrity in an NFT without permission could be sued without the opportunity to negotiate a settlement. Being found in violation of a person’s right of publicity can result in substantial monetary penalties. Further, depending on the state, the NFT platform/marketplace may be held contributorily liable for allowing the sale of the infringing NFT. If the NFT minter used the platform to create, mint, or sell the offending NFT, the creator may be obligated to indemnify the site per its terms of use.

Free Speech

One of the fundamental questions that arises when assessing the right of publicity is whether celebrity endorsement of NFTs constitutes free speech. Over the years, hundreds of cases have contemplated how the right of publicity claims relate to the First Amendment. A key issue in many of these cases is whether the claimed violation was intended for commercial use; the right to control one’s persona is not intended to supersede the five freedom protections deemed necessary to ensure an independent press and open expression in art and entertainment.

In California, where many rights of publicity cases are litigated, the relevant statute protects only against the unauthorized uses of one’s NIL “in products, merchandise, or goods…for purposes of advertising or selling.” Determining whether a work is “commercial,” however, is made more difficult due to a lack of judicial clarity. In fact, it has not been definitively determined whether depicting an individual in a non-commercial NFT without that person’s consent constitutes a violation of that person’s right of publicity or whether it should be considered protected speech. Until the courts deliver a definitive ruling, publicity rights claims against NFTs will continue to be decided on a case-by-case basis.

Best Practices to Avoid Right of Publicity Claims

Projects and  businesses that plan to or currently use NFTs for commercial purposes should protect themselves by implementing strict policies before minting NFTs based on a celebrity or on an individual’s NIL:

• Seek permission or license For minters intent on depicting a real person (alive or dead, celebrity or average Joe) in an NFT, the safest course of action is to license that person’s persona for use in the NFT. Licensing content is common practice, but the process takes time and money. It is also a good idea to license the rights over specific images, as the majority of the NFTs are based upon existing images. To minimize potentially damaging legal risk, it is best to engage an attorney to draft the license agreement.
• Create a disclaimer Having appropriate disclaimers in place can minimize the risk of NIL claims. Such a disclaimer should stipulate the background information, intended usage, and the terms of the license. Consult an attorney or a law firm specializing in intellectual property and NFTs to help you in drafting a disclaimer.
• Rely on publicly available resourcesIt is advisable to base NFTs on publicly available records such as property records and public financial information as minting an NFT based on such information runs a reduced risk of being deemed an invasion of someone’s privacy. In these cases, copyright ownership and related requirements should be closely observed.

As the popularity of NFTs continues to soar, projects and businesses intending to mint their own NFTs should be aware of the legal risks associated with using an individual’s likeness without their consent. Even though you might have the necessary licenses and permissions, you might not be completely insulated from legal liability since certain forms of statutory legal protections may still leave grounds for claims. Consequently, legal advice from a qualified legal professional is highly advisable at every stage of bringing an NFT to market.

Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.