A Haystack in a Hurricane: The Legal Risks of Depicting Real People in Your NFT

As Quentin Tarantino and Miramax prepare to head to court on February 24th over Tarantino’s Pulp Fiction NFT series, attorneys Matthew Savare and Brianne Polito from law firm Lowenstein Sandler explore the important legal issues surrounding the use of someone’s likeness in an NFT.

The state of the law regarding name, image, and likeness issues (“NIL” or right of publicity) was once described as a “haystack in a hurricane.” For creators, developers, and brands seeking to incorporate any of these elements into their NFTs, the current state of affairs is even more chaotic and confusing. This article is intended to provide some clarity and offer best practices.

NFTs

Since you are reading this article in a publication devoted to blockchain and crypto issues, you probably already know what NFTs are, so we will not spend too much time describing them. However, it is important to note that unlike traditional art that exists in physical form, NFTs are linked to digitally-created content (e.g., artwork, images, photographs, video clips, etc.), and ownership, sales, and licenses of NFTs are digitally recorded on blockchains.

NFT sales have grown substantially in recent years totaling $24.9 billion in 2021, with the most popular categories being collectibles followed by art. NFTs have been praised for creating a new way for content creators to monetize their works, but have also become a new way for public figures to monetize their persona. For example, four-time Super Bowl champion Rob Gronkowski auctioned off NFTs linked to digital trading cards featuring his likeness for $1.6 million. Model Emily Ratajkowski minted an NFT linked to her image entitled Buying Myself Back: A Model for Redistribution, which sold for $140,000.

Brief Overview of NIL and the Right of Publicity

The right of publicity refers generally to the right of individuals (not necessarily limited to celebrities) to control the “commercial” use of their name, image, and likeness, and perhaps other indicia of their persona, such as voice or signature.

In the United States, there is no federal law governing NIL and right of publicity issues. Instead, the right is a creation of state law, with 31 states recognizing the right of publicity (19 by statute, 21 by common law, and 9 by a combination of the two).

Over the years, there have been hundreds of cases involving right of publicity claims. A key issue in many of these cases turned on whether the disputed use was “commercial” or not, because the right to control one’s persona is not intended to supersede the First Amendment protections afforded to news, art, and many forms of entertainment.

In California, where many right of publicity cases are litigated, the relevant statute protects only against unauthorized uses of one’s NIL “in products, merchandise, or goods” and “for purposes of advertising or selling.”

The statute does not prevent third parties from using another’s persona “in connection with any news, public affairs, or sports broadcast or account, or any political campaign,” and when the person depicted is deceased, the statute also protects uses in connection with “a play, book, magazine, newspaper, musical composition, audiovisual work, radio or television program, single and original work of art, work of political or newsworthy value, or an advertisement or commercial announcement for any of these works.”

Unfortunately, determining whether a work is “commercial” or not is not a black-and-white analysis, as court decisions have been all over the map. Without going too far down the rabbit hole, courts have used a variety of tests to determine whether a work is protected speech or a commercial product entitled to less protection.

Unfortunately, as of the writing of this article, we are unaware of any court decision that has ruled on whether the depiction of an individual in an NFT without his or her permission violates that person’s right of publicity or whether it is protected speech. So, in order to help assess this question, we briefly review some cases relevant to NFTs, ranging from comic book characters and trading cards to artwork and t-shirts.

Analysis of Relevant Court Decisions

Courts have used a variety of analyses to determine if a work containing an individual’s persona is entitled to First Amendment protection. The so-called “transformative use test” is one of the more widely-adopted analyses.

A work is transformative, and more likely protected by the First Amendment, when substantial creative elements are added so the person’s likeness is transformed to the extent that it becomes the defendant’s own expression. Trivial variations are not enough. We say “more likely protected,” because there is no bright-line rule over how much something needs to be transformed to be protected. Instead, the facts are evaluated on a case-by-case basis and an individual’s right to control the use of his or her persona is balanced against another person’s rights under the First Amendment.

Comic Book Characters

For example, in Winter v. DC Comics, the California Supreme Court determined that the use of fictional characters in a comic book that were “less than subtle evocations” of musicians Johnny and Edgar Autumn did not violate the musicians’ rights of publicity where the images consisted of distorted cartoon characters that were half-human, half worm, and were part of an expressive larger story.

Drawings on T-Shirts

However, the same court just two years earlier had decided in Comedy III Productions, Inc. v. Gary Saderup, Inc. that a defendant’s charcoal drawings of the Three Stooges that were reprinted on t-shirts violated the Three Stooges’ right of publicity, as the artist’s skill was ruled secondary to the goal of creating literal and conventional depictions of the Three Stooges to cash in on their fame.

Art Prints

In ETW Corp. v. Jireh Publishing, the court considered, among other claims, whether the First Amendment shielded the defendant from a right of publicity claim arising from its lithograph featuring Tiger Woods titled “Masters of Augusta.” The court found in favor of the defendant, ruling that Woods did not “convince the Court that the prints are commercial speech,” which resulted in the prints being fully protected by the First Amendment.

Parody Trading Cards

A parody of an individual has been found to be protected by the First Amendment where it is not solely commercial in nature, it is not a reasonable substitute for conventional images of such a person, and it does not threaten the market for traditional memorabilia. In Cardtoons, L.C. v. Major League Baseball Players Ass'n, the court determined that trading cards featuring caricatures of Major League Baseball players and humorous commentary about their careers did not violate the players’ right of publicity.

According to the court, the cards were protected by the First Amendment given that trading cards provide a medium for dissemination of educational information, and that celebrity images are needed in order to create parodies and “expose[] the weakness of the idea or value that the celebrity symbolizes in society.”

Application to NFTs and Best Practices

If you are depicting a real person (alive or dead, celebrity or non-celebrity) in your NFT, the safest course of action is to license that person’s persona in connection with your NFT. Licensing content, including a person’s name, image, and likeness, is common practice, but the process takes time and money.

You should be aware, however, that licensing this right may not be required based on a number of factors. For example, some states do not recognize a post-mortem right of publicity, and of the ones that do, many impose time limits.

So, if the person is deceased, his or her estate may not have any protectable right. Similarly, as noted above, not all states even recognize the right of publicity, so if the person lives in such a state, he or she may not have a protectable interest. And, as we have discussed, if you are sufficiently transforming the person’s image or likeness, you may be entitled to First Amendment protection.

If you do not clear the rights, several things could happen:

• Nothing. Unless your NFT blows up (in a good way), you may not receive any complaint.
• You may receive a demand letter requesting that you cease and desist all use of the person’s persona. Some of these letters demand monetary compensation.
• You could be sued. Even if you depict a celebrity in your NFT, it is unlikely that you will be sued without receiving a demand letter and an opportunity to negotiate a settlement. If you are sued and found to have violated the person’s right of publicity, you may be liable for monetary damages and/or may be ordered to cease selling the infringing NFT. Additionally, depending on the state law that applies, the NFT platform/marketplace could be held contributorily liable for allowing the sale of the infringing NFT. If you used the platform to create, mint, or sell your NFT, you may be obligated to indemnify the company per its terms of use.
  
  

Recently, in one of the first NFT cases involving the right of publicity, rapper Lil Yachty brought suit in California against NFT startup, Opulous. Lil Yachty and Opulous discussed the rapper’s potential involvement in the launch of Opulous’ platform for minting and selling music copyright-backed NFTs, as Opulous was interested in getting “the biggest artists out there” to sell NFTs through its platform.

Although a deal was never reached, Opulous issued a series of press releases and social media posts featuring photographs of Lil Yachty that notified customers to “look out for unmissable NFT collections from @lilyachty.” Lil Yachty alleged that these advertisements violated his right of publicity by using his name and image without permission, and that Opulous profited from them, including by raising $6.5 million in funding due, in large part, from the alleged involvement of Lil Yachty. Lil Yachty has requested damages to compensate him for his losses, injunctive relief to stop Opulous from continuing to use his name and image, and disgorgement of Opulous’s profits.

Although the Lil Yachty case does not involve the unauthorized use of his name, image, or likeness in the actual NFT (only in the advertisements), there have been several recent high-profile intellectual property disputes involving the NFT content. For example, fashion house, Hermes, reportedly recently sent a cease and desist letter to artist Mason Rothschild regarding his NFT line of faux fur bags, and Miramax sued Quentin Tarantino alleging his Pulp Fiction NFTs were in breach of their contract and infringed its copyrights.

Additional examples abound, and although there has not yet been a case filed regarding right of publicity claims, it is only a matter of time.

Based on the above cases – and the many others similar to them – creators are well-advised to think twice before incorporating an individual’s name, image, or likeness into an NFT. If you decide on doing so, here are some practical steps you can take to reduce your legal risks:

• Determine whether the depicted individual is entitled to protection. You may need the assistance of a lawyer to evaluate this question.
• If the person has (or is reasonably likely to have) a right of publicity, decide whether you want to attempt to license the right to create the NFT. Again, this is the safest, most conservative route.
• If you decide to clear the rights, negotiate and execute a license agreement, ensuring that you have obtained all necessary rights. You may want to engage an attorney to help you with this step as well.
• If you decide not to clear the rights, avoid making exact reproductions of the person and instead add commentary, substantial artistic expression, and/or parodic content. For example, Mike Winkelmann (aka Beeple), who sold an NFT for 69 million dollars, creates bizarre and grotesque NFT-backed art that depicts public figures such as Donald Trump, Kanye West, and Jeff Bezos. His use of celebrity likenesses combined with imagery of technology and other absurdities to comment on the state of society is reasonably likely to fall within the framework of First Amendment protections.
• If you decide not to clear the rights and your work literally and accurately depicts a person without his or her permission, you run the risk of a right of publicity claim.
  
  

In the coming months, a lawsuit involving the right of publicity and NFTs will almost certainly be filed. If the case does not settle and the court issues a decision, it will be significant to see whether the court views NFTs as artwork, entitled to heightened First Amendment protection, or more akin to commercial products, as we saw in the Three Stooges case. In any event, the facts and circumstances of the case will be key. Until we receive greater clarity, proceed with caution.

Reprinted with permission from the February 8, 2022, issue of Brave New Coin. © 2022 Brave New Coin. All Rights Reserved.