NFT lawsuits are flourishing
Hello, and welcome to Protocol Fintech. This Thursday: NFTs face legal challenges, stablecoin rules advance, and Varo cuts back.
Off the chain
Inflation is a winner for Visa, CFO Vasant Prabhu said back in January, since it means spending goes up. And Visa and Mastercard collect interchange on most card transactions. The EU succeeded in reining in card fees. Will the U.S. get anywhere? Sen. Dick Durbin, he of Durbin amendment fame, is still trying. But one of the dirty secrets of fintech is that a lot of startups feast on interchange, making them willing partners with Mastercard and Visa. Merchants complain, but consumers don’t seem to care, since the fees are largely invisible to them. If anything, the savviest spenders have figured out how to game the system by shopping around for the best cash-back offers, recycling those merchant-paid fees back into their pockets.— Owen Thomas (email | twitter)
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Chip shortage could undermine national security: The global shortage of semiconductors has impeded the production of everything from pickup trucks to PlayStations. But there are graver implications than a scarcity of consumer goods. If the U.S. does not ensure continued domestic access to leading-edge semiconductor manufacturing, experts say our national security could suffer.
Minting court cases
A wave of NFT lawsuits is cresting as celebrities, corporations and startups scramble after the intellectual property rights that may or may not ride along with the trendy tokens people are trading.
NFTs don’t themselves convey any intellectual property rights, unless a contract specifically provides those rights and vests them in ownership of the token. But that hasn’t stopped many NFT buyers from trying to convince themselves and others that owning a shoe, screenplay or some other form of intellectual property gives them the right to mint digital assets off of it.
New technology often stirs conflict. That plays out until a standard group of understandings sets in and people find legal ways to achieve what they want, said Peter Willsey, an intellectual property attorney who has worked on NFT cases at Brown Rudnick.
- Trademark law is relatively settled, but NFTs are testing some of its principles. A notable lawsuit involves Yuga Labs, creator of the popular Bored Ape Yacht Club NFTs, which has sued Ryder Ripps, who minted NFTs that essentially copy Bored Apes. Ripps has said that he was “trolling” consumers. Yuga accused Ripps of trademark infringement.
- Ripps’ attempt to claim parody or satire as a defense will be balanced against his clear ability to make money from the work, according to legal experts. “He’s come up with these explanations that ‘I'm making social commentary,’ but he also claims that he's made over $3 million doing this,” Willsey said.
- In another trademark case, Nike sued shoe reseller StockX in February for creating NFTs derived from Nike shoes. StockX says the “Vault” NFTs represent ownership of a product it stores for customers, saving them the trouble of finding space in a closet, and they can redeem the NFT at any time to have the actual shoes shipped to them. Nike argued that it’s trademark infringement, pointing out that buyers can sell the NFT without ever taking possession of the shoes.
Old contracts run into new issues. In another recent case, Miramax sued Quentin Tarantino in November for creating NFTs of his screenplay of “Pulp Fiction.”
- The studio argued that the filmmaker didn’t have rights to do so. Tarantino’s lawyers responded that the NFTs are a derivative of the screenplay, to which he retained publishing rights. The original agreements between the parties were before NFTs existed, so the case will depend on how language conferring “other” rights is interpreted, Willsey said.
- In at least one case, the parties came to an agreement. Jay-Z’s Roc-A-Fella Records sued co-owner Damon Dash, claiming he was attempting to sell part of the copyright to Jay-Z’s “Reasonable Doubt” album as an NFT. Dash said that he was not trying to sell an NFT of the album but rather his interest in the record label. Last month, the parties settled, agreeing that Dash could sell his one-third stake in the record company, but could not sell any part of the album, which was a corporate asset.
- The notion of tokenizing the music industry’s royalty streams has some merit. Justin Blau, known as 3LAU when performing as a DJ, has started a company called Royal that’s aiming to do just that. But Royal is setting up agreements with NFTs in mind from the beginning, not trying to graft them onto old contracts.
While these cases wind their way through the courts, there will likely be debates about whether the laws need to change to account for NFTs. Willsey doesn’t think they do, but some in the industry disagree. Change may be coming anyway: In June, two senators asked the U.S. Patent and Trademark and Copyright Offices a series of questions about whether NFTs required changes in laws and regulations, and those agencies recently agreed to undertake a study.Read it here.
On the money
Stablecoin rules are coming. Leaders of the House Financial Services Committee hope to advance a bill imposing new stablecoin rules on July 27.
On Protocol: Minecraft developer Mojang has banned NFTs.
Google is rolling out its new wallet software.Google Wallet, the app that will replace Google Pay in many countries, has started to show up on phones. U.S. users can continue to use both Wallet and Pay, with the latter becoming just a way to send money person to person. Still confused? Here’s an explainer.
Coinbase says it dodged the crypto contagion. A blog post from the company Wednesday said Coinbase has no exposure to Celsius, Three Arrows Capital or Voyager.
Crypto lender Vauld Group has filed for protection from creditors in Singapore. The application for a moratorium order is "generally similar in concept" to the Chapter 11 bankruptcies filed in the U.S. by crypto lenders Voyager and Celsius.
The Zipmex crypto exchange is the latest to suspend withdrawals. The Singapore-based company blamed volatile market conditions.
Polygon announced plans for its zkEVM technology, which is compatible with existing Ethereum smart contracts. Though enterprise lead Antoni Martin had previously told Protocol a testnet would be available this month, the organization now says it will be available this summer.Tesla sold most of its crypto. The company said in its earnings report Wednesday that it sold $936 million in bitcoin, about 75% of its crypto stash.
A neobank cuts back
Varo has laid off 75 employees as part of an effort, the neobank said, to move toward profitability. CEO Colin Walsh wrote in a blog post Tuesday that the company "must make some difficult decisions to ensure that Varo has sufficient capital to execute on our strategy and path to profitability." The cuts represent a little less than 10% of the company's staff, according to head count estimates on LinkedIn.
Varo, which provides online checking and savings accounts along with other services, was the first consumer neobank to secure a national banking license with the Office of the Comptroller of the Currency.
After the fintech sector saw record investment totals in 2021, the appetite from venture capitalists to bet on fintech firms has cooled considerably this year. Varo joins a list of fintechs to conduct layoffs in recent months that includes Klarna, Bolt and Robinhood.email | twitter)
Moves and hires
Alan Lau has joined Web3 entertainment company Animoca Brands as its chief business officer. Lau is the former CEO and chairman of WeSure, Tencent’s in-house insurance agency.
Allison Herren Lee stepped down from her position as a commissioner of the Securities and Exchange Commission. Lee, who served for several months at the start of 2021 as acting SEC chair, announced plans to step down in March.
Blockchain gaming company Immutable has appointed Aviral Avasthi as senior vice president of marketing. Avasthi was previously vice president of marketing for Polygon Technology.
The Office of the Comptroller of the Currency announced a pair of promotions.Patricia Grady is now deputy chief counsel, focused on enforcement, litigation and internal matters. Jonathan Fink is associate chief counsel and will retain the added role of the office’s climate risk officer in the interim.Keith Riddle has been appointed to lead BankiFi Americas. The U.K.-based embedded finance services provider is expanding into North America.
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Thanks for reading — see you tomorrow!