The concept of NFT is fraught with complexities, necessitating a more in-depth examination of how terms and conditions should be drafted. Legal consultant and lawyer Soumya Shekhar discusses the fast-moving legal ecosystem surrounding web 3.0 and the importance of looking at the big picture in a hazy setting. Using Binance NFT Marketplace’s Terms and Conditions, she notes how irresponsible drafting can lead to inadequate protection of your client’s interests.
Questions in this Episode
- Why is discussion about the NFT marketplace so important?
- What are the benefits of avoiding broad and generic language in terms and conditions?
- What should you keep in mind when drafting the “revisions” section of terms and conditions?
- What can you glean from this marketplace’s careless drafting approach?
- What’s the big picture when drafting terms and conditions?
Why is this Discussion Around the NFT Marketplace Important?
NFTs are a relatively new concept that has piqued the interest of many folks. Everyone wants to own an NFT, a baseball card, or a piece of digital art. It is critical to make people aware that there are risks associated with NFTs, and as a user, you must read the terms and conditions to understand what you’re getting into. Let’s look at these intricacies via the lens of Binance, an NFT Marketplace where sellers list their NFTs and customers or buyers buy them, similar to how Amazon works.
Avoid Generic Use of Terms
When a terms and conditions document is posted on a website, it usually results in a legally enforceable agreement between the user and the company.
|These Terms and Conditions (“NFT Terms”) constitute a legally binding agreement between Company and each registered or unregistered end user (each, a “User”, “you” or “your”) of the Binance NFT Marketplace located at nft.binance.com or such other URL as may be designated by Company from time to time, as well as any mobile apps or other related services or applications thereto (collectively, the “NFT Marketplace”).|
The user should be aware of the services they are using, but by using a phrase as broad and generic as “other related services or applications,” the user has no idea what these other related services are.
Revision of Terms and Conditions
Typically, this is a statement found in every platform’s terms and conditions. It states that they reserve the right to revise their terms and conditions at any time and that the user is responsible for reviewing them.
The issue here is it will be effective as of the “last revised date,” which is mentioned at the top of this page, but it is a pdf document with no time or date mentioned at the top.
Ways in Which the Platform Doesn’t Depict Responsibility
1) Lack of Authenticity
It is extremely difficult to tell whether or not the NFT seller is genuine. The legal hitch here is “represent and warrant,” which means that if the NFT seller represents and warrants that they own all legal rights, titles, and interests, the platform can initiate an action against them claiming that they are lying or misrepresenting. As a user, you don’t have that right because the seller isn’t representing to you, thus you can’t sue or hold them accountable if they aren’t the true owners. That’s what the problem is: it’s a representation and warranty to the platform, and the platform doesn’t seem to care.
|For NFT Sellers|
|By minting, providing, or selling an NFT through the NFT Marketplace, you hereby represent and warrant that you own all legal right, title and interest in all intellectual property rights to the NFT Media linked or associated with such NFT, or you are legally authorized by the intellectual property owner to mint, provide or sell the NFT on the NFT Marketplace.|
It’s like a caveat emptor to the buyer saying that when you buy an NFT, you only own the NFT and not the copyright to it. But if you have an NFT and, for example, use it on your website and the original owner comes and sues you saying “you’re violating my copyright,” you have no way of knowing whether the person from whom you bought this NFT was the actual owner or not. You’re exposing yourself to legal claims while also having no way of knowing whether the NFT is genuine or not, and the platform assumes no responsibility.
2) High Discretion Allowed
Using language like “any or no reason in our sole discretion” in this section is why you shouldn’t agree with it. Removing someone’s content for no reason without intimating or informing them is unreasonable and unfair.
3) Unreasonable License Rights
This marketplace would invite specific creators or sellers to the site, and these creators would create or mint NFT, as it is often known on the marketplace itself. The catch here is that the license to this NFT generated would be handed to the marketplace in perpetuity, irrevocably, and exclusively, and the marketplace could use it in any way they wanted. You don’t know how many of the invited creators will actually bother to read the terms and understand them.
|Invited Creator hereby grants to Company a perpetual, irrevocable and exclusive right and license to use, reproduce, display the Creator’s NFT Media in connection with the promotion of the Creator’s NFT Media, the Creator’s NFTs and the NFT Marketplace. For clarity, unless otherwise specified in a Creator Addendum, the exclusive license granted above means that Invited Creator cannot itself, or grant to any other party any right to, use, reproduce, display the Creator’s NFT Media in connection with non-fungible tokens or any other blockchain collectibles, platforms or services.|
4) No Access to Refunds
Typically, an NFT is purchased using cryptocurrency, which is extremely difficult to track once it is in the system or to know where the money is. The marketplace states they won’t provide refunds, but they’re also not assuming any liability for assessing authenticity or anything else. If you buy an NFT tomorrow and subsequently learn you were duped, there’s nothing you can do. You’re not going to get your money back, no one’s going to take it back, and you don’t even have a valid contract with the seller. You might have a smart contract available as a link, but not many commoners know how to read code.
Avoid Contradiction in the Agreement
This section’s language is contradictory. There are two points worth mentioning. The first is the use of the term “non-transferable,” as it says it’s a non-transferable license. But if you read further down in the document, you’ll discover that if you sell or transfer the NFT to another person, this NFT purchase license will transfer to that other owner.
It’s better to make things more qualified while drafting terms and conditions. - Soumya Shekhar #ContractTeardown Click To Tweet
Another issue is that they claim “non-transferable, royalty-free license to use,” where “use” is a fairly broad term that might include both personal and commercial use. It’s always better to be clear.
The Big Picture Principle
The issue here is that the company is not assuming any responsibility for monitoring the NFTs or determining whether or not the individual selling the NFT holds the copyright. They are not even going to remove the objectionable content. So what is the point of a platform if there is no liability assumed?
Why wouldn’t a user and a seller just interact with one another directly? As a lawyer, you would still go ahead and use these provisions but from the standpoint of a user, this appears to be a little unfair.
THE CONTRACT: Binance NFT Marketplace’s Terms and Conditions
THE GUEST: Soumya is the founder of Remote Lawyer, a virtual legal services consultancy which offers diverse services such as innovative contract drafting solutions, legal content creation, startup advisory and knowledge management services. She routinely advises startups on their legal requirements such as drafting commercial contracts and legal compliance needs. She can be found on LinkedIn or at remotelawyer.in.
THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.
If you are interested in being a guest on Contract Teardown, please email us at email@example.com.
Soumya Shekhar [00:00:00] When I go and buy NFT, I cannot hold them responsible if they are not the actual owners.
Intro Voice [00:00:05] Welcome to the contract teardown show from Law Insider. Where legal experts tear down contracts from some of the most well-known companies and high profile executives around the world.
Mike Whelan [00:00:19] In this episode, Soumya Shekhar tears down the Binance NFT marketplace. Terms and conditions We talk about the fast moving legal ecosystem around Web 3.0, and the lawyers need to protect clients in a vague context. So let’s tear it down.
Mike Whelan [00:00:36] Hey, everybody. Welcome back to the contract tear down show from my insider. I’m Mike Whelen. The purpose in the show is exactly what it sounds like. We take contracts. We beat them up. We are often mean to them, sometimes say nice things, but it’s pretty rare. Today, I’m with my friend Soumya Shekhar. She is here to talk to us about NFTs, so this is going to be a totally confusing conversation that nobody understands. Soumya, how are you?
Soumya Shekhar [00:01:02] Hi, Mike. I’m fine.
Mike Whelan [00:01:04] I’m kind of excited about this. I got a message from a friend of mine yesterday, a direct message that said, You know, one day they’re going to do the big short to the Big Short was a movie about the financial crisis in 2008, and it’s going to be all about NFT is because none of us know what this is, and it’s super sort of exciting and crazy, and everything’s changing about NFTs overnight. So we’re going to talk about a contract. Tell me. Let me show you guys what this contract is. It’s the Binance NFT marketplace terms and conditions. Soumya, before we start. Tell me about this document. Why are we looking at it
Soumya Shekhar [00:01:36] so NFTs are a very new concept. And right now, a lot of people like trees among people that everybody wants to own NFTs of baseball cards, of digital art, etc.. What I want to do through the tear down of this particular contract is to make people aware that there are certain risks associated with NFT. So as a user, you need to go through these terms and conditions and understand like, you know, what exactly are they and what are you getting into right?
Mike Whelan [00:02:04] Yeah. And I think just to make the to give the very basic what this thing is, I think the baseball card reference was a really good one. I mean, essentially what people are doing and correct me if I’m wrong in getting these NFTs is getting digital versions of something that there’s a copy of right there. Even if there are multiple copies, they’re numbered in some way. There’s some way to track through the blockchain. Like what issue this is in? So if you know anything about collecting baseball cards or, you know, Star Wars toys from the 70s, you got a sense of what this is. It’s just the digital version of that. Is that? I mean, a simplistic but fair description of what we’re talking about with NFTs. Yeah, OK, cool. So tell me before we get to the document. Tell me about you. Why are we talking to you? What’s your background? Tell me about your your life?
Soumya Shekhar [00:02:57] So I run my own virtual legal consultancy called Remote Loyal, and I on my bread and butter through reviewing and drafting contracts. And I am particularly interested in the fintech side right now because it’s up and coming and it’s very new. So when I was in college, I wasn’t starting in NFTs, so it’s something very different than I wanted to pick my brains over it.
Mike Whelan [00:03:20] Yeah, it is an exciting time. So let’s get over to the document this Binance marketplace. Before we do, just tell us real quick, what is Binance? What is the relationship between this company and people purchasing NFTs? What is this thing?
Soumya Shekhar [00:03:36] So Binance’s NFT marketplace, where, you know, silos will come and they would list the NFT as they want to sell and the users would come and buy them. Similar to the Amazon, where people list their goods and people come and buy, so it’s like that only for NFT.
Mike Whelan [00:03:51] Got it. And so when somebody is on here and they want to buy an NFT, this is like part of a click through agreement to say, OK, before you do that, you’ve got to accept our terms and conditions in order to purchase on our platform. Yeah.
Soumya Shekhar [00:04:06] Yeah.
Mike Whelan [00:04:06] Perfect. All right. So let’s get to one. We’re on the first page here. I’ve got a comment here from you about company may be sorry. Other URL designated by company from time to time, as well as any mobile apps or other related services or applications there, too. What’s bothering you about this very early sentence?
Soumya Shekhar [00:04:29] Right? So typically, when the terms and conditions document is put on the website now, it creates a binding agreement between the user and the company. Now the user should know what services they’re accessing. So by writing something as wide and generic as other related services it applications, the user’s not knowing. What exactly are these other related services that applications? So I’m agreeing to something, but I only know a bit of the services, not the entire thing I’m agreeing to. So that’s what something which was bothering me about this.
Mike Whelan [00:05:04] Could you imagine like being the drafter for an NFT marketplace where they’re like, make sure you include future things and do you the drafter just like, what the heck is that? I have no idea. It’s NFT. Everything’s changing week by week. Let’s jump down to the next paragraph it talks about we may change or talking about. Binance has perspective here. We may change or amend the NFT marketplace or these NFT terms at any time at our sole and absolute discretion. Any changes to these NFT terms will be in effect as of last revised date referred to at the top of this page. What bugs you about that?
Soumya Shekhar [00:05:39] So typically, this is a sentence that you would find in everyday terms and conditions for a platform where they would say that they would revise their terms and conditions at any point of time, and they use it as opposed to go and review that. The problem here is that they are saying that it will be in effect as of the last revised date, which is referred to at the top of the page. But it is a PDF document without any time or date mentioned at the top of it. So if I am a user, I will only download this and I wouldn’t really know when was it updated. And as a user, you don’t expect someone to go time and again and keep reviewing the terms. So that was something which I think maybe the drafters could have taken it to.
Mike Whelan [00:06:20] Hey everybody, I’m Mike Whelen. I hope you’re enjoying this episode of the contract teardown show. Real quick, I want to ask you to do me. You really a quick favor. Look down below. You’ll see a discount code to join the Law Insider Premium subscription. When you do that, you get access to more content like this. You’ll see webinars daily tips on contract drafting. Not to mention access to the world’s largest database of sample contracts and clauses. It will help you write better contracts faster if you want to do it. Right now, there’s a code below, so get there. Also, if you’re part of a larger team, if you’re in-house or in a law firm, just email us where it’s sales@LawInsider.com, we’ll make sure you get a deal as well. Come join us in the community. The code is below. Let’s get back to the show.
Mike Whelan [00:07:06] Hmm. In two, they go on to talk about what the NFT marketplace is doing. If you jump down to, there’s a paragraph that starts for NFT sellers. It says for the sellers, you represent and warrant that you own all legal right title and interest in all intellectual property rights to the NFT media. It’s an interesting sentence, given the whole point in NFTs is that, you know, the ownership rights are very clear. What do you think about this sentence?
Soumya Shekhar [00:07:33] So firstly, if the NFT sale is the authentic Senate or not is something very difficult. It’s very difficult to determine now the the legal categories represented what it so if the NFT is an. Representing and Gordon think that they own all legal right title and interest. Then the platform can bring the case against them in case they cannot, they are lying about it or they’re misrepresenting. But as a user, when I go and buy an NFT, I don’t have that. Like, you know, the NFT is not the seller is not representing to me. So I cannot. So they would hold them responsible if they are not the actual owners. So that is something which is bothering me here, that it’s a representation and warranty to the platform. And the platform doesn’t really gain much, right, because they are the ones who are going to buy it or whose money is getting what do.
Mike Whelan [00:08:24] Hmm. And for the buyers, the people who do care, it says when you purchase an NFT, you own the NFT that is associated with certain NFT media, but you do not own any intellectual property rights, except for the license grants set forth here in. What do you think about this, this paragraph? It also talks about different cases, saying that you bear full responsibility for verifying the authenticity, which while I have a marketplace, what do you think about this paragraph?
Soumya Shekhar [00:08:53] Yeah, so firstly, like, you know, it’s like, okay, we had to do the bio saying that when you go chasing an NFT, you are only owning the NFT and not the copyright to it. But at the same time, if I have the NFT and for example, if I am using it. So for example, if I ever said, I have a website now, I want to use a particular NFT art on that website, I use it. And tomorrow the original owner comes and sues me saying that, okay, you are violating my copyright. I don’t have any means of verifying whether the person from whom I bought this NFT was the actual unit or not. So I’m kind of exposing myself to legal claims, and at the same time, I don’t even have a way of knowing whether the person is authentic or not. And the platform doesn’t take any responsibility.
Mike Whelan [00:09:39] It’s so interesting because like the whole purpose in an NFT is that, you know, the ownership rights, right? Like that, that is the whole thing through the blockchain is that you understand who owns what and what you are literally purchasing is, Hey, I’ve got the one. I’ve got ownership rights to the thing. So it’s funny that the marketplace is basically saying, Hey, that thing that you’re actually buying, it’s not the digital picture, you know, it’s these rights. We don’t do anything with the rights. It’s a really interesting sort of messed up way to phrase that.
Soumya Shekhar [00:10:13] So the thing is that are publicly traced when it all traces back to the owner, you don’t know what the first person is, the actual owner or someone who was just going to taken the art from anywhere else. So that’s the entire problem there. Hmm.
Mike Whelan [00:10:28] Yeah. Let’s jump down to there’s a paragraph that starts with the if you sell an NFT, it talks about your granting the buyer and non-exclusive nontransferable royalty free license to use copy, etc.. What’s bugging you about this sentence?
Soumya Shekhar [00:10:44] So two things. First is the user of the language non-transferable, but it says it’s a nontransferable license. But if you go down, you would see that there’s a sentence which says if you sell or transfer the NFT to another person, this NFT purchase license will transfer to the owner. So it’s kind of contradictory here that it said it’s a non-transferable license, and still they’re talking about selling or transferring. So that’s one thing. The other thing is they’re saying not transmitted by royalty free license to a use. Now use the very right. What do they mean by you using the device will use that commercial use. So I think those things should be more qualified while drafting terms and conditions.
Mike Whelan [00:11:27] Hmm. Moving on to the next page, we’ve got down a sentence that starts. We have the right to remove or refuse to post any of your content, including NFTs, for any or no reason, in our sole discretion. A lot of power to the marketplace. What do you think?
Soumya Shekhar [00:11:44] Yeah, exactly. Like, you know, the reason why I was not in agreement with this language because, you know, but notice that if they’re removing someone’s content, not even intimating what informing them, I think it’s a bit unreasonable and unfair. So.
Mike Whelan [00:11:58] Hmm. And then jumping down, it talks about the specific terms under four for the premium platform and creators. There’s a well, tell me real quick, what is this? What is this premium platform? It sounds like there’s like another level that you get invited to. Is that right?
Soumya Shekhar [00:12:13] Yeah. So are there certain creators or sellers whom they would invite on the platform these creators would create or NFT that it’s popularly called on the marketplace and said the categories that the license to this NFT created would be perpetually irrevocably and exclusively be assigned to the marketplace, then the marketplace can use it in any way they want. So that is a catch, which I’m not sure have a lot of creators who are invited would bother to go through the terms to understand.
Mike Whelan [00:12:45] Yeah, that’s in that next paragraph that starts invited creator. And I’m pretty sure the people who are creating on this thing, to your point, are probably not reading this. You know, we’re now into Page five or whatever. And you know, these are special clauses that it seems like you could just do a click through at the time that they get invited with, Hey, these are the new rights that this is creating. Well, let’s jump down to five and the company, right? The copyright policy says the company may, but is not obligated to monitor the NFTs, et cetera. The company, however, cannot undertake to review all such content before it is posted. Again, this seems like really trying to push off any responsibility on the marketplace, which to me is the only function that the marketplace is serving. What do you think about that? What do you think about five?
Soumya Shekhar [00:13:33] Yeah, exactly. The thing here is that the company is not taking any responsibility to monitor the NFTs or check whether the person who’s selling the NFT owns the copyright or not. They’re not even going to remove the objectionable content. So therefore, if there’s no liability on the platform policy, then what is the use of a platform? Then why wouldn’t a user and the seller just directly connect to each other? So although from a lot of if I were the head of the platform, I would have put these things in. But from a user’s perspective, this seems a little unfair.
Mike Whelan [00:14:03] Yeah. Speaking of unfair, I’m jumping down to the paragraph that starts we have no liability to you or any third party, et cetera. It says we do not provide refunds, anything for any purchases that you might make on or through the NFT marketplace, whether for NFTs or anything else. It’s an interesting sentence because like if you buy a thing from them, the rights are all jacked up. If the rights are jacked up, you literally have nothing to return. So you, as the purchaser, have taken all those risks. What do you think about that since this seems again, really strongly one sided?
Soumya Shekhar [00:14:38] So typically, a NFT is bought through cryptocurrencies. Now, like, you know, it’s very difficult to trace one in the system where the money is. So therefore they wouldn’t be providing refunds, but at the same time, they’re also not assuming any liability. But assessing what then this would be used for any other thing. So if tomorrow, like, you know, I buy NFT and I didn’t realize I was tricked, so then I can really do anything about it, I won’t get my money back. No one’s going to take it back. I don’t even have a proper contract with the seller. The smart contract available as a link, but not many commenters know how to read smart contracts. I would myself not know how to read good. So, yeah,
Mike Whelan [00:15:16] yeah, gosh. Such an interesting. And as we get to sort of big picture principles, one thing that really stands out to me is like, what’s the marketplace doing right? What’s the good that they’re providing when the the behind all of this good is the exclusivity, right? It’s the it’s the I’ve got the one. And they’re consistently saying, Man, we’re not telling you, you’ve got the one. But in that thinking about a drafting exercise, when when you as a lawyer are drafting in such a fast moving weirdo environment that the rules are just changing week by week, I almost feel like you just write one page that’s like, we’ll be nice to you. You’ll be nice to us for figuring step out as we go. This seems like a really hard exercise. What do you think is the big picture? Take away from writing a document like this?
Soumya Shekhar [00:16:03] Oh, I think see if I got a lawyer representing the platform, my main focus would be to protect their interests. And that’s what the Binance platform is doing, right? It’s protecting its own interests. But at the same time, it should be adopted in such a way that the user doesn’t feel that, OK, I am getting nothing out of it. So that’s exactly the kind of balance I think as a lawyer, one should strike when drafting such documents.
Mike Whelan [00:16:28] Yeah, and I feel like this doesn’t do it well. It’s a weird future. We’ve got all these. What the heck is an NFT anyway? I’m going to go back to baseball cards. Remember the gum? OK, you may not remember this. Remember the gum that was in the baseball card packs? It was like this hard awful. But I mean, it was yours. And so you loved it. So I’m going to go back to the days when we had baseball cards and gum for people who want to reach out to use something and learn about what you do. What’s the best way to contact you?
Soumya Shekhar [00:16:55] People can contact me on LinkedIn or through my website that is remotelawyer.in.
Mike Whelan [00:17:00] Well, we’ll have links to all that in the post at LawInsider.com/resources, as well as if you would like to, you know, come join us and hang out on the contract teardown show, just email us. We are at Community@LawInsider.com and we will see you guys on the next episode of the contract tear down. Thanks so much. Have a good day. Thank you.