Boutique law firms and Big Law alike are launching nonfungible token groups or beefing up existing blockchain practices to capitalize on the rapidly growing technology and address client needs.
The rush for blockchain and NFT expertise comes as musicians and visual artists are moving to make tokens to protect their rights and as enterprises such as the National Basketball Association are launching online marketplaces to sell such goods. That has prompted interest from the Securities and Exchange Commission, raising the possibility of new regulations from the Biden administration.
Blockchain services have been big for several years, but NFT expertise is becoming more in demand as clients explore intellectual property and securities questions related to the novel technology, said Dan McAvoy, an attorney at Polsinelli in New York focused on fintech and blockchain.
“There are well-established, larger companies that are looking into it,” McAvoy said. “Not everyone is willing to dip their toes in quite yet, and it’s nascent—we’re just seeing the tip of the iceberg.”
While NFTs do exist on blockchain technology, Foley & Lardner of counsel Andy Lee cautioned against pigeonholing the practice within a firm’s blockchain practice group. Lee, the former general counsel of the New York Jets, is also a member of Foley’s nearly 2-year-old NFT task force.
“This is an area that is evolving on its own as we speak, so I don’t think it’s wise to try to limit it to a particular area,” Lee said. “We have members of the task force from the various different disciplines across the firm, because we recognize that this is an area that touches on a lot of different subject matters and legal skills.”
Foley has worked with the Milwaukee Bucks and Utah Jazz professional basketball teams as well as musician clients on NFTs.
Clients who want to venture into the world of NFTs could face legal matters ranging from securities laws and intellectual property to litigation, private equity, and tax law, Lee said.
OpenSea, the world’s biggest NFT marketplace, saw more than $2 billion in transactions in August, CEO Devin Finzer told Bloomberg’s Emily Chang.
Big Law Interest
Successful blockchain groups employ multipractice collaboration, as is the case with Goodwin Procter LLP’s digital currency and blockchain technology practice, said co-chair Mitzi Chang, who also co-chairs the fintech practice and is a partner in Goodwin’s San Francisco office.
The firm’s team consists of traditional financial services but also spans intellectual property, capital markets, M&A, and regulatory, said Grant Fondo, founder and co-chair of the digital currency and blockchain technology practice and a partner in Goodwin’s Silicon Valley and San Francisco offices. The team has worked with Mercury NFT on related issues.
“It’s a really exciting time for practitioners in the space,” Chang said. “There’s so much innovation that you do have to understand the bigger technology as well as the nuances and how legal principles affect it.”
Though law firm NFT practices are heating up along with client interest, not every medium or product is ideal for the NFT market, according to Devika Kornbacher, Vinson & Elkins’ head of technology transactions and chair of the firm’s cybersecurity and data privacy practice.
“It needs to be something where the idea of ‘I own this thing’ has some non-monetary value along with the monetary side. The bragging rights have to be around it,” she said.
Securities, IP Questions
One issue particularly rife for the NFT community: whether those tokens qualify as securities, and as such, would face the bevy of regulations and rules that govern that sector.
Securities and Exchange Commission chair Gary Gensler has been staunchly in favor of increased regulations around digital assets, including NFTs.
The SEC did not return requests for comment on its NFT regulatory stance.
Classifying NFTs as securities would involve additional federal oversight and heightened reporting requirements for the largely unregulated industry.
“I do believe the SEC seems not to be favoring anything that doesn’t look like a traditional security but that acts like the security,” Kornbacher said, adding that she’s closely watching whether the SEC and other similar regulatory groups will begin viewing NFTs as securities.
“To me, they’re much closer to the sale of a collectible,” said Judie Rinearson, a partner at K&L Gates in New York and London who’s also a co-chair of its blockchain group that she says is working more with clients interested in NFTs. “But with any product people buy as an investment, you can cross that line by how you market and position it.”
People are also starting to explore NFTs and patent sales.
The U.S. Patent and Trademark Office does not have unique guidance for NFTs, a spokesperson said.
Lawyers working on contracts in the NFT world should also be mindful of future technologies that can shake up the IP world the way NFTs have, Kornbacher said.
“Lawyers who are drafting contracts for performers or even for distributors need to think through, to the extent they can, making sure they get the rights for future technologies, or retain those rights,” Kornbacher said. “IP rights exist in copyright, patent, trademark, trade secrets, but they manifest in and embody things that we won’t even know will exist right now.”