By David B. Hoppe, Managing Partner, Gamma Law, San Francisco, United States of America
With Non-fungible tokens (NFTs) comprising a multi-million-dollar market, there is seemingly no limit to their potential - the summer 2022 slump notwithstanding.
Although some NFTs sell for millions of dollars and make their creators rich overnight, most NFTs sell for much more modest prices. Bloomberg estimates that the average NFT can be had for just under US$2,000.
Whilst NFTs do not necessarily offer a “get rich quick” scheme anymore, they can provide significant revenues for brand owners, artists, and minters. Companies can use NFTs to promote their products, events, or brands. NFTs no longer are the exclusive domain of digital art collectors and video gamers; they have since branched out into other collectible spaces, notably for entertainment, music, and esports. This rapid expansion has created growing pains for some participants. As G2 Esports recently discovered, forging partnerships with the wrong collaborators or if they fail to address each party’s rights and responsibilities, problems are bound to arise.
When Deals Go Sideways: G2 Esports v. Bondly
In March 2022, G2 Esports filed a lawsuit against Bondly in the Los Angeles Superior Court claiming intellectual property rights violations and seeking damages. G2 alleges that Bondly breached its contract to develop and promote a series of NFTs based on G2 Esports’ intellectual property relating to the company and esports teams that it sponsors.
The plaintiff is a European e-sports entertainment company that brings together industry-leading brands and players to compete in League of Legends, Valorant, Counter-Strike: Global Offensive, Hearthstone, Rocket League, Rainbow Six Siege, and iRacing esports leagues. The defendant, Bondly (since rebranded as Forj), is a blockchain technology company that creates NFTs based on music, entertainment, gaming, and collectibles and administers a suite of products and services that support the blockchain ecosystem.
In the lawsuit, G2 asserts that Bondly misled the company leadership about its NFT-creating abilities and missed key deadlines for deliverables and payments. The parties entered into an exclusive two-year contract in June 2021, under which Bondly agreed to develop NFTs for G2 Esports and to function as its agent and promoter. In exchange, Bondly would pay G2 a series of fees for its intellectual property rights, which it planned to recoup through sales of the NFTs.
The agreement granted Bondly access to G2 Esport’s intellectual property, including images, video, and audio files. Shortly after G2 sent the first rights-fee invoice to Bondly it says that it discovered that Bondly would not be able to deliver the NFTs as promised. The parties could not agree on who was responsible for certain deliverables and tasks as outlined in the contract. Bondly later attempted to end the contract, citing G2’s unwillingness to compromise. Claiming breach of contract because of the non-payment and non-delivery of the NFTs, G2 filed suit seeking US$5.25 million - two years’ worth of US$2 million in annual rights fees and the agreed-upon advance guarantee of US$1.25 million. The case highlights potential problems surrounding NFT partnerships when licensing, distribution, and other rights and responsibilities are not clearly delineated in the contract.
Web 3.0 partnerships
The G2 Esports/Bondly case highlights the key considerations in Web 3.0 world partnerships. Web 3.0 would not be possible without collaboration between diverse players bringing complementary skills and resources to the ecosystem. Any partnership agreement to create NFTs will clearly need to spell out rights, responsibilities, and any other pertinent factors in order to make these partnerships run smoothly. When entering into a contract for an NFT, it is recommended to cover several considerations:
The legal rules and regulations surrounding NFTs and the blockchain are still evolving, so partnerships in Web 3.0 will have to adapt as the law eventually catches up to the new technology.
To avoid litigation, any NFT agreement should consider the rights of each party in the partnership, who is in charge of marketing, on which platform to sell the NFTs, and the blockchain to use, as well as intellectual property and passive income streams. Companies that want to avoid poor collaboration choices as befell G2 Esports should understand the potential pitfalls and plan accordingly.
A consultation with an attorney specializing in the blockchain/NFT space and well-versed in contract law could prove invaluable.