Decentralized Collaboration Via Blockchain and NFTs

THE BORED APE BUSINESS MODEL: DECENTRALIZED COLLABORATION VIA BLOCKCHAIN AND NFTS

An article by EDWARD LEE , Chicago-Kent College of Law - Illinois Institute of Technology, 15 Nov. 2021 —> LinkedIn

Commented by Georgina Mauriño, founder of Smartists - built on Stacks and secured by Bitcoin —> LinkedIn

A. The Decentralized Collaboration Model: De-Collab+

Businesses prize their intellectual property. They typically do not permit consumers to make derivative works of the businesses’ IP, much less permit consumers to monetize the IP. Instead, to the extent businesses allow commercial uses of their IP, the businesses may strike partnerships and deals with other businesses that carefully define the permissible commercial uses allowed under the license. For example, the Walt Disney Company has protected its famous Mickey Mouse character as its crown jewel and has licensed commercial uses of Mickey to other famous brands, including Lacoste, Levi’s, Rag & Bone, Forever 21, Marc Jacobs, LEGO, and Oreo.(1) This approach can be characterized as a model of centralized collaboration in which the IP owner maintains tight control over its IP through negotiated licenses.

The centralized collaboration model exhibits a class hub-and-spoke arrangement.(2) The IP owner is the hub, and licensees are the spokes. With centralized control, this model promotes a more consistent product—typically subject to approval by the hub—as well as accuracy in the implementation of a business plan through centralized coordination.(3)

While this description is accurate, it presents only a specific case: when the IP owner/the copyrights holder is a Business. The example of Disney is very far from the perspective from that of individual IP owners, like independent self-managed artists who have been training for years to deliver exceptional quality art pieces… my favorite example for this is professionally trained pianists or composers, who just need to manage their IP to protect their living dealing with their loyal followers, now clients. The same goes for independent visual artists dealing with galleries or long term clients. There are infinite use-cases that I find especially relevant, considering blockchain enables P2P transfer of Value and not only B2B or B2C. The source of creation, the author is the hub, instead of the company (Disney or else) who hired the services of a creator and has become the copyrights holder, but has nothing to do with the creation. This may sound irrelevant now, but follow up…

By contrast, an alternative model of decentralized collaboration—“De-Collab” for short—is emerging in the market for non-fungible tokens (NFTs). In the NFT market, the De- Collab model is implemented through blockchain technology and the sale of NFTs, as shown in Figure 2 below. (4) NFTs are short computer programs or smart contracts that identify itself as unique—or “non-fungible”—on blockchain. A common use of NFTs is to associate the unique token on blockchain with some art or content stored elsewhere. The NFT is not the art or content. A sale of an NFT typically comes with a content license allowing the buyer to make some uses of the art or content.(5) Often, such licenses do not allow buyers to make any commercial uses, much less to create derivative works of the underlying art or content. By contrast, under the De-Collab model, the IP owner allows consumers to make derivative works of the businesses’ IP and permits consumers to monetize the IP. The IP owner sells NFTs stored on blockchain that comes with a license allowing buyers to make derivative works and commercial uses of the IP associated with the NFTs. As a result, the IP owner relinquishes creative control over the development of derivative works of its IP to the buyers of its NFTs. Such secondary uses and derivative works do not require any approval by the IP owner. It is all decentralized.

The NFT is not indeed the art or content. But who is the IP owner or the copyrights holder of that Art or content using the De-Collab model? Copyrights holder can be a business who has hired the service of an artist. Such company is an IP owner, but not a creator per se, not the artist, and this makes a great difference in the criteria to manage the copyrights. Large companies have been using and abusing creators extensively in the past to get huge amounts of valuable IP ownership from talented artists, for very little. Would NFT facilitate this situation using the De-Collab business model as an alibi?

Moreover, despite its original name the De-Collab model does not sound so innovative to me. It is just the consolidation on web3 of the web2 CC complete license (including adapt and commercial use). This is indeed a very interesting model as business is undoubtably easier to do with NFTs on the web3.

So, in terms of rights management, and as an experienced self-managed author myself, I just see this “new” model as an option, not so interesting to make real business, but more as an opportunity for promotion instead. For independent authors-artists it might be a chance to make yourself visible, looking to make business later on with other models in view.

The concept of decentralized collaboration is not new.(6) Economic literature suggests that a decentralized or polyarchical process in deciding new product development may result in “more bad projects” because there is no central control, but, at the same time, “more new and innovative ideas” than a centralized process.(7) Thus, if innovation is prioritized, the De-Collab model may have greater chance of producing more creative products.

Indeed I see projects coming from decentralized collaboration, but this cannot be generalized, as there are cases that could not even exist without such collaboration. On another side, attributing more creativity to the De-Collab model seems quite presumptuous. There are exceptionally trained creative brains that produce innovations that cannot be equated by decentralized collaboration. Creation and innovation, especially in the Arts often relies in unique personalities.

B. The Bored Ape Business Model

The Bored Ape Yacht Club (BAYC), produced by Yuga Labs, has adopted the De-Collab business model.(8) Thus far, it is a rare instance. Unlike the more typical NFT license,(9) the Bored Ape License grants buyers of its NFTs a broad right to make commercial uses of the Bored Ape character associated with the NFT purchased.(10) The Bored Ape License grants “an unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art.”(11)This type of license granting to NFT buyers an unlimited right to make commercial uses of and derivative works from the underlying Bored Ape characters is highly unusual in the NFT market.

This is a very interesting use-case. But just one use-case, as the De-Collab business model is just one business model that may be suitable to some IP holders, but not other, as explained above.

It is still too early to tell how successful the Bored Ape business model will be. But initial indications are promising. Sales of Bored Ape NFTs have surpassed $1 billion.(12) Buyers of the BAYC NFTs have already announced projects involving derivative works of Bored Apes that sounds innovative. For example, Jimmy McNelis, the owner of four Bored Ape NFTs, signed a music deal with Universal Music Group’s label 10:22PM to create a music band called Kingship, composed of the four Bored Apes.(13) The famed music producer Timbaland has launched a partnership called Ape-In Productions to form a hip-hop band for the metaverse with other owners of Bored Ape NFTs. (14) Other Bored Ape NFT owners have used the Bored Apes for a “Bored Ape IPA” and for promotion of a business or use on an NBA player’s basketball shoe.(15) We should expect many other commercial uses and potential derivative works by buyers of Bored Ape NFTs, given the total number of Bored Apes NFTs is 10,000, all sold out.16 The Yuga Labs creators themselves have created derivative works, including pets for the Bored Apes and another collection of NFTs called the Mutant Ape Yacht Club.17 Yuga Labs signed a representation deal with Guy Oseary, who managed both Madonna and U2, to develop television, movie, gaming, and other deals for the Bored Apes.(18)

Of course business models based on branding can integrate this model. They all benefit from promotion, and can make business out of that promotion thanks to technology. Nevertheless does the creator benefit from that? Again, those brands never considered designers as artists, they are just service providers and the IP remains in the brand. So this can work well for B2B and B2C as those businesses don’t make business with the creative value of an art piece, but just with the branding value of a n anonymous design.

Technology generating these designs are the new middle men between the creator and the firm using the design. They make business from the new value of the NFT, as a financial asset, not for its intrinsic creative or artistic value.

Again, the success of this new business model is promising only for certain use-cases. Praising it as “the” business model is not accurate, and can lead to the disappointment of many independent designers and creators who see in the blockchain a way to get a fair compensation for their creations minted as NFTs and sold for the inspirational quality of their Intellectual Property.

C. Advantages of the Bored Ape Business Model

The Bored Ape Yacht Club’s De-Collab business model offers several advantages over the centralized collaboration model. First, a De-Collab business model enables a startup or business to launch a new creative ecosystem that has the potential to sprout collaborations organically from the bottom up, without the transaction costs of lawyers and conducting negotiations for content licenses. Instead of hiring employees to build the ecosystem, the NFT producer enlists creative, passionate buyers of the NFTs to do so. The prospect of monetizing and making commercial uses of artwork sold with NFTs may be more coveted by NFT buyers— and command higher NFT sales prices as a result. If buyers know they can monetize the NFT content, they can factor that future income into the price they are willing to pay.

These are advantages for ‘employees building the ecosystem’, for speculators and buyers obsessed with monetization. But this won’t work for professional independent artists with unique creative abilities nor for sensible art-users or creative minds looking for refined materials. It makes me sad to see that a technology like NFTs that can be used to bring to the web3 the best quality of human Art expression, can be turned into a tool just for low quality contents just for the fun and greed of some businesses.

Within less than a year, the BAYC NFT collection has totaled over $1 billion in sales— making it one of the most valuable NFT collections, perhaps rivaled only by the Larva Labs’ CryptoPunk NFTs. The CryptoPunk NFTs reportedly have a license that prohibits buyers from making commercial uses. If this reporting is accurate, then the CryptoPunk NFTs provide a good comparison for the Bored Ape NFTs. The CryptoPunks represent the centralized collaboration model. The Bored Apes represent the De-Collab model.

I painfully have to insists that this is just a business model that will apply to some use-cases. Hopefully licensing contracts will be automated, protecting and rewarding fairly the best creative minds, and users will be able to look and connect with creators directly, for P2P deals. This is the decentralization that we, artists-authors, are looking for.

It is far too early to tell which model (if any) will be more successful. Like the Yuga Labs, Larva Labs has signed a representation deal with United Talent Agency to develop deals for use of the CryptoPunks in movies, games, and other contexts.(19) One potential advantage of the Bored Ape model is that unleashes 10,000 NFT owners to monetize the Bored Apes. Because of the high prices for Bored Ape NFTs—over $200,000 in November 202120—one might speculate that some of the owners are successful in their respective fields. Already the De-Collab business model of the BAYC has enabled buyers of Bored Ape NFTs to strike major deals with Universal Music and with music producer Timbaland to develop new bands for the nascent metaverse. By contrast, Larva Labs has its two co-founders Matt Hall and John Watkinson, plus UTA as its agent. But, apparently, the CryptoPunks license has not authorized buyers to develop derivative works.

Sorry for insisting, but this is not a competition between two business models. There are lots of business models. There is still this 2.0 mindset of number and data, of B2B instead of P2P. But, actually, every creator should be able to choose it own. For centuries creators have been told they were the owners of their IP, yet they have never had the real chance to self-manage it, until now. This is the service blockchain technology and IP smart lawyers have the chance to bring to the web3 via NFTs licensing. The so-called De-Collab business model is just one among many others, serving the interests of some but not not supporting human creativity, as IP protection was supposed to support.

Of course, the De-Collab model requires a business to relinquish creative control over its IP. This creates risks. Traditionally, IP owners have feared the tarnishment or “misuses” of their content, such as uses of their content in pornography or salacious or unsavory depictions.(21) Thus far, this problem has not arisen for the Bored Apes, but, apparently, there is nothing in the Bored Ape license that would enable Yuga Labs to prevent one of its NFT buyers from doing so.

At last, some disadvantage is mentioned, yet minimized by the expression “traditional fear”. Only this is actually not a irrational fear coming just from tradition, it has actually been a real common practice to misuse IP contents, causing great damages for authors. What could most hurt a collection like BAYC? A collection of derivatives including nazi references? How about having having kids illustrations used in violent games or adult content?… Maybe the creators of Bored Apes don’t mind at all as long as the business grows, because they are just IP dealers. Instead, I know many artists that would never take that risk, because they are the actual IP creators. Like for other professions, including lawyers and engineers, reputation is something you need to nurture and cannot afford to loose when you are an author. You can hurt and the wipe a brand’s reputation, but this is not so easy for an independent artist.

Conclusion

The Bored Ape Yacht Club (BAYC) NFTs stand out for their meteoric success. One under appreciated aspect of the business model adopted in the Bored Ape licenses is its use of decentralized collaboration or De-Collab. Buyers of Bored Ape NFTs are granted unlimited rights to commercialize the underlying Bored Ape associated with a particular sale of an NFT from the collection, which even includes the right to make derivative works from Bored Apes and keep the profits generated. The Bored Ape license’s adoption of a De-Collab approach presents tantalizing possibilities for the Creator Economy. Although it is too early to tell how successful this approach will be, recent deals of Bored Ape NFT owners with Universal Music and music producer Timbaland to create bands for the Metaverse show the great potential De-Collab offers. As the Bored Ape ecosystem develops, further study should be made to evaluate the successes and failures of the De-Collab model as a source of innovation and creativity.

When creators like myself envision what blockchain tech can do for us, we think of P2P transfer of value with our loyal followers or art-users, now our clients, to support our living, as well as not loosing control over our Intellectual Property. In such vision the De-Collab businesss model explained in this article can be a good option to consider for promotion. Art promotion via NFTs for brands or big companies sounds like an interesting improvements from the 2.0 platforms. The big deals that BAYC NFT owners have reached with Universal are just the proof that this is a model for B2B deals. I just wonder if somehow original material creators could at some point take the lead…

Anyway this is just one of the many business models NFTs is going to unleash for creators and IP owners. The beauty of blockchain tech and decentralization is that there doesn’t need to be a “winner” business model. Instead smart contracts will make it easy for all kind of agreements to flourish. And NFTs minted from IP materials will be offered with all kind of conditions depending in the parties. As an artist-author I find it just fascinating that the original art creator will be able to take the lead, and choose a business model at their convenience, and even depending every piece or project…

Giving back ownership of their Intellectual Property to users with NFTs is the real decentralization. Self-managed artists on the web3 need to realize they have the power to decide, and they need to learn what is the best business model for them. I just hope web3 builders will respond and deliver according  to the blockchain tech promise, and will develop apps that actually free the actual authors, instead of only serving copyrights dealers.

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6 See generally Tim Wu, Intellectual Property, Innovation, and Decentralized Decisions, 92 VA. L. REV. 123 (2006). 7 Id. at 127.

8 See Terms and Conditions, BORED APE YACHT CLUB, https://boredapeyachtclub.com/#/terms [hereinafter BAYC License].

9 See nftjedi, Commercial Use: Why don’t more businesses adopt the Bored Ape Yacht Club License and allow buyers to make commercial uses of NFTs?, NOU NFT (Nov. 14, 2021), https://nounft.com/2021/11/14/commercial- use-why-dont-more-businesses-adopt-the-bored-ape-yacht-club-license-and-allow-buyers-to-make-commercial- uses-of-nfts/.

10 See BAYC License, supra note 3, (“iii. Commercial Use. Subject to your continued compliance with these Terms, Yuga Labs LLC grants you an unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art (“Commercial Use”). Examples of such Commercial Use would e.g. be the use of the Art to produce and sell merchandise products (T-Shirts etc.) displaying copies of the Art. For the sake of clarity, nothing in this Section will be deemed to restrict you from (i) owning or operating a marketplace that permits the use and sale of Bored Apes generally, provided that the marketplace cryptographicallyverifies each Bored Ape owner’s rights to display the Art for their Bored Ape to ensure that only the actual owner can display the Art; (ii) owning or operating a third party website or application that permits the inclusion, involvement, or participation of Bored Apes generally, provided that the third party website or application cryptographically verifies each Bored Ape owner’s rights to display the Art for their Bored Ape to ensure that only the actual owner can display the Art, and provided that the Art is no longer visible once the owner of the Purchased Bored Ape leaves the website/application; or (iii) earning revenue from any of the foregoing.”).

11 Id. (emphasis added).

12 See Samantha Hissong, How Four NFT Novices Created a Billion-Dollar Ecosystem of Cartoon Apes, ROLLING STONE (Nov. 1, 2021), https://www.rollingstone.com/culture/culture-news/bayc-bored-ape-yacht-club-nft-interview- 1250461/.

13 See nftjedi, Universal Music signs deal with 4 Bored Ape NFTs to form music group KINGSHIP in metaverse, NOU NFT (Nov. 13, 2021), https://nounft.com/2021/11/13/universal-music-signs-deal-with-4-bored-ape-nfts-to- form-music-group-kingship-in-metaverse/.

14 See Jem Aswad, Timbaland Unites With Bored Ape Yacht Club Owners to Form Artist-Owned Ape-In Productions, VARIETY (Nov. 12, 2021, 1:07 PM), https://variety.com/2021/digital/news/timbaland-bored-ape-yacht- club-1235111286/.

15 See economist, Bored Ape Yacht Club: The Case for Licensed Commercial Use Rights, MEDIUM (Sept. 17, 2021), https://medium.com/@deconomist/bored-ape-yacht-club-the-case-for-licensed-commercial-use-rights- b1bbd463d189; nftjedi, Universal Music, supra note 12.

16 See Hissong, supra note 11.

17 Id.

18 See Chris Katje, Bored Ape Yacht Club Turns To Film, TV And Games With Talent Agency Deal: Here Are The Details, Yahoo! (Oct. 12, 2021), https://www.yahoo.com/now/bored-ape-yacht-club-turns-230455170.html.

19 See Taylor Hatmaker, CryptoPunks creator inks representation deal with major Hollywood talent agency, TECHCRUNCH (Aug. 31, 2021), https://techcrunch.com/2021/08/31/larva-labs-cryptopunks-uta-meebits/.

20 See Bored Ape Yacht Club statistics, NFT Stats, https://www.nft-stats.com/collection/boredapeyachtclub (last visited Nov. 15, 2021).

21 See, e.g., Walt Disney Prods. v. Air Pirates, 581 F.3d 751 (9th Cir. 1978)

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EDWARD LEE —> LinkedIn

Commented by Georgina Mauriño —> LinkedIn