CNN’s NFT License Agreement Doesn't Guarantee Scarcity

A little over a month ago, CNN announced the launch of “Vault”, a service that lets customers buy NFTs of clips from CNN’s archives as “collectibles”. The initial drop included a 55- second clip of Ted Turner announcing the launch of CNN on June 1, 1980, and 1:17 clip of Bernard Shaw reporting on the U.S. bombing of Baghdad in January, 1991. CNN’s “Moments” were marketed as “limited editions” of 500, priced at $25.00 each. Both are sold out.

According to the website, buying an NFT of one of CNN’s Moments allows you to “own and experience some of those historic Moments that changed us and the world”. What does that mean, exactly?

Ever since February of this year, when the auction house Christie’s sold a jpeg by the artist Beeple for $69 million, people have been trying to get their heads around what it means to “own” an NFT. Over 1,500 new articles have been published in the last six months containing the words “What is an NFT?”

Here’s a typical answer.

“An NFT is an asset verified using blockchain technology, in which a network of computers records transactions and gives buyers proof of authenticity and ownership.” (NYT, Mar 12, 2021)

Wait, what? Let’s dig a little deeper here. An NFT “gives buyers proof of ownership” of what, exactly? The fair answer is that the NFT gives buyers proof of ownership of, well, an NFT. Period. But what about the “Moment” (say, a video of a speech by Ted Turner) that the NFT represents? The NFT itself doesn’t contain the content, so you don’t own that, at least not by any legal standard.

It’s true that US copyright law gives owners of “copies” of certain works the right to use/view/display the copy they own. But an NFT isn’t a copy. It doesn’t “contain” the Moment, although it points to a place on the web where you can find it (maybe). So in a way, an NFT is the digital equivalent of writing down your home address on a piece of a paper and giving it someone. The person who you give it to owns the piece of paper, but unless that piece of a paper is a deed, they don’t own your house. And an NFT isn’t a deed.

So, when CNN talks about how you can “own and experience” a moment in history, what does that mean?

Well, it turns that out, in addition to selling you the digital equivalent of a “piece of a paper with an address on it”, they also grant you certain rights by virtue of an agreement, accessible only from a discreet “Terms & Conditions” link in the footer of the page. Click that link, and you are taken to a 1,300-word contract, that you have agreed to (like it or not) the moment you buy one of CNN’s Moments. And here’s what that agreement says about your rights in the Moment, whose address is contained in the NFT:

“[W]e grant you a worldwide, non-exclusive, non-transferable, royalty-free license to use, copy, and display the Art for your Purchased Moments, solely for the following purposes: (a) for your own personal, non-commercial use…” (and some other stuff about your right to show it off on the CNN Vault website.)

OK then, at least you have the right to display it in your house. But what about the “non-exclusive” part? What does that mean? Well, it means that, notwithstanding there are only supposed to be 500 NFTs of Ted Turner announcing the formation of CNN, CNN maintains ownership of the clip, and there’s nothing in the agreement to prevent them from issuing another 500 NFTs using the same clip — or some other soon-to-be-developed technology that is supposed to represent “ownership” of that digital asset.

And “non transferable”? That means pretty much what you’d think. Even though you have been granted the right to display it in your living room, you can’t transfer the right for somebody else to display it in their living room, at least not without CNN’s consent. You can’t just loan your NFT to your brother-in-law, for example. You can’t will it (the right to view your moment) to your kids when you die, because it’s non-transferable. You can give somebody the token, but not the right to use the content that it represents. CNN makes that explicit.

“If at any time you sell, swap, donate, give away, transfer, or otherwise dispose of your Purchased Moment for any reason, the license granted in Section 2(ii) will immediately expire with respect to that Moment.”

So if I sell my moment, or give it away, or leave it to my children, they can’t display it in their home? Well, not quite. CNN kindly provides you with a “limited right” to transfer the rights you have to use the Moment, so long as a) you don’t breach any of the other ~1,000 words in the contract, b) the new owner agrees to be bound by all 1,300 words c) you haven’t had your access to the Moments website terminated (whatever that means) by CNN, and d) you pay 10% of the sale price to CNN. This last bit is not made obvious anywhere on the page where the Moments are offered for sale, nor in the FAQ on the site.

For ease of comparison, here’s a list of things you could legally do if you owned a painting, let’s say, Lucian Freud’s “Benefits Supervisor Sleeping” (sold by Christie’s in 2008 for $33 million), as compared to things you can do with Ted Turner’s CNN Moment, both with and without the benefit of the license agreement.

The CNN example is a good test case for trying to understand what “ownership” really means in the context of an NFT. While the general public might think ownership of NFT means they actually “own” (forever) something having to do with the artwork or video connected to the NFT, what they actually own (with respect to the content) isn’t represented by the NFT at all. If they “own” anything, it’s only the rights conveyed by a separate license agreement, the terms of which fall far short of the kind of “ownership” people would assume, based on their understanding of the ownership rights associated with physical copies of copyrighted works like paintings, DVDs, books, or baseball cards.

Neither does CNN, in this particular case, even represent that they are the copyright owner of the clip they are licensing to you. In fact, CNN reserves the right to “pass through additional restrictions on your ability to use the “moment” at any time, which you will be “responsible for complying with from the date that you receive the notice”. If, for example, CNN were sued by Ted Turner, because they neglected to get his permission to sell his image as an NFT, one could easily imagine them passing through a “restriction” that would disallow the display of the speech you just purchased.

Moreover, the “value” of an NFT is based entirely on the notion of “scarcity” and “originality”. But nothing about the NFT or CNN’s license agreement guarantees anything about scarcity of the underlying video, or for that matter its originality. Even though the website indicates that only 500 copies of this particular NFT of Ted Turner’s speech will be sold, the license agreement is silent on any such limitation, and the technology does not generally guarantee any particular “edition size” of an NFT (identified by a location or address on the blockchain) is limited to any particular number.

So nothing, either in the contract, or in the NFT protocol itself assures a buyer that CNN won’t mint additional NFTs of that speech, which means that its purported scarcity is nothing more than a “suggestion” which CNN is free to ignore without consequence. In other words, any notion of scarcity of “Ted Turner speech” NFTs is entirely illusory. And that goes for just about every other NFT sold as well.

Also published on: https://medium.com/@josh_29732/cnns-vault-nfts-are-an-empty-shell-4ec355dbccb

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