Demand for lawyers who understand non-fungible tokens (NFTs) has grown exponentially in the past year, as more and more clients from increasingly diverse areas of the economy require expertise traversing this booming technology. By some estimates, the market for NFTs was valued anywhere from $17 billion to $41 billion in 2021, from around $82 million in 2020.
And with this giant rise in market cap comes an inevitable need for legal services. But taking advantage of this economic growth is no simple matter for law firms. It requires an understanding not just of NFT transactions, but also data security, intellectual property, public policy, and a whole raft of regulatory and compliance issues. Firms wanting to become a destination for NFT clients will need to show they are proficient in a whole host of specialized legal areas.
NFTs are, ostensibly, digital certificates registered on a blockchain to show ownership of a unique asset. But such a technical description belies the complexity and popularity of the NFT.
NFTs can be unique pieces of digital art or collectibles. But these aren’t your grandfather’s baseball cards. For instance, Larva Labs creates one-off profile pictures called CryptoPunks—digital characters it sells as NFTs. The lowest-priced “punk” currently available is listed for sale at $162,389, and in the past year, CryptoPunks has sold almost 8,000 of these virtual works of art, with a total market capitalization of $1.94 billion.
NFTs can also be a plot of land in a virtual world. When ArentFox Schiff became the first Big Law firm to set up shop in the metaverse, its property was technically an NFT.
Since then, said a spokesperson for the firm, demand for its blockchain, crypto and metaverse practice group—led by partner James Williams—has been “white hot.”
Williams and his team have been kept busy by a wide range of clients—from global accountancy firm PwC, to luxury fashion and professional sports brands—buying, selling, creating and generally trying to understand NFTs.
Williams himself has already represented cable television networks, global food brands, supercar manufacturers and well-known artists in the development, minting and custody of NFTs. He characterizes his practice as being at the intersection of corporate securities and intellectual property law, and said that clients require a vast range of legal services when it comes to NFTs.
“As many issues as there are for assets in the physical world, also exist for assets in the virtual world, including the metaverse and NFTs,” said Williams, listing some of the most prominent as contracting, contract disputes, copyright infringement, as well as emerging issues such as cybersecurity.
A Critical Skill
NFTs are quickly becoming the coin of the realm for most activity in the metaverse, Williams noted, making them a critical component for lawyers to understand for their clients.
“NFTs are widely seen as the future of commercialization in the metaverse,” he said, explaining that when you buy land in the metaverse, you’re buying an NFT token that represents your parcel of land. “And as creators come into the world and start to develop different use cases, you will see different NFTs deployed on top of the metaverse blockchain to represent different services and goods.”
One example, said Williams, is when musical artist Snoop Dogg recently held a VIP party in the metaverse, he issued VIP invites in the form of an NFT.
“You had to have the NFT to get into Snoop’s party,” said Williams, adding that a wide range of digital assets—from automobiles to fashion items—will likely be represented by NFTs. “For instance, if Gucci wanted to develop a handbag that’s wearable by an avatar in a metaverse, it will likely at some point be purchasable as an NFT.”
The result is that many lawyers from diverse practice groups are increasingly being called on to advise on NFT issues, said Jeffrey Alberts, co-head of the fintech group at Pryor Cashman.
“I’ve been working in the cryptocurrency space for years, and the focus has been on money transmission and buying securities. But what clients want—and who the clients are—has evolved significantly,” Alberts explained. “We have had a big art practice for a long time, and they hadn’t been doing anything with NFTs until the last couple of years. Now they’re probably bringing in the most new cases of any part of the firm.”
What clients need depends on what they’re trying to do, said Alberts, including setting up platforms, handling sales, procuring business licenses, determining whether or not the NFT is a security, and handling regulatory problems and intellectual property issues.
Alberts said around a dozen partners at Pryor are working on the NFT projects.
“They’re in all different groups, because these projects have all different problems—and a lot of the problems are novel,” Alberts said. “We have our media people, we have our IP people, we have the money transmission and security issues people, and then you have your tax people, because with NFTs there are all kinds of unique tax questions that come up.”
Servicing a Community
DLA Piper partner Mark Radcliffe, who has been practicing law in Silicon Valley for over 30 years, has seen a major transformation in the industry over the last few decades.
He started out in securities law but began doing software licensing work in the 1980s, then put together the first internet domain name dispute resolution policy in 1994, before becoming involved with open-source software in the early 2000s.
Radcliffe said these experiences provided him with a unique understanding of the development of cryptocurrencies, as well as NFTs.
“These are communities of innovators, and I’m very enthusiastic about helping build communities,” he said. “I’m hoping to bring that culture to the NFT community.”
Radcliffe sees two basic types of lawyers usually handling NFT work: transactions lawyers and entertainment lawyers.
“For the folks used to doing tokens and crypto transactions, NFTs are a natural evolution,” he said. “For the people in entertainment fields, they have huge demand from their clients. But the challenges for both these types of lawyers is that they don’t often have a strong understanding of software licensing.”
To succeed in NFTs, Radcliffe argued, you need the transactions experience, combined with the entertainment contacts, and the savvy that comes from software licensing.
Like Alberts at Pryor Cashman, Jason Weinstein and Alan Cohn at Steptoe & Johnson believe it’s the holistic service that counts in the NFT space. Yet Weinstein and Cohn emphasized that without a strong understanding of regulations and compliance underlying the proposition, an NFT practice faces a challenge in truly servicing its clients.
Weinstein said his and Cohn’s goal when setting up Steptoe’s crypto practice—which leads the firm’s NFT work—was to have a “small core” of people who oversee the practice, but then have “representation” in all the different practice groups that are “otherwise central to the firm,” and have “crypto people” in each of those groups.
“For instance, we have tax lawyers who are among the first to be fluent in crypto-related tax issues for crypto companies, anti-money laundering and sanctions people who are crypto fluent and have developed a great deal of expertise advising companies on how to avoid Bank Secrecy Act- or sanctions-related problems when those issues arise,” Weinstein said.
“There’s no such thing as an NFT lawyer, any more than there is such a thing as an internet lawyer,” he said, explaining that just as the internet became a part of the commercial fabric of the country’s economy in the late ’90s, cryptocurrencies—and now NFTs—seem set to follow the same path.
A Holistic Offering
In that environment, law firms need litigators, consumer protection lawyers, data privacy lawyers, tax experts and others who can apply their skills in the context of the new technology. But the firm also needs public policy experts and lobbyists to help clients understand the rules and regulations—and to advocate on their behalf.
“As platforms and technologies mature to a certain size, and as creator communities mature, there’s a recognition that they need to be involved in the public policy space,” Cohn said, explaining that in this regard, the NFT community is “no different” from the early internet community, Big Data, or even space and satellite companies. “We’ve seen in the NFT space a rapid progression of needs from traditional legal services—with compliance, regulatory and corporate tax—proceeding to public policy.”
In this regard, Cohn believes firms with a strong presence in Washington, D.C., may become natural leaders in the NFT legal services space. He said over the past couple of years, Steptoe’s roster of lobby shop clients is growing at pace after several years of growth in demand for NFT-focused legal services.
Adrian Perry at Covington & Burling agreed that the regulatory and compliance component is crucial to servicing the NFT community. He said his Washington-headquartered firm is “making inroads” into the NFT space for two principal reasons: A strong tech transactions group with lawyers in New York, California and around the world, combined with the “compelling” regulatory offering that comes with Covington’s D.C. roots.
“We’ve got all the regulatory pieces covered, and we can bring it all together,” said Perry.
He said while a lot of Covington’s NFT work is transactions-based, the practice is also kept busy providing counseling like due diligence, risk management and guidance on NFT launches.
“We’ve also done soup-to-nuts advice for folks launching their first NFT initiative, and helped with IP licenses and royalties,” said Perry.
The firm recently set up an NFT working group that presently comprises around 20 lawyers from across the firm, including IP lawyers, litigators and securities attorneys.
“There’s a lot of different buckets and areas to cross off to successfully advise someone on these NFT launches and metaverse projects. So, you end up with a pretty wide range of people who need to understand the space,” said Perry.
For Steptoe’s Weinstein, NFTs—and digital assets generally—are not the “Wild West” that some media pundits proclaim them to be—at least not from a legal services perspective.
“It’s more a case of too many sheriffs—at least from a regulatory, public policy and enforcement perspective,” said Weinstein, explaining that a host of government regulators and enforcement agencies—from the IRS and Securities and Exchange Commission, to the Department of Justice and Homeland Security—all want to regulate and enforce the space. “And each of them wants to be in the lead.”
Firms with the ability to help clients deal with all of these sheriffs, “and to address issues proactively or reactively,” said Weinstein, are best placed to take advantage of this burgeoning market for legal services.
“D.C. firms like ours, I think, are well situated to do this,” he said.