General terms and conditions of sale for an NFT

When and how should NFT general terms and conditions of sale be drawn up? In practice, NFTs, or non-fungible tokens, often represent a kind of certificate of ownership for digital works. Owning one would therefore be equivalent to being “authenticated” as the owner of a piece of music, a drawing, a video game item, etc. Since 2021, this phenomenon has reached the general public. Indeed, more and more designers are selling their work through NFTs, on one of the many existing marketplaces. And yet, few legal precautions are taken in the process… NFTs are generally sold without a contract, even though investors are increasingly concerned about the rights their purchases grant them. Let’s take a look at the cases in which an NFT’s general terms and conditions of sale need to be drawn up, the compulsory wording, and what it would be wise to include.

What is an NFT?

NFTs(non-fungible tokens ) are existing, unique digital assets that can only be exchanged within a blockchain. What does “non-fungible” mean? NFTs are “non-fungible” tokens, as they cannot be indifferently interchanged between themselves, unlike fungible tokens.

When should NFT general terms and conditions of sale be drawn up?

Definition of Terms and Conditions

General Sales Conditions, or GSC by definition, are a contract detailing the terms and conditions of sale of a good or service, in the absence of specific agreements.

Seller’s obligation to draw up terms and conditions of sale

When is a sellerobliged to draw up and publish terms and conditions for its NFT? It is compulsory to draw up general terms and conditions of sale when selling NFT on a professional basis. Thus, when a seller is an entrepreneur or a company whose activity includes the sale of NFTs, and acts within this framework, he is subject to this obligation.

Article L111-1 of the French Consumer Code (Code de la Consommation) requires professional sellers who sell NFTs to individual consumers to draw up general terms and conditions of sale. In such cases, it is essential to include certain mandatory terms and conditions of sale, designed to protect the consumer.

Professional buyers

Article L441-1 of the French Commercial Code covers professional buyers. On the basis of this article, the seller is obliged to communicate the GCS to any professional purchaser who so requests.

In many cases, therefore, the drafting of general terms and conditions for the sale of NFT is mandatory. In any case, it’s highly recommendable. In fact, it enables investors to know exactly what rights they are getting when they buy an asset that can cost several million euros!

Why does the law require mandatory information in the General Terms and Conditions of Sale?

As mentioned above, the law requires that certain information be included in GTCs to protect the consumer. Let’s take the most common hypothesis of a professional vendor selling his NFTs to consumers. French law requires the seller to provide certain information about the product sold. In this way, the buyer will know the characteristics of the product he or she is buying, and his or her consent will therefore be informed.

What should NFT’s general terms and conditions contain?

When applied to NFTs, the general terms and conditions of sale must contain the following elements:

The seller’s identity

The law on general terms and conditions of sale requires professional sellers of goods to include information on the following in their general terms and conditions of sale:

• ” its identity,
• postal address, telephone number and e-mail address,
• and its activities.

Despite the pseudonymity permitted on the blockchain, an NFT seller will have to disclose more information than just his ethereum address.

NFT features

The seller must provide detailed information on the characteristics of the NFT he is selling. In addition to the intellectual property rights to which the purchase of the NFT entitles you(to which we will return later), it must also describe its technical characteristics:

• To which standard does the NFT belong?
• on which blockchain is it deployed?
• where can smart contracts be deployed?
• on which site is the associated media stored?
• how much are the royalties?
• how many NFTs are in circulation?
• etc.

How to acquire the NFT

The seller is also required to detail the terms of acquisition of the NFT. It must therefore describe the various steps involved in generating(or “minting”) theNFT via the proposed interface (or marketplace). This is essential, because the experience of buying an NFT is a special one. Special tools have to be used, and parameters beyond the seller’s control have to be managed. The entire purchasing process must therefore :

• be precisely described;
• and comply with the law (in particular with article 1127-1 of the French Civil Code, requiring the seller to allow the buyer to rectify any errors).

The NFT price

In addition, the seller must, of course, state the selling price of the NFT. In this case, it will be the price of minting the NFT(or generating the NFT) from the smart contract. This price can be expressed in cryptocurrency. It should be specified that this does not include gas costs. That is, the costs of interacting with the blockchain, which fluctuate according to its activity.

The right of withdrawal

The NFT seller must inform buyers of the existence or otherwise of a right of withdrawal. This is the possibility of going back on the sale during a certain period. Although we believe that he could override the application of this right, by virtue of two authorized legal exceptions:

Article L221-28, 13° of the French Consumer Code

This article states that the supply of digital content on an intangible medium may exempt the seller from granting a right of withdrawal to its buyers:

• once ” performance of the contract has begun “,
• after the buyer has given his prior consent and expressly waived his right of withdrawal. This would require the buyer to tick the appropriate box on a form.

An NFT can in fact be considered digital content(in the same way as a film, music, etc.), and so this exception applies to it.

Article L221-28, 2° of the French Consumer Code

The right of withdrawal does not apply to :

” the supply of goods whose price depends on fluctuations in the financial market beyond the trader’s control and which may occur during the withdrawal period “.

The speculative nature of many NFTs, and hence the high volatility of their prices immediately after purchase, cannot be overlooked. It would therefore be arguable that some NFTs are covered by this exception.

Legal warranties

The seller must inform the buyer of the legal guarantees available to him, and in particular the legal guarantee of conformity. In the event of non-conformity of a product, this warranty entitles the consumer to exchange it within 2 years of purchase. Previously, the legal warranty of conformity only applied to physical goods (new or used). But as of January¹, 2022, Ordinance no. 2021-1247 also extends this to digital goods. It could therefore potentially be applied to NFTs. In this case, the issuer would be well advised to restrict the definition of non-conformity as much as possible in its GCS.

Protection of personal data

A priori, few personal data are processed by the seller when selling its NFTs:

• the buyer’s public address,
• and associated information (such as its token balance).

The seller must draft this clause in the same way as is customary for personal data protection clauses, being transparent about :

• processing of personal data (purpose, data collected, legal basis, duration of processing, etc.)
• and on the rights available to data subjects and how to exercise them (in particular, the right of access and the right to restrict processing).

The obligation to use a consumer mediator

Article L612-1 of the French Consumer Code requires the appointment of a mediator. He will be responsible for amicably resolving any dispute between a buyer and a professional seller. The seller will then have to choose a mediator (preferably acculturated to the crypto field), and inform his customers of the possibility of resorting to him.

NFT and intellectual property: what are the specific provisions?

Specifying the rights assigned in the GTCS

As already mentioned, the seller must specify the characteristics of his NFT. In particular, what he intends to give up when someone buys his NFT.

The NFT, for example, can relate to a work (such as a drawing, a piece of music, a video game item, a photo, or any other original creation). Works are protected by copyright. And Article L131-2 of the French Intellectual Property Code stipulates that their transfer must be recorded in writing.

In other words, if the NFT seller intends to assign intellectual property rights (which it is not obliged to do), it must specify this in the GTCS.

The scope of assigned rights

In addition, article L131-3 of the same Code requires that :

“It is essential that ” the assigned rights are mentioned separately in the deed of assignment and that the scope of exploitation of the assigned rights is delimited as to its extent and destination, as to its place and duration.

In concrete terms, the clause relating to intellectual property rights in the General Terms and Conditions of Sale must therefore include information on the scope of the rights assigned:

• Is it simply a license for the right of use? Or does the author also relinquish the right of reproduction, the right of representation, etc.?
• where will the NFT owner be able to enjoy these rights? For how long? And to what end?

Where should these terms and conditions be integrated?

Finally, we recommend that you prominently display the NFT’s general terms and conditions of sale (in accordance with article L211-1 of the French Consumer Code). Before the consumer can “mine” the NFT.

It is then necessary to reference them in its metadata, which will in turn point to a decentralized storage site, where the CGV hash can be stored.

Authors :

Abdoulaye Diallo, doctoral student in law and consultant in blockchain and RGPD.

Sonia Mavouna, attorney-at-law specializing in venture capital and new technology law.