Terms and Conditions of Sale for an NFT

When and how should you draft terms and conditions of sale for an NFT? In practice, NFTs — or non-fungible tokens — often function as a kind of certificate of ownership over digital works. Holding one is the equivalent of being "authenticated" as the owner of a piece of music, a drawing, a video game item, and so on. Since 2021, this phenomenon has reached mainstream audiences.

More and more creators are selling their works through NFTs, on one of the many existing marketplaces. Yet very few legal precautions are taken in the process. NFTs are generally sold without a contract, even though investors are increasingly concerned about what rights their purchases actually confer — sometimes for assets worth millions of euros.

Let us examine when NFT terms and conditions of sale must be drafted, what mandatory disclosures they must include, and what else it would be advisable to include.

What is an NFT?

NFTs (non-fungible tokens) are unique digital assets that can only be transferred within a blockchain. Why "non-fungible"? Unlike fungible tokens, NFTs cannot be interchanged on a one-for-one basis — each one is distinct and irreplaceable.

When should you draft terms and conditions of sale for an NFT?

Definition of terms and conditions of sale

Terms and conditions of sale (T&Cs) are a contract setting out the terms under which a good or service is sold, in the absence of specific agreements between the parties.

The seller's obligation to draft T&Cs

When is a seller required to draft and publish T&Cs for their NFT? Drafting terms and conditions of sale is mandatory when NFTs are sold on a professional basis. This means that when the seller is a sole trader or a company whose activities include the sale of NFTs, and they are acting in that capacity, they are subject to this obligation.

Article L111-1 of the French Consumer Code requires a professional seller selling NFTs to an individual consumer to draft T&Cs. Such a situation requires the inclusion of certain mandatory disclosures designed to protect the consumer.

The case of a professional buyer

Article L441-1 of the French Commercial Code covers the case of a professional buyer. Under this provision, the seller is required to communicate their T&Cs to any professional buyer who requests them.

In many cases, therefore, drafting T&Cs when selling NFTs is a legal obligation. In any event, it is highly advisable: it allows an investor to know precisely what rights they are acquiring when purchasing an asset that may be worth several million euros.

Why does the law require mandatory disclosures in T&Cs?

As noted above, the law requires certain mandatory disclosures in T&Cs in order to protect the consumer. Take the most common scenario: a professional seller selling their NFTs to consumers. French law requires the seller to provide certain information about the product being sold, so that the buyer knows what they are purchasing and their consent is fully informed.

What must NFT T&Cs contain?

Applied to NFTs, terms and conditions of sale must include the following elements:

The seller's identity

The law requires a professional seller to disclose in their T&Cs information relating to:

• their identity;
• their postal, telephone, and electronic contact details;
• and the nature of their activities.

Despite the pseudonymity that blockchain permits, an NFT seller will therefore need to disclose more information than just their Ethereum address.

The characteristics of the NFT

The seller must provide detailed information about the characteristics of the NFT being sold. Beyond the intellectual property rights conferred by the purchase (which we will return to below), the technical characteristics must also be described, including:

• what standard does the NFT conform to?
• on which blockchain is it deployed?
• what is the deployment address of the smart contract?
• on which site is the associated media stored?
• what royalties apply?
• how many NFTs are in circulation?
• and so on.

The terms of acquisition

The seller must also detail the terms of acquisition of the NFT — describing the steps required to mint it via the proposed interface or a marketplace. This is essential because the NFT purchase experience is unlike conventional transactions: it requires the use of specialist tools and involves parameters outside the seller's control. The entire purchase process must therefore:

• be described precisely;
• and comply with the law — in particular Article 1127-1 of the French Civil Code, which requires the seller to allow the buyer to correct errors.

The price of the NFT

The seller must also clearly state the sale price of the NFT — in this case, the minting price generated via the smart contract. This price may be expressed in cryptocurrency. If so, it must be made clear that it does not include gas fees — i.e. the fees for interacting with the blockchain, which fluctuate according to network activity.

The right of withdrawal

The NFT seller must inform buyers whether or not a right of withdrawal exists — i.e. the ability to cancel the sale within a certain period. The seller may, however, be able to exclude this right on the basis of two statutory exceptions:

Article L221-28, 13° of the Consumer Code

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

• once "performance of the contract has begun";
• after the buyer has given their prior consent and expressly waived their right of withdrawal — which would require a form containing this statement for the buyer to tick.

An NFT can indeed be considered digital content (in the same way as a film or a piece of music), making this exception potentially applicable.

Article L221-28, 2° of the Consumer Code

A further exception from the right of withdrawal applies to:

The speculative nature of many NFTs — and the high volatility of their price immediately after purchase — means it is arguable that certain NFTs fall within this exception.

Statutory warranties

The seller must inform the buyer of the statutory warranties available to them, in particular the statutory warranty of conformity. This warranty allows a consumer, in the event that a good does not conform, to have it exchanged within 2 years of purchase. Previously, the statutory warranty of conformity applied only to physical goods (new or second-hand). However, since 1 January 2022, Order No. 2021-1247 has extended it to digital goods as well.

It could therefore very potentially apply to NFTs. In that case, the issuer would be well advised to define non-conformity as narrowly as possible in their T&Cs.

Personal data protection

In principle, little personal data is processed by the seller when selling NFTs:

• the buyer's public address;
• and associated information (such as their token balance).

The seller must draft this clause as one would ordinarily draft a personal data protection clause, being transparent about:

• the processing of personal data (purpose, data collected, legal basis, retention period, etc.);
• and the rights available to data subjects and how they can be exercised (in particular the right of access and the right to restriction of processing).

The obligation to appoint a consumer mediator

Article L612-1 of the Consumer Code requires the appointment of a mediator, responsible for resolving any dispute amicably between a buyer and a professional seller. The seller must choose a mediator (preferably one familiar with the crypto space) and inform their customers of the possibility of using this service.

NFTs and intellectual property: what specific provisions apply?

Specifying the rights transferred in the T&Cs

As noted above, the seller must specify the characteristics of their NFT — and in particular, what they intend to transfer when a person purchases it.

An NFT may, for example, relate to a work (such as a drawing, a piece of music, a video game item, a photograph, or any other original creation). Such works are protected by copyright. And Article L131-2 of the French Intellectual Property Code provides that any transfer of copyright must be evidenced in writing.

In other words, if the NFT seller intends to transfer intellectual property rights (which they are not required to do), this must be stated in the T&Cs.

The scope of the rights transferred

Furthermore, Article L131-3 of the same Code requires that:

In practical terms, the intellectual property clause in the T&Cs must therefore include information on the scope of the rights transferred:

• is it a simple licence granting a right of use? Or does the author also transfer the right of reproduction, the right of representation, and so on?
• in what territory may the NFT owner exercise these rights? For how long? And for what purpose?

Where should these T&Cs be integrated?

In conclusion, it is recommended that the NFT terms and conditions of sale be displayed prominently (in accordance with Article L211-1 of the Consumer Code), before the consumer is able to mint the NFT.

They should then be referenced in the NFT's metadata, which in turn points to a decentralised storage site where the hash of the T&Cs can be stored.

By completing this contact form, African Legal Factory collects and processes your personal data as data controller in order to respond to your enquiries. You have the right to access, rectify, object to, erase, restrict, and port your data, as well as to provide instructions regarding the fate of your data after your death.

For more information on the processing of your personal data, please consult our Privacy Policy.