In the world of digital art collectibles, particularly those sold as NFTs, licensing models play a crucial role in defining what the buyer can and cannot do with the artwork they purchase. These models include non-exclusive, exclusive, and royalty-based licenses, and they are evolving to fit the unique properties of NFTs.

But beyond traditional licensing models, a new mechanism called token-gating is emerging, offering enhanced control over access and usage rights through blockchain technology. Let’s explore how these licensing models work and how token-gating can further protect and manage digital art.

Types of Licensing Models:

1. Non-Exclusive License:
   • The buyer has the right to use the digital art but does not prevent the artist from selling the same work to other buyers or under other licenses. This is common in stock photography and open editions.
2. Exclusive License:
   • The buyer gains sole rights to use the digital artwork, meaning the artist typically agrees not to sell or license the same piece to anyone else for the same usage rights.
3. Commercial Rights vs. Personal Use:
   • The buyer may be granted personal use rights, allowing them to display or enjoy the artwork privately but not use it for profit.
   • Alternatively, the buyer could receive commercial rights, allowing them to use the artwork in advertising, merchandise, or other business ventures.

   Important Note: If you grant commercial rights, you can also ask for a royalty on each item or product sold using your artwork. For instance, the buyer can sell merchandise like t-shirts or mugs, but a percentage of the revenue from each sale would go back to you, the artist. This can be automated through smart contracts embedded in the NFT.

4. Royalty-Based License:
   • In a royalty-based license, the buyer can use or sell the artwork, but the artist retains the right to a percentage of future sales or uses. This is particularly common in the NFT space, where smart contracts automate royalties on secondary sales.
   • For example, the artist might receive a 10% royalty every time the NFT is resold on a marketplace.

Can You Sell Other Licenses After an Exclusive License?

The key to whether you can sell other licenses after granting an exclusive license depends on how the NFT smart contract defines the licensing terms:

• Exclusive License: If the NFT grants the buyer full, exclusive ownership of rights such as distribution or reproduction, the artwork cannot be sold under any other license. However, exclusive licenses can be scoped. For example, you could sell an exclusive commercial use license while retaining personal or derivative licensing rights for others.
• Conditional Exclusivity: Some licenses are time-limited, allowing a buyer exclusive rights for a set period (e.g., one year). Afterward, the artist can sell the artwork under other licensing terms.

Introducing Token-Gating: A Modern Tool for NFTs and Licensing

In addition to traditional licensing models, token-gating has emerged as a powerful tool in the NFT space. Token-gating restricts access to an artwork or its rights to only those who hold a specific NFT, ensuring that licensing terms, such as exclusivity or commercial use, are enforced transparently through blockchain technology.

How Token-Gating Works:

1. Mint an NFT with Licensing Terms: The artist mints an NFT, embedding or referencing specific licensing terms (e.g., exclusive commercial rights or non-commercial personal use).
2. Control Access to the Artwork: Only those who hold the NFT have access to the high-resolution artwork or specific usage rights (e.g., the ability to use the artwork on merchandise or in advertising).
3. Enforce the Licensing Terms: The smart contract can enforce royalty payments on resales, ensuring that the artist receives compensation every time the NFT is sold. Additionally, token-gating can be used to enforce royalties on items or merchandise sold using the artwork if commercial rights are granted.

What Does Full Commercial Rights Mean?

When you grant full commercial rights via token-gating, the buyer can use the artwork to generate revenue. This includes:

• Creating and selling merchandise (e.g., t-shirts, mugs).
• Using the artwork in marketing and branding.
• Creating derivative works and selling them, depending on the agreement.

Common Commercial Uses:

• Selling Merchandise: Buyers can print the artwork on various products and sell them for profit.
• Advertising and Branding: The artwork can be used in marketing campaigns or as part of brand identity.
• Display and Licensing: Buyers can exhibit the artwork or license it for third-party commercial use.

Limitations:

• Reselling the Artwork: Even with commercial rights, the buyer may not own the copyright unless explicitly stated in the contract.
• Derivative Works: If the contract does not allow for derivative works, the buyer cannot alter the image and sell the modified version.

Practical Example of Token-Gating:

You mint a digital art collectible as an NFT and sell an exclusive commercial license. The buyer gains full commercial rights to use the artwork in advertising, merchandise, or marketing. Through token-gating, only the holder of the NFT can access the high-resolution file or download the artwork for commercial use.

However, you could still offer non-commercial licenses (such as personal display rights) to other buyers, provided this limitation is clearly outlined in the smart contract. The smart contract can also enforce royalties, ensuring you earn a percentage from any future resales of the NFT. Additionally, you could specify a royalty on each item or product sold using the artwork, which ensures you continue to profit from commercial use.

Final Thoughts:

When selling digital art as NFTs, your ability to offer additional licenses depends on the scope of the exclusive rights outlined in the smart contract. By carefully defining these terms and utilizing token-gating, you can continue to monetize your work while assuring buyers of the rights they’re purchasing. Additionally, by implementing royalties on each item sold under a commercial license, artists can continue to profit from the success of their work over time.

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