What The Hell is NIL?

When people hear about name, image, and likeness (“NIL”) many focus on its impact on college athletes and the associated antitrust litigation which took place as college athletes fought to prevent universities from profiting off those athletes’ NIL without sharing that profit with the athletes. However, the underlying legal issues surrounding a person’s right to commercially use his/her identity or persona has been litigated in the United States for over a hundred years.

This blog will discuss the general rules surrounding NIL, and how those rules come into play in NFT projects. Note that these are general issues, and NIL law in the United States is largely governed by state law which differs from state-to-state. This is not intended to serve as legal advice, but hopefully gives you enough background information to allow you to know when it is time to consult an attorney on these issues and otherwise protect yourselves and your projects.

Photo by Brett Sayles on Pexels.com

General Background on NIL Law

What may be surprising to some is that a person’s right of publicity has not been codified by statutes in all 50 states. Only about half of all states have created statutes concerning these rights. The vast majority of states have; however, recognized such rights by way of common law, and the prevailing view is that unless a state has outright rejected the right, it is determined to be a right possessed by constituents in such jurisdictions.

The “right of publicity,” (as the right to control one’s NIL is commonly referred to) is defined as the right of a person – usually but not necessarily a famous person or celebrity – to control the commercial use of his/her name, likeness, or other personally identifying characteristics/persona. While federal trademark law prohibits use of another’s name or image in a way which is “which is likely to deceive consumers as to the association, sponsorship, or approval of goods or services by another person” that is distinct from the right of publicity. One court explained the difference concisely with the following passage:

“Suppose, for example, that a company, Mitchell Fruit, wanted to use pop singer Madonna in an advertising campaign to sell bananas, but Madonna never ate its fruit and would not agree to endorse its products. If Mitchell Fruit posted a billboard featuring a picture of Madonna and the phrase, “Madonna may have ten platinum albums, but she’s never had a Mitchell banana,” Madonna would not have a claim for false endorsement. She would, however, have a publicity rights claim, because Mitchell Fruit misappropriated her name and likeness for commercial purposes. Publicity rights, then, are a form of property protection that allows people to profit from the full commercial value of their identities.”

The general rule is that you cannot use another person’s NIL (or other indication of the person’s identity or persona) for commercial or advertising purposes without the NIL right owner’s consent or approval. The NIL right owner is usually the person him/herself but it is possible they assigned some or all of those rights to others (such as in collective bargaining agreements with major sports leagues) or if the person is dead that right may belong to the person’s estate.

The right of publicity covers all aspects of a person’s persona or what makes that person distinct. For example, one famous case involved Bette Midler successfully suing Ford Motor Company for using a voice actor which was designed to sound like her in a commercial. It also covers merely incidental use. Such was the case when Kareem Abdul-Jabbar sued GMC after GMC used a trivia question in a advertisement in which the correct answer was “Lew Alcindo UCLA, ‘67, ‘68, ‘69” which was Kareem’s birth name and the name he used during his time at UCLA.

Exceptions to Rule

When dealing with any limitation on people using certain images or words in America, there is a balancing act with the First Amendment’s general right to free speech. With the right to publicity, those overriding first amendment protections include parody rights , fair use, and other related protections which balance intellectual property rights against the public’s right to free speech.

There is also the protection on “newsworthiness” which generally protects a newspaper or other media outlet against a claim based on using a person’s identity in connection with reporting the news or a matter of general interest.

One important thing to remember is that when you are dealing with exceptions to a general rule (in this case, the general rule that you cannot use another’s NIL for profit and the exception being in cases it is used for parody, is a transformative fair use, or is otherwise protected speech under the First Amendment) the person making the argument for the exception needs to be prepared for litigation.

Think of it like reply review in sports. The call on the field (the general rule) is going to have the upper hand at the beginning of any litigation. It is only after there has been a reply review (litigation over the applicability of the exception) that the challenger can win. This type of litigation can be expensive, so if you are toeing a line you need to be prepared and budget for potential litigation.

NIL in NFTs

We have already seen one NFT/NIL lawsuit with Lil Yachty is suing an NFT seller called Opulous for trademark infringement for allegedly using his name and likeness without permission to raise over $6.5 million in venture capital funds. As explained in the Madonna example above, not every right to publicity infringement is also a trademark/deceptive advertising infringement, but the allegations usually go hand in hand.

When looking at projects like NBA Topshot, the NIL use is largely dealt with under those prospective sports’ leagues collective bargaining agreements with the players. When dealing with college athletes, there will often be licensing required from the athlete himself, the school (if he is wearing a uniform), and the conference (depending on the conference) which will all need to be approved for any NFT collection using that college athlete in school apparel. Additionally, each of these athletes signs an agreement with their respective universities as a part of their scholarship agreements regarding their NIL usage and varying restrictions on the same depending on the school.

When considering using a celebrity’s persona (a Post Malone tattoo trait, or a Marilyn Monroe dress trait, for example), there are two major considerations. First, is the juice worth the squeeze? Will the public value on the collection having that trait increase the value of the collection as a whole enough to fund potentially defending that trait in court? If not, you should probably should ditch it. Second, is the value of the NFT derived primarily from the fame of the celebrities depicted? If so, you are going to run into issues even if you do have a otherwise valid fair use/parody defense.

Conclusion

When dealing with any small business, especially small businesses who derive value primarily from artistic ventures, business owners need to know the legal basics so they can properly perform a risk/benefit assessment. If people don’t know the potential risks of a venture, they cannot properly determine if the potential benefits exceed those potential risks. People in Web3 often view lawyers as only telling them what they can’t do. That simply is not the case.

A lawyer’s job is to accurately explain legal risks associated with the planned actions of their clients, and if there are potential ways to mitigate those legal risks. If the law is a piping hot pizza roll fresh out of the oven, the lawyer’s job is to tell you exactly how hot those pizza rolls may be and suggest you blow on them or let them cool before eating. At the end of the day though, it is always the decision of the client on whether to take the cautious route provided by the attorney or just dive in with full understanding of the risks. Attorneys have zero issues with (most) decisions clients make so long as those decisions are made from a well informed basis.

When considering the use of a person’s NIL in a planned NFT project, creators should understand the risks of doing so and act accordingly. So long as the creators know there are risks in doing so, anything they do after that is a strictly business decision to be made based on risk tolerance and business acumen.

If you have any questions or would like me to write about anything else, let me know on either of my twitter pages! As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.

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