Attorney, Author, and Business Consultant for the Comic Book Industry

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Initial Thoughts on NFTs from a Comic Book Attorney

Added on by Gamal Hennessy.

I’ve had current and potential clients ask me about NFT’s over the past few weeks, and I’ve seen advocates on both sides of the issue present their perspectives. This isn’t meant to be a definitive statement on the technology and its impact on the industry. It certainly does not constitute business or legal advice. In the end, this can only be the beginning of an evolving perspective from someone who works with the legal issues surrounding comic book art, that can hopefully help increase understanding of this fluid topic.

What is an NFT?

The acronym NFT in this case stands for “non-fungible token”. While there is a more complex definition based on the underlying blockchain technology used to power it, the easiest way to think about NFT’s is as a unique digital file. According to The VergeNFTs can really be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.” On a certain level, NFT’s can be seen as an evolution of the selling of a singular physical art piece, like a commission you buy at a convention in artist’s alley or the single copy of Once Upon a Time in Shaolin that the Wu-Tang Clan sold to pharma-bro back in 2015.

What is the Value of a Digital File?

If an NFT is a digital file, and digital files by their nature can be instantly copied an unlimited number of times, what is the point of paying a lot of money for a digital file? The answer to that question can be traced back to the nature of collection in general and comic book collecting in particular.

Certain people have collected things that interested them from the time we could pick things up. Elite members of almost every civilization have collected works of art as a way to display their power and taste. There is an entire segment of the comic book industry based on the collection of comics and a separate market for original art from those comics.  

For example, in 2014 there was a sale for Superman #1 for 3.2 million dollars. The 2021 value of a similar book is currently listed at 23.6 million dollars. But why? If you don’t care about comics or you don’t like Superman, these numbers might seem ridiculous. What is the inherent, universal value of a Faberge egg, a Basquiat painting, or a rare comic?

There isn’t one. The value is subjective. As long as the seller can find a buyer willing to pay the cost, then the value exists for that transaction. So while paying millions of dollars for a digital file doesn’t make practical sense, it makes just as much sense as any other subjective artistic collectible. The only difference in the case of NFT’s is the difference between the object’s digital and physical existence.

 

What is the Impact on the Environment?

Like many types of blockchain technology, the NFT process harms the environment in ways that override any economic benefit it provides. While the specific harm to the planet is a matter for debate, it should be taken in the context of the wider environmental impact of the comic book industry for comparison.

Before the pandemic, if one artist in New Jersey wanted to sell one piece of original art at San Diego Comic-Con, she would have to take a car to the airport, get on a plane, take a car to the hotel, consume several meals for several days and then repeat the whole process to get back home and she might not ever sell her art. At the same time, hundreds of potential buyers of that single art piece would have to replicate the process on their own.

How much negative environmental impact does that create? I’m not an environmental expert. This scenario is not an apples-to-apples comparison, since both the buyer and the seller here might get more benefit from the trip than just the sale of one piece of art, but the sale of comic book art, and comic book fandom in general, isn’t inherently environmentally friendly.

 

What is the Impact on Comics Creators?

While any digital file can be sold as an NFT, not all digital files, or their creators, have the same stakes in the process. In my opinion, colorists, letterers, flatters, editors, and designers don’t have much to gain from NFTs. Writers might also find a hard time finding interest in their scripts or pitches without some extraordinary factors. At the same time, cartoonists and creator-owned comic creators who own their work outright appear to have more flexibility to pursue NFT’s than freelance creators. Artists and publishers have the most to lose or gain from the potential NFT market.

Artists, who have been able to supplement their income with the sale of original art in the past, lost some of that capacity as they moved from generating work in a digital rather than physical medium. Publishers, looking for additional sources of revenue from their intellectual property, see NFT’s as a market that could be bigger than the sales of the actual comics. Battle lines are being drawn based on who has ownership and control over these assets.

Who Owns the Comic NFT?

Ownership and control over NFT’s comes down to the contracts governing the underlying intellectual property and the relative leverage between the artists and publishers for any single comic.  

In a well-designed collaboration agreement or work for hire contract, there should be language concerning the ownership and disposition of original art. These clauses historically dealt with physical art, but they can be modified or interpreted to cover NFT’s.

Here’s an example of an original art clause. As you read it, keep in mind that the Owner is the publisher, the Talent is the artist, the Project is the finished comic, and the Services is the artwork.

The parties agree that Owner shall own all of the Services. Any original physical artwork created under this Agreement shall be owned by Talent. Talent may utilize up to four (4) pages of the Services in their professional portfolio or any marketing, advertising, or other display of the Services after the commercial release of the Project. Talent may not use any aspect of the Project to create additional materials not authorized and approved by Owner.

This paragraph attempts to achieve four goals. First, it designates that the publisher owns the pages produced by the artist. Second, it designates that the physical artwork (if there is any) is owned by the artist. Third, it allows the artist to use a portion of the pages to get more gigs after the comic is released (to avoid spoilers). Finally, it prohibits the artist from making and selling things without the approval of the publisher. The last sentence can be used to effectively prohibit the creation of an NFT, if the NFT is determined to be “additional materials.”

This is an example of an original art clause, but the contents of this clause can vary wildly based on the relative power of the people signing the contract. For example, an artist with enough leverage could have the word “physical” removed from the second sentence, giving her the potential to sell NFTs.

Leverage is defined as the power one side has over the other side in the pursuit of their interests. Companies like DC are using their leverage to shut down creator's attempts to generate revenue from NFTs that include DC characters. On the other end of the spectrum, publishers like AWA are coming out in favor of artists generating revenue from NFT’s. The difference in position could be based on a dissimilar corporate philosophy, or in the disparity in the market share and popularity between the companies characters, or a host of other reasons. In any event, artists who plan on selling NFTs will have to consider which publishers they work with and what they agree to in their contracts before they start selling.

 

What is the Future of Comic Book NFTs?

As I said in the beginning, this isn’t the last word on this issue. NFT’s, like page rates and other forms of compensation for comic creators, will continue to be a source of contention in the industry. There will continue to be business, legal and social fallout on both sides of the NFT issue depending on their relative position. The technology might become more efficient, more costly, or ultimately replaced by new technology. The market might stabilize or collapse. Publishers and artists could use the potential of NFTs as a negotiation point or as the basis for ongoing litigation. Whatever happens, creators, publishers, and consumers will have to reconcile with the continuing impact of digital technologies on the business of comics based on their goals, beliefs, and position in the industry.

Have fun with your comic

Gamal

If you have questions about the or legal aspects of your comic book publishing and you'd like a free consultation, please contact me and we can set something up that fits in with your schedule.

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE AN ISSUE WITH YOUR COMIC PROPERTY, DISCUSS IT WITH A QUALIFIED CONTRACT ATTORNEY OR CONTACT C3 FOR A FREE CONSULTATION

 

A Simple Guide to Work for Hire Agreements

Added on by Gamal Hennessy.

By Gamal Hennessy

This is a modified excerpt from a book I’m working on called Independent Comic Book Publishing. It’s designed to walk you through the basics of work for hire agreements. The post is geared towards comic book creators, but the information is also applicable to freelance creatives and independent entertainers of all types.  While this can’t be used as legal advice, I hope you’ll find it helpful.

Freelance comic book creators are the lifeblood of the industry. While publishers are celebrated for the intellectual property they own, it’s the work for hire creators developing many of the characters, stories and milestone moments in comics. Creator owned books are rising in prominence, but many of them rely heavily on work for hire talent to turn their dreams into reality. A few independent publishers try to handle all aspects of the business and creative process of comic book publishing, but most do not have the skill or the time to go it alone (See You Need Two Teams to Publish a Comic). But for all their importance to the craft of comics, work for hire agreements don’t get the attention that matches their impact. When comics are made without a detailed work for hire contract, the publisher risks losing ownership of their intellectual property and freelance artists risk losing the revenue they are entitled to.

What Is the Work for Hire Doctrine?

One of the basic concepts in copyright law is the relationship between creation and ownership. In most situations, whoever creates an original work owns that work. The work for hire doctrine is an exception to that rule. “If a work is made for hire, an employer is considered the author even if an employee actually created the work. The employer can be a firm, an organization, or an individual.”

Under copyright law, a work for hire is created if it is “prepared by an employee within the scope of their employment or a work is specially ordered or commissioned for use” in a variety of situations. One of those situations is “as a contribution to a collective work”. Since comics are by definition a collective work, publishers regularly commission work for hire artists using work for hire agreements.

What Is the Benefit of a Work for Hire Agreement?

While there is plenty of hostility against work for hire agreements, there are benefits to both the publisher and the work for hire artist in the context of comic books. For the work for hire artist, there is a short-term financial gain. Many comics do not generate a profit, so artists relying on comic book sales to make a living might not be able to sustain themselves. Even if comic sales across the board were healthy enough for artists to survive, the profits for comics don’t materialize for months, sometimes years after the work is done and the book is published. Under a standard work for hire agreement, the artist is paid up front, regardless of the sales or profits of the published book.

For publishers, there is long-term profit potential. Published books are a source of revenue, but in the modern entertainment landscape, the intellectual property based on comics drives film, merchandise, television and video games (See Positioning Your Book for the Coming Content War). As an extreme example, the comic book industry as a whole generated two billion dollars in 2017. In 2018, Avengers: Infinity War generated a worldwide box office of more than two billion dollars, not counting merchandise or associated advertising.

Of course, even in the current age of comic entertainment, only a select few properties crossover into mainstream media. And almost none of the books that do find their way to various screens and shelves reach the heights of the current MCU, but copyright ownership gives publishers the potential for success. It is an investment with substantial risk that the work for hire artists don’t lose or profit from either way, depending on the agreement.

What is a Work for Hire Agreement?

A work for hire agreement defines the rights and responsibilities between an owner who commissions a work and the artist who creates that work. A work for hire agreement is different from an artist collaboration agreement (where two or more parties share in the ownership of intellectual property See A Simple Guide to the Artist Collaboration Agreement), or a license agreement (where one party gives another party the right to use some aspect of the intellectual property in exchange for payment).

Keep in mind that anyone working on the comic book who will not share in ownership of the intellectual property should sign a work for hire agreement. This includes freelance professionals on the business side of publishing like marketers or web designers who are not directly creating the comic book.

While a work for hire agreement will share some of the same foundation and housekeeping terms found in other comic book contracts (See my post on A Simple Guide to Creative Contracts), there are several basic and business terms unique to this type of agreement.

What are the Main Elements of a Work for Hire Agreement?

A well-drafted work for hire agreement will address the following issues:

1)    The Owner of the Work

2)    The Work for Hire Artist for the Work: Each artist performing work for hire services needs to sign a separate agreement with the Owner.

3)    The Work explains what the Owner wants the Artist to do. This should be described in as much detail as possible, but at a minimum it should include.

a.    The working title

b.    A description of what the final product will be, whether it’s a web comic, single print issue, graphic novel or ongoing series

c.    The Services the Work for Hire Artist is providing.

4)    The Delivery Schedule: of when Artist will deliver the Services.

5)    The Compensation: including page rates, hourly rates, royalties or any combination of the three. Compensation terms should also include:

a.    The timing of payments

b.    Credit in the final product

c.    Ownership of the original artwork (if applicable)

d.    Use of the Services in their professional portfolio

6)    The Advance Recoupment: Any and all payments made to any party before revenue is generated and then deducted from the royalties when revenue is generated. For example, the artist might get a page rate for their work on the book before publication, but that money can get recouped by the Owner when the book goes on sale.

7)    Missed Deadlines: any penalties to the Artist for missing the Delivery Schedule.

8)    The Withdrawal: any penalties if the Artist is unwilling or unable to complete the Work

Drafting, negotiating, and signing the contracts for your creative project might take some time and cost you some money, but if you sign the right contracts up front, you'll save money in the long-term and put both you and your book in a better position to succeed.

If you’re a comic book creator or freelance artist who has had artist collaboration agreement issues in the past, feel free to share them in the comments below and tell us how you dealt with the problem.

Have fun with your comic.

Gamal

If you have questions about the business or legal aspects of your comic book publishing and you'd like a free consultation, please contact me and we can set something up that fits in with your schedule.

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PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE AN ISSUE WITH YOUR COMIC PROPERTY, DISCUSS IT WITH A QUALIFIED CONTRACT ATTORNEY OR CONTACT C3 FOR A FREE CONSULTATION.