NFT & Digital Asset Transactions

NFT & Digital Asset Transactions: Legal Counsel for Creators, Brands, Marketplaces, and Collectors

Non-fungible tokens are no longer a 2021 art-market curiosity. They are the contract layer for tokenized music royalties, on-chain memberships, real-world-asset (RWA) certificates, brand loyalty programs, gaming items, ticketing, and tokenized real estate. Each of these use cases lives at the intersection of intellectual property, securities, consumer protection, tax, and commercial law — and each requires bespoke legal architecture. John Montague, Esq. represents creators, founders, marketplaces, brands, foundations, funds, and high-net-worth collectors on the full lifecycle of NFT and digital-asset transactions, from minting through secondary sales and into enforcement.

His practice draws on years of corporate, securities, and IP work at Locke Lord LLP (now Troutman Pepper Locke) and in his own boutique practice, advising clients on complex digital-asset matters that traditional firms still struggle to handle. The goal is always the same: to let clients build, transact, and collect with clear understanding of their rights, obligations, and risks.

Core Legal Issues in NFT & Digital Asset Transactions

1. Intellectual Property: What Does the Buyer Actually Own?

An NFT is a token; the underlying art, music, video, or document is governed by copyright, trademark, and licensing law. Most NFT “ownership” is in fact a license, and the scope of that license — personal use vs. commercial, perpetual vs. revocable, exclusive vs. non-exclusive, derivative-work rights, royalty obligations — varies enormously across collections. We draft and review token license agreements (CC0, NFT License 2.0, custom commercial licenses) and counsel both creators and acquirers on how to harmonize the on-chain token with off-chain IP ownership records.

2. Securities Law: When an NFT Becomes an Investment Contract

The SEC’s enforcement actions against NFT projects with revenue-sharing, fractionalization features, or coordinated promoter activity have made clear that the Howey analysis applies to NFTs as well as fungible tokens. Profile-picture (PFP) collections promising future utility, fractionalized art, royalty-bearing music NFTs, real-estate NFTs, and “membership” NFTs that confer pro-rata economic upside all warrant careful securities analysis. We help projects calibrate distribution mechanics, secondary-market expectations, and marketing language to avoid inadvertent investment-contract treatment.

3. Tax Treatment: Capital Gains, Ordinary Income, and Collectibles

The IRS treats most NFTs as property, but specific categories (digital art, certain collectibles) may be subject to the higher 28% collectibles rate under § 408(m). Royalty income, mint proceeds, airdrop receipts, and gas-fee deductibility each have distinct treatment. Cross-border transactions, NFT-for-NFT swaps, and treasury management within DAOs add further complexity. We coordinate with clients’ accountants and tax counsel on transaction structuring, basis tracking, and reporting positions.

4. Marketplace Compliance: Wash Trading, AML, and Consumer Protection

NFT marketplaces have come under scrutiny for wash-trading dynamics, undisclosed insider activity, and consumer fraud. State attorneys general, the FTC, and class-action plaintiffs have all been active. We advise marketplaces and aggregators on Terms of Service, dispute-resolution clauses, anti-fraud monitoring, KYC obligations, sanctions screening, listing-removal procedures, and creator-royalty enforcement frameworks.

5. Real-World Asset (RWA) Tokenization

NFTs increasingly represent legal title or beneficial interest in real-world assets — fine art, real estate, watches, wine, private credit, and treasuries. Tokenization requires careful coordination of off-chain custody, on-chain transfer mechanics, transfer restrictions, and governing-law selection. We structure SPVs, custodial arrangements, redemption rights, and KYC-gated transfer logic that allow tokens to function as enforceable property interests rather than mere pointers.

Practical Guidance Across the Transaction Lifecycle

For creators and brand teams, we recommend establishing the IP and entity structure before mint. That means trademark clearance, copyright registration, an entity (often an LLC or a foundation) that holds the underlying IP, a written token license, and a commercial agreement with any collaborators, agencies, or development shops. Royalty enforcement strategies — on-chain enforcement, marketplace policy reliance, or contractual covenants — should be selected based on the collection’s economics.

For marketplaces and platforms, the focus is risk allocation: clear ToS with arbitration clauses, robust IP take-down procedures, KYC/AML programs proportionate to product risk, sanctions screening, and incident-response plans for stolen NFTs and exploit recoveries. Choice of jurisdiction for the operating entity (Cayman, BVI, Delaware, Wyoming) materially affects regulatory posture.

For collectors, funds, and family offices, we counsel on acquisition due diligence (provenance, IP scope, blacklist status), custody (self-custody vs. qualified custodian), insurance, estate planning for digital assets, and tax-efficient disposition strategies. Major acquisitions warrant the same diligence as any other illiquid asset purchase.

For disputes, we handle stolen-NFT recovery, forks of disputed collections, smart-contract exploit litigation, marketplace de-listings, and IP infringement claims — both prosecuting and defending.

Frequently Asked Questions

If I buy an NFT, do I own the underlying artwork?

Almost never. You own the token and whatever rights the creator’s license grants — which may be as broad as a CC0 dedication or as narrow as a personal-display license. Always review the license terms before assuming commercial rights, and check whether those terms are referenced in the token’s metadata or only on the project’s website (which can change).

Are NFTs securities?

Most simple art NFTs are not. NFTs become securities when they are marketed with profit expectations, when they confer pro-rata economic rights, when they are fractionalized, or when proceeds fund ongoing managerial efforts on which holders rely. Each project requires its own analysis — there is no bright-line rule.

How are NFTs taxed?

U.S. federal tax treatment depends on whether the NFT is held as a capital asset, inventory, or a collectible under § 408(m). Sales generally trigger capital gain or loss; mints and royalty receipts generally produce ordinary income; certain digital art may be taxed at the 28% collectibles rate. International collectors face additional layers of analysis.

Can I enforce creator royalties on secondary sales?

On-chain royalty enforcement varies by marketplace and standard (e.g., ERC-2981, OpenSea Operator Filter, Manifold royalty hooks). Many marketplaces have moved to optional royalties, so contractual and licensing-based approaches — combined with strategic marketplace selection — are increasingly important.