In February 2023, two things happened to the world of non-fungible tokens within days of each other, and together they tell you almost everything you need to know about the gap between what NFTs promised and what the law actually delivers. First, a Manhattan jury found a digital artist liable for trademark infringement over a series of fuzzy, fur-covered "MetaBirkins"—Hermès handbags rendered as JPEGs—and ordered him to pay $133,000. Second, and far more quietly, OpenSea, the largest NFT marketplace in the world, announced that the creator royalties it had collected and enforced on every sale since its founding would henceforth be optional. The buyer could pay them, or not, as he pleased.

The juxtaposition is almost too neat. The legal system reached out and grabbed an NFT creator who borrowed someone else's brand and punished him with the full machinery of the Lanham Act. And in the same news cycle, that same legal system stood by, with nothing to offer, as the central economic promise made to honest NFT creators—the perpetual resale royalty—quietly evaporated. Trademark law worked. Royalty law did not exist. That asymmetry is the subject of this article.

The pitch had been irresistible. A painter who sells a canvas for $500 receives exactly nothing when the same canvas resells a decade later for $5 million; the entire appreciation accrues to collectors and dealers. An NFT creator, the story went, would never suffer that fate, because a smart contract could skim 5% or 10% off every future sale and route it to her wallet automatically, forever, enforced by immutable code rather than by lawyers and courts. It was droit de suite—the European "right to follow" your work through the market—delivered not by statute but by software. Thousands of artists believed it. Many priced their first sales low, banking on the royalty stream to come.

This article works through what went wrong and what remains, following a digital artist—call her Alice—as she decides how to structure a new collection. We will separate the token from the artwork from the copyright, because nearly every confusion in this field starts with conflating them. We will explain why U.S. copyright law offers no resale royalty and never has. We will trace the marketplace defection that broke the royalty equilibrium, and the strange, stabilized place it has settled into by 2026. We will examine the two cases that actually got decided—Hermès v. Rothschild and Yuga Labs v. Ripps—and notice that neither is about royalties at all, which is itself the point. And we will end with drafting-level guidance Alice can use. For the broader set of brand problems digital environments raise, see our companion analysis of trademark challenges in the metaverse and virtual goods.

What an NFT Is—and, Crucially, Is Not

Start with the thing itself, because the law that governs NFTs is the law that governs whatever an NFT actually is, and what it is turns out to be far smaller than the marketing implied.

A non-fungible token is a unique entry on a blockchain ledger—usually Ethereum—recording that a particular token, identified by a contract address and a token ID, belongs to a particular wallet. "Non-fungible" simply means each token is distinct, unlike the interchangeable units of a cryptocurrency. That is the whole of it. The token is a receipt and a pointer, not the thing pointed to.

Here is the first surprise for most people: the NFT is not the artwork. The image, video, or audio file almost always lives somewhere else—on a centralized server, on decentralized storage such as IPFS, occasionally encoded on-chain—and the token merely carries metadata referencing it. Buy the token and you own a ledger entry that says "this URL is associated with this token ID." If the server hosting the file goes dark, the buyer is left holding a pointer to nothing. The token and the picture are, legally and physically, two separate objects.

The second surprise is the one that does the heavy lifting in every NFT royalty and infringement dispute: owning the token does not give you the copyright in the work. This is not a quirk of NFTs; it is a bedrock principle of copyright law, codified at 17 U.S.C. § 202, which provides that ownership of a copyright is distinct from ownership of "any material object in which the work is embodied," and that transferring the object does not transfer the copyright (or vice versa). Section 202 is the statute that says buying the original oil painting does not let you make and sell prints of it; the museum owns the canvas, the artist's estate owns the copyright. An NFT is the same idea wearing a hoodie. The token is the material object (or, more precisely, the digital stand-in for one); the copyright in the underlying image stays with the creator.

And copyright is not casual to move. Under 17 U.S.C. § 204(a), a transfer of copyright ownership is invalid unless it is in writing and signed by the copyright owner. The overwhelming majority of NFT sales include no such signed writing, which means the overwhelming majority of NFT buyers acquire exactly three things: ownership of the token, whatever license to display the associated work the creator chose to grant, and any extras the project bundled in—commercial rights, physical merchandise, club access, governance votes, or nothing at all. They do not acquire the copyright, and a buyer who behaves as though he did—reproducing the image on T-shirts when his license never permitted it—is an infringer, not an owner exercising his rights. (For the difference between owning a copy and owning the rights in the work, our overview of copyright versus trademark versus patent versus trade secret is a useful companion.)

This separation is where Alice's design decisions begin. When she mints, she creates tokens that point to her art; by default she transfers neither the files nor any copyright in them. She keeps the exclusive rights to reproduce the images, make derivatives, and license commercial uses (17 U.S.C. § 106). Her buyers get tokens plus whatever display license she writes. The scope of that license is entirely hers to set, and the range across real projects is vast. Yuga Labs' Bored Ape Yacht Club famously granted holders broad commercial rights to exploit their specific ape—holders put apes on beer cans, restaurants, and bands—while many art collections grant nothing beyond personal, non-commercial display and reserve every commercial use to the creator.

That choice ripples far past royalties. Grant broad commercial rights and Alice fuels a "holder economy" that may juice demand for her tokens, but she cedes control over how her images are used and forfeits a licensing revenue stream. Reserve those rights and she keeps control and the licensing upside, but offers buyers a thinner bundle. The one thing that is not true is that the token decides any of this. The token is a pointer; the rights are whatever Alice's terms say they are. A creator who mints without carefully drafted terms may find buyers assuming rights she never granted—or may find she has no coherent license framework at all when she needs one. The royalty question sits downstream of all of it: before Alice can sensibly think about secondary royalties, she has to decide what her primary sale conveys, because that primary transaction is the only contract from which any downstream obligation could possibly flow.

How transfers actually happen: smart contracts

NFTs are minted and transferred through smart contracts—self-executing programs that run on the blockchain and perform specified functions when called. When Alice's buyer purchases one of her tokens through a marketplace, he is not emailing himself a file; he is signing a transaction that calls functions in a smart contract, which update the ledger's ownership record from her wallet to his.

A smart contract can include logic that diverts a percentage of a transaction to a designated wallet—the creator's royalty mechanism. This is the technical heart of the royalty promise, and also its fatal limitation. The logic executes only when a transaction is routed through a pathway that actually calls the relevant function. Royalty provisions are not self-enforcing against the world. They run only when a sale goes through a channel that chooses to honor them, and a sale can be deliberately structured to avoid triggering them: a direct peer-to-peer transfer that bypasses any royalty hook, a marketplace that declines to call the royalty function, or a "wrapper" contract that achieves the economic effect of a sale while obscuring the underlying transfer. The much-touted EIP-2981 standard, adopted to let contracts signal a royalty rate in a uniform way, only standardizes the information; it does not, and cannot, force any marketplace to pay. It is a price tag, not a cash register. That distinction—between code that announces a royalty and code that collects one—is the entire ballgame, and it became devastatingly clear the moment marketplace incentives shifted.

The Rise, Fall, and Strange Stabilization of NFT Royalties

For a few years the system worked, and it is worth being precise about why it worked, because the reason was never the one creators thought.

Through 2022, OpenSea was dominant and enforced creator-specified royalties—typically 5% to 10%—on every sale through its platform, and the other major venues did the same. Royalties flowed not because smart contracts compelled them but because operators chose to honor them. Two forces sustained that choice. The first was ideological: many early participants genuinely believed in creator compensation and saw enforced royalties as the moral core of the whole enterprise. The second was a competitive equilibrium: when every significant marketplace enforced royalties, no marketplace lost sellers by enforcing them, so the cooperative arrangement was stable. Creators priced initial sales assuming the royalty stream; collectors treated royalties as a standard cost of trading.

A coordination equilibrium of that kind is, in economic terms, exquisitely fragile. It holds only as long as every participant keeps forgoing an available advantage, and it takes just one determined defector to bring it down. In late 2022 the defector arrived. Blur launched a marketplace built explicitly to take share from OpenSea, and among its weapons was a policy making creator royalties optional—pay them if you like, but you don't have to. The dynamics from there were brutal and entirely predictable. Buyers prefer paying less. Sellers gravitate to the platforms buyers prefer. Marketplaces competing for trading volume—the source of their fee revenue—face overwhelming pressure to match a rival's royalty-free terms. Blur's strategy worked. In February 2023, OpenSea capitulated, making royalties optional and abandoning the creator-centric policy it had championed for years. Others followed. Magic Eden, dominant on Solana, made royalties optional in the same competitive scramble.

The smart-contract specifications and EIP-2981 registries kept functioning perfectly; they were simply ignored. A royalty the marketplace declines to collect is a royalty that does not execute. Galaxy Digital estimated that NFT creators lost more than $1.8 billion in royalties to circumvention during 2023 alone.

What made the collapse so sticky—why it has not reversed even as the rhetoric cooled—is the same coordination logic running in reverse. Restoring the old equilibrium would require every significant marketplace to re-adopt mandatory royalties simultaneously and to trust the others to hold the line, because any single marketplace that re-imposed royalties alone would simply hand its rivals a price advantage and watch its volume migrate. That is a coordination problem competition makes nearly impossible to solve voluntarily. Here is the uncomfortable structural truth: the very competition that benefits collectors—lower trading costs—is precisely what dismantles the cooperative arrangement that benefited creators. Only an external constraint can realign the incentives: a legal mandate that binds everyone at once, or an industry-wide agreement that would itself raise serious antitrust questions. The market, acting on its own, cannot get there.

Where things actually stand in 2026

And yet the familiar "royalties are dead" narrative, frozen in the 2023 collapse, is now wrong—or at least badly incomplete. The picture in 2025–2026 is more stable and more nuanced.

Royalties remain largely optional across most general marketplaces, and that has not reversed. But the market did not keep deteriorating toward zero; it settled into a lower-but-functioning equilibrium. By industry estimates, Ethereum-based creators earned roughly $920 million in royalties in 2025, with cumulative payouts now well past $1.8 billion, and the average effective royalty rate across platforms has stabilized at around 6%. Royalty logic is built into a large majority of new contracts even though enforcement at the point of sale remains a marketplace-by-marketplace choice. The major venues have sorted into recognizable postures:

Marketplace Royalty posture (2025–2026)
OpenSea Optional / opt-in; multichain comeback; native token rollout early 2026
Blur Optional; competes on near-zero fees
Magic Eden Optional; Solana-focused pivot; native token launched late 2024
LooksRare / X2Y2 Optional (some minimums); protocol-fee sharing with creators
SuperRare / Foundation Higher enforced royalties (often above 7%) for art-focused communities

The accurate summary for Alice is not that royalties are dead, nor that they have been restored, but that they have become a persistent, partially honored norm. A creator who sets a royalty will collect on a meaningful share of secondary sales—especially on royalty-respecting platforms and in royalty-respecting communities—but cannot count on collecting on all of them, and must plan accordingly. The curated, art-focused platforms are the bright spot: SuperRare and Foundation enforce higher royalties precisely because their collectors value creators, a social fact that substitutes, partially, for the legal enforcement that does not exist.

Why Copyright Does Not Rescue the Royalty

Could Alice argue that copyright law itself stands behind her royalty? The short answer is no. The longer answer explains why nothing short of new legislation could change that—and it begins, fittingly, with the tradition the NFT royalty was consciously imitating.

Droit de suite and the road not taken

The international tradition of artist resale royalties—droit de suite, "the right to follow"—holds that visual artists should share in the appreciation of their work when it changes hands. France pioneered it in 1920, reportedly moved by images of the destitute families of painters whose canvases were fetching fortunes at auction. The EU made it mandatory across member states through the Artist's Resale Right Directive, 2001/84/EC, generally setting tiered rates from 0.25% to 4% on qualifying resales, subject to caps. Many other countries followed; the United States, conspicuously, did not.

The economic rationale is the same one the NFT pitch borrowed wholesale. Artists frequently sell early work cheaply, before the market understands its value; as they grow famous and that early work appreciates, the entire gain flows to the collectors and dealers who bought low. A resale royalty lets the artist participate in the value she created. That is exactly the logic NFT royalties promised to automate—which is precisely why the pitch resonated so powerfully with artists who knew the droit de suite tradition and felt its absence from American law. The NFT royalty was droit de suite by software, and its champions said so explicitly.

The United States has repeatedly declined to enact a federal resale royalty. The Copyright Act provides none. California briefly went its own way with the California Resale Royalties Act, Cal. Civ. Code § 986, enacted in 1976, which required sellers to pay artists 5% of the resale price on fine-art sales over $1,000. The statute met an ignominious end. In Estate of Graham v. Sotheby's, Inc., 860 F. Supp. 2d 1117 (C.D. Cal. 2012), the court held the Act's application to out-of-state sales invalid under the dormant Commerce Clause, and in the consolidated Sam Francis Foundation v. Christie's, Inc. litigation, the Ninth Circuit, sitting en banc, struck that extraterritorial reach (784 F.3d 1320 (9th Cir. 2015)); on remand the courts held the remaining in-state applications largely preempted by the federal Copyright Act for sales after the 1976 Act's effective date. What survived was a husk. Federal proposals to fill the gap—most prominently the American Royalties Too (ART) Act of 2014 and 2015—never advanced, and the U.S. Copyright Office, in a comprehensive 2013 report revisiting the question, expressed real ambivalence about resale royalties as policy. The road to a U.S. resale right has been mapped, surveyed, and abandoned more than once.

The doctrines that actually govern, and why each says no

Now apply existing copyright doctrine to an NFT resale, claim by claim. Each one confirms the gap.

The first-sale doctrine, codified at 17 U.S.C. § 109(a), provides that the owner of a lawfully made copy may sell or otherwise dispose of that copy without the copyright owner's authority. First sale is what makes used-bookstores, libraries, and the entire secondary market for physical goods lawful; it exhausts the copyright owner's distribution right (17 U.S.C. § 106(3)) as to the particular copy once that copy is sold. The Supreme Court reaffirmed its breadth in Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013), holding it applies even to copies made and first sold abroad. The doctrine cuts squarely against Alice: once she sells a token, the buyer's later resale of that token does not implicate her distribution right in any way that could support a royalty. First sale is, in effect, the anti-royalty principle baked into American copyright—the law's deliberate choice that the copyright owner gets paid once per copy and then the copy is free to circulate.

A wrinkle worth flagging: there has been a long academic and judicial debate about whether first sale even applies to digital transfers, since moving a digital file usually involves making a new copy, which implicates the reproduction right (§ 106(1)) that first sale does not touch. In Capitol Records, LLC v. ReDigi Inc., 910 F.3d 649 (2d Cir. 2018), the Second Circuit held that a service reselling "used" digital music files infringed because the transfer necessarily reproduced the files, and first sale did not save it. NFTs sidestep ReDigi in an ironic way: a secondary NFT sale transfers the token (the ledger entry) while the underlying artwork file stays exactly where it was. No new copy of the artwork is made, so the reproduction right is not triggered either. The resale is, copyright-wise, a non-event—which is another way of saying there is no copyright hook on which to hang a royalty.

What about moral rights? The Visual Artists Rights Act (VARA), 17 U.S.C. § 106A, grants certain authors of works of visual art the rights of attribution and integrity. But VARA, by its terms, defines "work of visual art" narrowly—single copies or signed limited editions of 200 or fewer, and pointedly excluding works made for electronic publication and most digital formats—and it provides no resale royalty whatsoever. It likely does not even reach most NFT artwork or the tokens themselves. VARA is about not having your sculpture destroyed or your name stripped from your painting; it has nothing to say about getting paid on resale.

Finally, the Copyright Act's termination rights (17 U.S.C. §§ 203, 304) let authors recapture assigned copyrights after a statutory period. They are a powerful tool for an artist who licensed away her copyright and wants it back decades later—but they address recapturing the bundle of rights, not extracting compensation on individual resales of individual copies. They are simply a different mechanism aimed at a different problem.

The conclusion is unavoidable and worth stating plainly: current U.S. copyright law provides no resale-royalty right that could apply to an NFT secondary sale. Creators who believed copyright stood behind their royalty expectations were mistaken. The expectation rested entirely on smart-contract mechanics and voluntary marketplace cooperation—and when the cooperation went, nothing in Title 17 was left holding it up.

What the Courts Did Decide: Trademark, Not Royalties

Here is the irony at the center of this whole field. While royalty law produced no decisions—because there is no royalty law to litigate—NFT trademark law produced two landmark rulings in quick succession. The legal system, asked whether creators can collect royalties, shrugged. Asked whether NFTs can infringe a brand, it answered with force. The two cases are essential reading for Alice, both for what they decided and for what they reveal about which legal levers actually move in this space.

Hermès International v. Rothschild: the MetaBirkins verdict

Artist Mason Rothschild created and sold a collection of NFTs called "MetaBirkins"—digital images of the iconic Hermès Birkin handbag covered in colorful fur. He marketed them under that name, made real money (the collection traded briskly during the 2021–22 frenzy), and described the project, when convenient, as a commentary on fashion, fur, and consumerism. Hermès sued in the Southern District of New York for trademark infringement, dilution, and cybersquatting.

Rothschild's central defense was the First Amendment, invoking Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989), the test that shields artistic uses of a trademark from Lanham Act liability unless the use has no artistic relevance to the underlying work or explicitly misleads as to source. The court, in Hermès International v. Rothschild, 654 F. Supp. 3d 268 (S.D.N.Y. 2023), held that Rogers applied to the MetaBirkins—they were, at least arguably, artworks—but that the question whether the use was explicitly misleading was for the jury. In February 2023, the jury found that it was: it concluded Rothschild had intentionally traded on the Hermès name to confuse consumers rather than to make protected art, and awarded Hermès roughly $133,000 in damages (lost profits and statutory cybersquatting damages combined). The court later entered a permanent injunction barring Rothschild from further marketing the MetaBirkins.

Two lessons matter for Alice. First, NFTs do not exist in a First Amendment safe harbor; calling your project "art" or "commentary" does not immunize you from trademark liability if a jury concludes you were really exploiting someone else's brand to confuse buyers. (The Supreme Court would soon narrow Rogers further in Jack Daniel's Properties, Inc. v. VIP Products LLC, 599 U.S. 140 (2023), holding the Rogers threshold does not apply at all when the accused mark is used as a source identifier for the defendant's own goods—a holding that makes NFT projects branded with someone else's mark even more exposed.) Second, and more subtly, the MetaBirkins case shows where the law's teeth actually are. Hermès could not have stopped Rothschild from reselling his NFTs and pocketing the resale value; first sale would have protected the buyers' resales. What Hermès could do was wield trademark to shut the project down entirely. The enforceable right ran to the brand owner, not to anyone's royalty.

Yuga Labs, Inc. v. Ripps: NFTs as "goods" under the Lanham Act

The second case ran the same logic in the other direction—an NFT creator as plaintiff. Yuga Labs, creator of the Bored Ape Yacht Club, sued artists Ryder Ripps and Jeremy Cahen, who had minted a near-identical "RR/BAYC" collection using the same ape images and marks. Ripps styled the project as protest art critiquing what he characterized as hidden imagery in the original collection; Yuga called it a knockoff designed to siphon value and confuse buyers.

The district court initially granted Yuga summary judgment on trademark infringement and cybersquatting (Yuga Labs, Inc. v. Ripps, 2023 WL 3934159 (C.D. Cal. Apr. 21, 2023)), rejecting the Rogers defense and later awarding Yuga damages and fees. On appeal, the Ninth Circuit issued an instructive decision (Yuga Labs, Inc. v. Ripps, 113 F.4th 1142 (9th Cir. 2024)). It confirmed a threshold point of enormous practical significance: NFTs are "goods" within the meaning of the Lanham Act, and the marks used to sell and identify them are protectable trademarks—so a brand can be infringed by, and asserted through, NFT collections. But the court vacated the summary judgment on likelihood of confusion and the cybersquatting ruling, holding those issues required trial rather than resolution as a matter of law, and remanded. The headline doctrine survived; the shortcut to victory did not.

For Alice, Yuga is the constructive bookend to Hermès. Together they establish that an NFT project name and imagery can function as a trademark, that selling NFTs is selling "goods," and that the Lanham Act applies in full. That is genuinely valuable to a creator: it means Alice's brand—her collection name, her distinctive visual identity—is protectable, and that knockoffs trading on it can be pursued. (Our deeper treatment of how brand rights operate in digital and virtual contexts lives in trademark challenges in the metaverse and virtual goods.) But notice what neither case touches: the royalty. Both decisions vindicate a property right in a mark. Neither creates, recognizes, or even gestures toward an enforceable right to be paid on resale. The doctrinal energy in NFT law is all in trademark, all about source and confusion—and not at all about royalties, because there is no royalty doctrine for the energy to flow into. If Alice wants a legally enforceable edge, the lesson of these cases is to build it on the brand, not on the royalty.

Why Contract Theories Founder—First on Formation, Then on Privity

If copyright and the decided cases offer Alice nothing on royalties, the natural next move is contract. The royalty was, after all, a deal: she would sell low, the buyer (and every buyer after) would pay her a slice on resale. Can she enforce that deal? The honest answer is that the contract theory is weaker than it looks at both ends—and it breaks before it even reaches the famous privity problem.

The first link is shakier than it appears

Even the initial sale—from Alice to her first buyer—is a more uncertain contract than the smart-contract mystique suggests. The transaction happens through marketplace intermediation: the buyer clicks a marketplace interface, which calls smart-contract functions, and Alice may never interact with the buyer directly at all. Whether a direct contract even forms between creator and first buyer, and on what terms, is frequently unclear.

The smart-contract code specifies a royalty parameter, but code is not automatically a contract. It is an instruction set. The legal question contract law asks—did these parties manifest assent to these terms?—is not answered by the existence of a function in a deployed contract. Many projects post "terms and conditions" somewhere, but if the buyer never affirmatively accepted them, their contractual force is doubtful. Courts distinguish sharply between clickwrap agreements, where the user must affirmatively click "I agree" (routinely enforced), and browsewrap, where terms are merely posted and assent is assumed from continued use (often not enforced for lack of manifested assent). See Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002), the foundational decision refusing to enforce terms a user never had to see, and Meyer v. Uber Technologies, Inc., 868 F.3d 66 (2d Cir. 2017), enforcing terms where the interface gave reasonably conspicuous notice and required action. Most NFT "terms" floating in token metadata look far more like the unenforceable end of that spectrum. (We treat the enforceability of online agreements in detail in drafting software license agreements.)

Even if a contract formed, the consideration supporting an ongoing royalty is uncertain. The purchase price is consideration for the initial sale. Whether it also supports a perpetual duty binding the buyer—and every future buyer—to remit a slice on resale is a genuine question, not a given. So before privity even enters the picture, Alice's theory must clear the hurdle of showing that an enforceable royalty term bound her very first buyer.

Then the privity wall

Now the famous problem. A contract binds its parties. If Alice mints, sells to Bob, and Bob later sells to Carol, any contract between Alice and Bob does not automatically bind Carol—yet Carol is the one who would owe the secondary royalty on the Bob-to-Carol sale. For Alice to reach Carol, there must be some basis for Carol's obligation, and every candidate is borrowed from elsewhere and fits badly.

Real covenants that "run with the land" require, in most formulations, both horizontal and vertical privity and a "touch and concern" relationship—doctrines built for dirt, not for ledger entries, and not obviously translatable to digital assets at all. Equitable servitudes, which can bind a later purchaser who took with notice of a restriction, are the more creative analogy: one might argue a royalty term encoded in on-chain metadata gives every later buyer constructive notice, so Carol takes subject to it. It is clever, and it has no precedential support in the NFT context. Downstream license terms purporting to bind all holders run straight back into the formation problem: NFT transfers routinely occur with no affirmative acceptance by the transferee, and the clickwrap/browsewrap line that made the first sale shaky makes binding a downstream stranger shakier still.

Claims against the marketplaces fare no better

If Alice cannot reach Carol, perhaps she can reach the marketplace that facilitated the royalty-free trade. Each theory has a ready answer.

Tortious interference with contract requires a valid contract the marketplace knew of and intentionally caused to be breached—but the threshold problem is establishing the underlying enforceable royalty contract in the first place, the very thing that is in doubt. Tortious interference with prospective economic advantage drops the existing-contract requirement but adds an "improper means" element, and a marketplace will argue—persuasively—that competing by lowering costs is textbook legitimate business conduct, not improper means. Unjust enrichment meets the marketplace's response that its fees are earned by the matchmaking, custody, and settlement services it actually provides, royalty policy entirely aside. And consumer-protection or deceptive-practices claims—that a platform which once enforced royalties and then stopped misled creators—face standing problems (creators are not obviously "consumers" of the platform) and the difficulty of proving an enforceable promise of perpetual enforcement rather than a policy the platform was always free to change.

The practical bottom line, as of this writing, is decisive: no court has held that NFT creators possess an enforceable right to secondary-sale royalties against buyers transacting through royalty-optional marketplaces, and no successful suit has established such a right against the marketplaces either. The theories exist. None has been tested to victory. All face serious obstacles. A creator who plans her business around the legal enforceability of royalties is building on sand.

The Securities Trap: Why Talking Up Royalties Can Backfire

There is one more reason Alice should be wary of leaning too hard on the royalty narrative, and it comes from an unexpected direction: securities law.

The SEC has consistently taken the position that some digital assets—including some NFTs—sold with the expectation that buyers will profit from the efforts of others can be investment contracts, and therefore securities, under SEC v. W.J. Howey Co., 328 U.S. 293 (1946). Howey asks whether there is (1) an investment of money (2) in a common enterprise (3) with a reasonable expectation of profits (4) derived from the efforts of others. The SEC has applied that framework aggressively across the crypto space for years and has brought enforcement actions touching NFT projects marketed as profit-generating ventures. (Our survey of the broader regulatory landscape—across jurisdictions and asset types—is regulation of cryptocurrency around the world.)

Here is the trap, and it is sharp. The more Alice structures and markets her collection around the promise that buyers will profit from a rising secondary market in which she remains the active engine—promoting the project, cultivating the community, releasing new work that lifts the value of the originals—the more her NFTs start to look like investment contracts whose value depends on her ongoing efforts. That is the heart of Howey's third and fourth prongs. And royalty mechanics feed precisely that characterization: a creator royalty ties the creator's compensation to secondary-market activity, foregrounding exactly the ongoing-efforts-and-profit-expectation relationship the SEC scrutinizes.

So the features that make a royalty argument stronger as a matter of contract or fairness—Alice's continuing involvement, the buyers' expectation of resale profit—make her securities posture worse, exposing the project to registration requirements and liability it was never built to bear. Alice cannot simply maximize the royalty story. She must weigh the compensation she hopes royalties will deliver against the securities risk that an aggressive royalty-and-profit framing invites. Often she is better served positioning her NFTs as collectibles or access tokens with genuine utility—membership, experiences, art for its own sake—rather than as profit-generating investments in which she is the source of returns. It is one more illustration of the article's spine: the NFT royalty cannot be considered in isolation, because the legal system evaluates the surrounding economic relationship as a whole, and the framing that strengthens one claim can quietly sabotage another.

Technical Self-Help and Its Hard Ceiling

If the law will not enforce royalties and contract is too weak to reach downstream buyers, can clever code do the job? Developers have tried, and the failures are instructive.

The approaches fall into a few families. Transfer restrictions limit trading to a curated set of royalty-honoring operators. Escrow-based mechanics condition a transfer on payment of the royalty. "Soulbound" tokens are non-transferable by design—they eliminate secondary royalties by eliminating secondary markets, which is a bit like preventing car theft by removing the wheels. Each shares a fundamental limitation: a blockchain transaction can always be restructured to avoid triggering a specific function. If a transfer function carries royalty logic, parties can achieve the economic equivalent of a transfer—through wrapper contracts, lending protocols, or off-chain side agreements—without ever calling it. Technical enforcement can raise the cost and friction of circumvention, deterring casual avoidance, but it cannot defeat a determined circumventer. Code can make royalties harder to dodge; it cannot make them mandatory.

The cautionary tale is OpenSea's Operator Filter Registry, the most serious technical attempt to enforce royalties and a clean illustration of why the technical path alone cannot win. The registry let creators block transfers of their NFTs to marketplaces that did not honor royalties—elegant in principle, confining the asset to royalty-respecting venues. In practice it foundered on two problems. First, it was readily circumvented: traders and competing marketplaces routed around the restrictions using the same wrapper-and-off-chain techniques that defeat royalty logic generally. Second, and more fundamentally, it collided with the competitive dynamics already described. A creator who restricted her NFTs to royalty-honoring marketplaces also restricted their liquidity, and in a market where buyers prize the freedom to trade anywhere, that restriction depressed demand for her tokens. She faced a self-defeating trade-off: enforce royalties technically and lose liquidity, or preserve liquidity and lose royalty enforcement. OpenSea itself ultimately stepped back from mandating the filter. The episode crystallizes the ceiling on the technical approach: even the cleverest on-chain mechanism cannot escape the economic reality that secondary-market value depends on tradability, and any technique that constrains tradability to enforce royalties pays for that enforcement in reduced demand. Technology can shift where the friction sits. Only law—which can bind all participants at once, so that no single creator has to sacrifice liquidity to be paid—can dissolve the underlying tension.

Practical Guidance for Creators

What, then, should Alice actually do? Everything above points to a single strategic posture: structure the project so that royalties are a welcome bonus rather than a load-bearing assumption.

Price initial sales to reflect full value. If royalties cannot be reliably enforced, the primary sale is the moment to capture the value Alice is after. Discounting the mint in anticipation of a royalty stream she cannot guarantee shifts risk onto her future self and gives it to buyers for free. Capture value when she controls the transaction.

Diversify revenue beyond primary sales and secondary royalties. Exclusive access or membership benefits; physical merchandise or experiences bundled with ownership; periodic airdrops that drive fresh primary demand; licensing revenue from commercial uses of her IP (which she retains under § 202); and treasury mechanisms funded by initial sales rather than resales. A creator whose income depends on any single channel bears concentrated risk; diversified models survive the failure of any one.

Protect and police the brand, because that right is real. Hermès and Yuga establish that an NFT collection's name and visual identity can function as a protectable trademark and that NFTs are "goods" under the Lanham Act. Alice should treat her collection name and distinctive imagery as brand assets—consider federal registration, watch for knockoffs, and enforce against infringers. This is the one corner of NFT law where a creator holds a genuinely enforceable right, and it is worth far more attention than the chase for an unenforceable royalty. (For the registration and enforcement basics, see copyright versus trademark versus patent versus trade secret and our trademark library; for the consequences of others copying protected IP, see what are the consequences of pirating intellectual property.)

Choose marketplaces strategically. Direct initial sales to royalty-respecting platforms and communities—the curated art venues like SuperRare and Foundation enforce royalties precisely because their collectors value them—while recognizing that this trades some liquidity for better royalty performance. The 2025–2026 stabilization, with rates near 6% and royalty logic embedded in most new contracts, means a creator who selects royalty-respecting venues can realistically expect to collect on a meaningful portion of secondary activity—just not all of it, and not by force of code alone.

Communicate clearly with collectors. In tight-knit communities, social norms can substitute partially for legal or technical enforcement. Collectors who understand that royalty-optional channels harm the creators they support will sometimes honor royalties voluntarily. SuperRare's enforced higher rates are, at bottom, a social equilibrium dressed in technical clothing—evidence that a community that values creators can sustain royalties the law will not.

Document contract terms explicitly, and obtain real assent. This is the single point where Alice can most improve her legal footing. The recurring weakness in NFT royalty claims is that buyers never affirmatively agreed to anything. Alice should require an affirmative, documented acceptance of her license terms at the point of primary sale—a genuine clickwrap in which the buyer must check a box or sign a transaction acknowledging the terms, not a browsewrap in which terms merely float in metadata. Under Meyer v. Uber and its kin, the affirmative click is what manifests assent and makes terms enforceable; under Specht, terms a user never had to confront are not. No court has yet tested these mechanics in the NFT royalty setting, but the difference between a documented clickwrap and passive metadata could be decisive if Alice ever needs to argue an enforceable contract existed. Her terms should state the royalty precisely (percentage, calculation method, payment mechanism), include provisions purporting to bind subsequent holders (even on uncertain authority, the language preserves the argument), and add a liquidated-damages clause for circumvention drafted as a reasonable estimate of harm rather than an unenforceable penalty, along with choice-of-law, forum, and severability terms.

Alice should also recognize the limit honestly: even a perfect clickwrap with her primary buyer does little against a downstream purchaser who never clicked anything—the privity problem persists regardless of how carefully she documents the first sale. The realistic goal of careful documentation is not to guarantee enforceability (nothing can, on current law) but to position Alice as favorably as possible for the contract claims that, while untested, remain her most plausible legal avenue, and to take advantage of any future legislative or judicial development that gives well-documented creator terms real teeth. These drafting questions sit alongside the broader identity and likeness issues digital assets raise, which we examine in the right of publicity and digital doubles, and the data-access and online-contract disputes we analyze in data scraping after hiQ v. LinkedIn.

Plan the estate, too. NFTs are assets, and like any asset they pass to someone when the creator dies—but a wallet no one can access is an asset no one inherits. Custody of private keys, instructions for heirs, and treatment of any ongoing royalty stream belong in the plan. We address the IP-specific dimension in who will inherit your intellectual property.

A worked hypothetical

To make the strategy concrete, here is a clearly labeled hypothetical. Alice plans a 1,000-piece generative art collection. Version A of her plan mints at a deliberately low 0.05 ETH, publicly promising holders that "the real money is the 7.5% royalty on a booming secondary market we'll grow together." Version B mints at a market-clearing 0.15 ETH, grants holders a clear, clickwrap-accepted personal-display license (commercial rights reserved to Alice), bundles a year of access to a members-only print studio, lists primarily on a royalty-enforcing curated platform, federally registers the collection name, and states a 7.5% royalty as a documented contract term while marketing the project as collectible art rather than an investment.

Version A maximizes the royalty narrative and, in doing so, (i) leaves money on the table at mint, (ii) stakes the project's economics on a royalty the law will not enforce and most marketplaces will not collect, and (iii) hands the SEC its Howey argument on a platter by promising profits from Alice's ongoing efforts. Version B captures value when Alice controls the transaction, diversifies income away from the fragile royalty channel, secures the one genuinely enforceable right (the brand), improves Alice's contract footing through real assent, and defuses the securities risk. Version B will likely earn less in headline royalties—but it is the plan that survives a marketplace policy change, a bear market, and a regulator's letter. That is the whole lesson in miniature: position to capture the upside royalties still provide without betting the project on a mechanism the law has not made Alice's own.

Legislative and Forward-Looking Frontiers

The most durable fix would be federal legislation establishing enforceable resale-royalty rights for digital works—setting statutory rates, defining qualifying works to include NFTs, creating a private right of action and platform liability, and preempting inconsistent state law. Whether such a bill could overcome a century of opposition to resale royalties (from auction houses, dealers, and collectors), combined with current skepticism about crypto, is genuinely uncertain, and the Copyright Office's historical ambivalence does not help. A narrower path some scholars favor would attach enforcement to platforms rather than to elusive downstream buyers—conditioning a marketplace's safe operation on royalty remittance—which neatly sidesteps the privity problem by regulating the one actor that always touches every trade. None of this is on the near horizon, and a creator planning today should plan for the world as it is, not the world she hopes is coming.

That said, the trajectory is not a one-way ratchet to zero, and several developments could shift it. If enough creators refuse to mint for non-enforcing platforms, platform incentives could move. If collector communities harden norms treating royalty circumvention as a breach of faith, social enforcement could carry more of the load—the curated art platforms already prove this is possible at scale. And creator-owned platforms, cooperatives, or governance-driven marketplace protocols could offer alternatives to the investor-owned venues whose competitive dynamics drove the collapse. The 2025–2026 stabilization—royalties surviving as a partial, widely honored norm rather than vanishing—is real evidence that the equilibrium found a floor. But none of these is a substitute for a legal entitlement, which remains the only thing that can bind every participant at once.

The Broader Lessons

Step back from the doctrine and the NFT royalty episode teaches lessons that reach far past digital art, because the same dynamics recur wherever creators depend on intermediary cooperation for compensation. The music industry's long fight over streaming mechanicals is the same story in a different key—a structural mismatch between where value is created and where the law lets creators capture it, which we trace in music licensing in the streaming era.

Technology cannot substitute for law. Smart contracts were sold as trustless mechanisms that needed no legal backing—the code would simply enforce the deal. The royalty collapse showed that technical mechanisms depend on exactly the ecosystem cooperation that legal frameworks traditionally supply, and that when execution can be routed around, the absence of a legal entitlement leaves the creator with nothing. Treat technical enforcement as a supplement to legal rights, never a replacement.

Competitive dynamics override voluntary cooperation. When a cooperative arrangement is not legally mandated, competition tends to destroy it. The marketplace race to drop royalties was predictable; any scheme that depends on every competitor continuing to forgo an available advantage is fragile by construction.

Diversification is resilience. A creator whose income rides on any single mechanism—royalties, primary sales, or anything else—bears concentrated risk a single change can wipe out. Diversified models survive because no single failure is fatal.

And the lesson that ties the field together: rights flow to whoever holds an enforceable legal claim, not to whoever has the most sympathetic story. Hermès held a trademark and shut down a project. Yuga held a trademark and pursued a copycat to the Ninth Circuit. The honest creator who held only a "royalty"—a parameter in a smart contract and a promise the market could ignore—held nothing the law would recognize. The difference between those positions was never effort or merit. It was whether the claim was one the legal system enforces.

Frequently Asked Questions

Does buying an NFT give me the copyright in the artwork? No. Under 17 U.S.C. § 202, owning the token (the material object) is distinct from owning the copyright in the work, and a copyright transfer requires a signed writing under § 204(a). Unless the project expressly assigns copyright in writing—almost none do—you get the token and whatever display license the creator granted, not the copyright. Reproducing the image beyond your license can make you the infringer.

Are NFT creator royalties legally enforceable? Not reliably. No court has held that creators have an enforceable right to secondary-sale royalties against buyers trading on royalty-optional marketplaces. Copyright supplies no resale-royalty right; contract theories struggle with formation and privity; and claims against marketplaces face their own obstacles. Royalties get paid where marketplaces and communities choose to honor them—roughly $920 million to Ethereum creators in 2025—but that is cooperation, not legal entitlement.

Why did marketplaces stop enforcing royalties? Competition. Royalty enforcement was a cooperative equilibrium that held only while every major venue maintained it. When Blur launched making royalties optional to win share, the others faced a choice between matching it or losing volume, and the pressure ran one way. OpenSea made royalties optional in February 2023; most general marketplaces followed.

What is the first-sale doctrine and how does it apply? First sale (17 U.S.C. § 109(a)) lets the owner of a lawfully made copy resell that copy without the copyright owner's permission, exhausting the distribution right. It is what makes used bookstores and the secondary art market lawful—and it cuts against resale royalties: the copyright owner is paid once per copy. A secondary NFT sale also doesn't trigger the reproduction right, because it moves the token while the artwork file stays put. So copyright offers no hook for a royalty.

Does the United States have an artist resale royalty (droit de suite)? No federal one. The EU mandates resale royalties under Directive 2001/84/EC, and France pioneered the right in 1920, but U.S. federal law has none. California's Resale Royalties Act (Cal. Civ. Code § 986) was largely struck down and preempted in the Sam Francis Foundation v. Christie's / Estate of Graham v. Sotheby's litigation, and federal proposals like the ART Act never passed.

What did Hermès v. Rothschild (MetaBirkins) actually decide? A jury found that Mason Rothschild's "MetaBirkins" NFTs infringed and diluted the Hermès Birkin trademark and constituted cybersquatting, awarding about $133,000, and the court entered a permanent injunction (654 F. Supp. 3d 268 (S.D.N.Y. 2023)). The court applied the Rogers v. Grimaldi First Amendment test but let the jury decide whether the use was "explicitly misleading"; it concluded it was. The case shows NFTs enjoy no First Amendment safe harbor from trademark liability—but it is about brand rights, not royalties.

What did Yuga Labs v. Ripps establish? That NFTs are "goods" under the Lanham Act and that NFT project names and imagery can be protectable trademarks (113 F.4th 1142 (9th Cir. 2024)). The Ninth Circuit confirmed the doctrine while vacating the district court's summary judgment on likelihood of confusion and cybersquatting and remanding for trial. For creators, it means your brand is protectable—again, a trademark right, not a royalty right.

Can my NFT project be treated as a security? Possibly. Under SEC v. Howey, an NFT sold with a reasonable expectation of profit derived from the creator's ongoing efforts can be an investment contract. Marketing a collection around royalty-driven resale profits can strengthen that characterization. Positioning NFTs as collectibles or utility/access tokens, rather than profit-generating investments, reduces the risk. See regulation of cryptocurrency around the world.

How can I best protect my royalty expectations when I mint? You cannot guarantee enforceability on current law, but you can improve your position: price the primary sale for full value; require affirmative clickwrap acceptance of clear license terms (not passive metadata); state the royalty precisely with a reasonable liquidated-damages clause for circumvention; list on royalty-respecting platforms; diversify revenue; and protect your collection name and imagery as a trademark. Treat the royalty as a bonus you've positioned to capture, not a foundation you've built on.

Conclusion: Code Can Execute, but Code Is Not Law

The NFT royalty is a cautionary tale about the gap between technological promise and legal reality. Creators were told that blockchain and smart contracts would guarantee perpetual royalties—a revolutionary advance that would finally deliver the resale rights artists had sought for a century. The reality proved different. Smart-contract royalties depended on marketplace cooperation that competitive pressure dissolved, and behind that cooperation there was no legal entitlement to fall back on. The lesson is not that NFTs or blockchain are worthless; they offer genuine capabilities for digital scarcity, provenance, and programmable ownership that physical media cannot match. The lesson is that technology alone cannot create rights. Rights require legal frameworks—statutes that define entitlements, contracts that bind by genuine assent, courts that remedy violations. Smart contracts can execute code, but code is not law.

The update to that story matters for how Alice should plan. The market did not die; it stabilized into a lower equilibrium in which royalties are a real but partial norm—roughly $920 million paid to Ethereum creators in 2025, average rates near 6%, royalty logic in most new contracts, and meaningful collection on royalty-respecting platforms—while remaining optional, and therefore uncertain, across much of the ecosystem. And the one corner of this field where the law speaks clearly speaks not about royalties but about brands: Hermès and Yuga prove that trademark, wielded through and against NFTs, has teeth that the royalty has never had.

For Alice, the implications are clear. Royalty expectations should not drive her business decisions unless and until the law makes them enforceable. Price initial sales for full value. Diversify revenue. Obtain real, documented assent to clear license terms. Protect the brand, because that right is genuine. And if she values resale royalties, select royalty-respecting venues today and support the legal reforms that would make such royalties reliably enforceable tomorrow. Restoring durable creator royalties will take legislation, industry coordination, or new technical mechanisms that survive competitive pressure—none easily achieved. Until one arrives, the prudent creator treats the royalty as a bonus she has positioned herself to capture, not a foundation she has built her livelihood upon. That posture is not defeatism. It is the realism that lets a creator share in the upside royalties still provide—nearly a billion dollars of it in 2025—without staking her business on a mechanism the law has not yet made her own.

For guidance on structuring an NFT or digital-asset project, drafting enforceable terms, and protecting your collection's brand, contact our intellectual property and technology practice.

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17 U.S.C. §§ 106, 106A, 109(a), 202, 203, 204(a), 304. SEC v. W.J. Howey Co., 328 U.S. 293 (1946). Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013). Capitol Records, LLC v. ReDigi Inc., 910 F.3d 649 (2d Cir. 2018). Hermès International v. Rothschild, 654 F. Supp. 3d 268 (S.D.N.Y. 2023) (MetaBirkins). Yuga Labs, Inc. v. Ripps, 113 F.4th 1142 (9th Cir. 2024); 2023 WL 3934159 (C.D. Cal. Apr. 21, 2023). Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989); Jack Daniel's Properties, Inc. v. VIP Products LLC, 599 U.S. 140 (2023). Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002); Meyer v. Uber Technologies, Inc., 868 F.3d 66 (2d Cir. 2017). Estate of Graham v. Sotheby's, Inc., 860 F. Supp. 2d 1117 (C.D. Cal. 2012); Sam Francis Foundation v. Christie's, Inc., 784 F.3d 1320 (9th Cir. 2015) (en banc). California Resale Royalties Act, Cal. Civ. Code § 986 (largely preempted/invalid). EU Artist's Resale Right Directive, 2001/84/EC. EIP-2981 (NFT royalty standard).

This article is for general informational purposes only and does not constitute legal advice, nor does it create an attorney-client relationship. The law and market practice surrounding NFTs and digital assets are evolving rapidly, and the marketplace policies and figures described reflect the 2025–2026 period and may change; consult qualified intellectual-property and digital-asset counsel about your specific circumstances.