digital media lawyers UK discuss the critical legal digital media risks in 2023

Critical Legal Risks in 2023 for Distribution Channels and Content Platforms including Blockchain, Cryptocurrency, NFTs

As digital media lawyers we know that the dynamic nature of the digital sector means that continual critical updates are required across the legal framework within which they operate. 2023 is going to be no exception as the business plans of content platforms, content creators, and distribution channels evolve disrupting and transforming business in the metaverse or real world.

2022 saw developments in global internet laws and regulations including in the UK, EU and United States that will be consolidated in 2023. These crucial legal developments need to be incorporated into the terms and conditions of digital platforms if they are to remain legally compliant in 2023 and beyond.

The last five years have seen authorities ramping up control of emerging technologies like artificial intelligence (AI), blockchain, NFTs and Cryptocurrency, and clamping down on brands and content creators with fines and warnings.

There are great opportunities but high risks for brands, content creators and entrepreneurs alike. There are serious issues to be assessed before implementing business plans, particularly in new markets like blockchain, NFTs and cryptocurrency.

Music Content

Music is one of the most popular and promising sectors facing increasing regulation in digital content creation.

It is not advisable now to sample from catalogues to create content on music platforms worldwide. The market trend has been the purchase of rights by platforms from major record labels to expand their digital catalogue. Any dissenters like Triller have been sued by major record labels including Universal Music Group and artists including Timbaland and Swizz Beats.

The devil is in the details of what the licensing deals cover. Brands and platforms that either facilitate or engage in unpermitted use are at risk of copyright infringement.

Songwriters, producers, or composers are used to risk-taking but basing their copyright permissions on platform licences is an unquantifiable risk.

Duration of License

Most platform licences are limited to a certain duration. If a license has expired, then the content creator will be in copyright breach. In some circumstances, the license may be extended when added to another work like a Tik Tok, YouTube, or Patreon video but this is rarely the case. At some future date the content creator could receive a copyright infringement notice the only defence to which might be a platform copyright license that expired. Content creators can also end up being jointly liable with the platform.  The problem is even more acute with decentralised platforms like Mastodon. Innovative content creators, brands and platforms will need a strategy in 2023 for copyright content as traditional centralised platforms are increasingly being disrupted by decentralised platforms.

Non-Commercial Use

Often the licences solely cover personal non-commercial use and impose other use restrictions. An influencer on Instagram, TikTok or YouTube mixing tracks with other content to sell products and services will not usually be covered by platform licences as this is commercial use. The same restriction would apply to brand accounts. Improper use will result in the platforms being sued for copyright infringement by labels.

Non-Transferable

Licences are typically non-transferable. Platform licences on Instagram will not usually permit a content creator to upload content on YouTube or TikTok for example.

Content creators with gated communities and paywalls need to start understanding potential risks and incorporating appropriate strategies in their rules,  terms and conditions, and other tools for dealing with potential lawsuits.

United Kingdom Law

UK law specific to digital music downloads includes the Consumer Rights Act 2015 (the “Act”) which came into force 01st October 2015.

For those eCommerce businesses (retailers including those on Amazon, eBay and other third-party websites) that comply with The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the “2013 Regulations”) governing cancellations of purchases via websites and the Consumer Protection (Amendment) Regulation 2011 (amends the 2008 Unfair Trading Regulations) (the “2011 Regulations), the Act is to be read in conjunction with the 2013 and 2011 Regulations.

Other future regulation impacting Content Channels and Content Platforms includes: The Online Safety Bill 2022 is at the Committee stage in the House of Lords.

Legal Compliance of Other Content Distribution Channels and Content Platforms In 2023

The digital market in 2023 will see greater legal scrutiny of Content Distribution Channels such as Ebooks; Podcasts; Webinars; Videos and many more and  Content Platforms including social media networks; websites and mobile applications.

United States

 The most successful platforms build communities around multiple unrelated products; services; markets and industries. Instagram; TikTok; Facebook; Twitter are all brilliant examples. In the United States, Section 234 of the Communications Decency Act gives content platforms a wide degree of autonomy over how content on their platforms is moderated. The current framework is being challenged by a number of cases in the US Supreme Court. In the cases of Gonzalez v.Google; Twitter v. Taamneh the liability of content platforms and the protection afforded by current US law is challenged.

European Union

In the EU the Digital Markets Act came into force on 01 November 2022 and will become applicable on 02 May 2023.

The Digital Services Act is the most important piece of EU legislation for content platforms operating within the EEA to date. Affected content platforms will have until 01 January 2024 to comply with its provisions. There are numerous articles on the DSA online, including an article by the writer in 2017 entitled EU Copyright Directive 2019 backs creatives.

No matter where in the world platforms are based the DSA will impact the way content is uploaded, downloaded, stored, and distributed and how products are advertised and sold to consumers within the global digital marketplace.

All aspects of digital business are impacted by the DSA including transparency in terms of data collection and algorithms, revenue models, content moderation, copyright, and other IP issues.

Any content platform or content channel that does not consider the DSA and DMA now in its legal compliance will face serious legal issues within a year.

Our media practice is well-placed to further assist you on all media matters.

Blockchain, and NFT technologies

The metaverse, blockchain, cryptocurrency, and non-fungible token (NFT) ecosystem is Web 3.0. It is the buzz technology of 2023 and the next decade. Web 3.0 is decentralisation.  As with Web 1.0; and Web 2.0, Web 3.0 brings its own unique legal problems.

 Fraud, Misrepresentation, Authorisation

In 2019 in a class action cryptotraders sued Bitfinex and sister company Tether for market manipulation allegedly causing losses of over USD 1 trillion alleging false information amongst other claims. Poloniex and Bittrex were added as defendants to the suit. The issuers of the USDT Stablecoin were ordered to produce documents to prove that the currency was pegged to the US dollar. Although the claims were settled the case should send alarm bells to crypto exchanges and platforms. Any kind of misrepresentation or unlawful conduct is likely to result in facing legal action in the courts. Criminal liability is also likely in cases of fraud which carries a minimum of 10 years imprisonment if found guilty.

In the Ripple case, the courts considered whether or not crypto assets could be considered a security. It is clear globally when dealing with NFTs or Crypto coins and related blockchain technologies that issuers and platforms need to consider carefully how they will be classified by authorities.  As opportunities grow for crowdfunding, proof and authenticity of ownership, profit sharing and revenue generation so do the legal and compliance risks.

Irrespective of the blockchain, crypoto asset project there are critical legal issues that you have to watch out for in the UK including the classification of crypto assets as securities. Each blockchain-related cryptoasset will have to be assessed on its own merits by a qualified specialised professional.

Advertising and Promotions

In 2022 the SEC fined Kim Kardashian £1.3 million dollars for promoting the EMAX tokens being offered by EthereumMax without disclosing that she had been paid for the promotion. The EMAX tokens were being sold as investment contracts and were therefore securities. Similar related lawsuits are arising worldwide. It is important to note buying anything of value is an investment, but it does not mean that what you bought is an investment. Whether it is an investment or not will depend on what is promised by the vendor about the purchased asset.

Terms and Conditions and Return of Goods

When selling NFTs via a digital platform to consumers your terms and conditions need to include the right of withdrawal period afforded by the Consumer Rights Directive in the EU. The directive provides consumers with a number of protections when shopping at a distance. Article 9 of the Directive provides consumers with a fourteen-day window in which to change their minds, a cooling-off period and ask for their money back. There is no charge to the consumer and the reimbursement must take place within 30 days.

In the UK, distance selling is covered by the Consumer Rights Act 2015 and the Consumer Protection from Unfair Trading Regulations 2008, additional protections are afforded by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the Consumer Contracts Regulations 2013). Regulation 30 provides a 14-day cancellation period for consumers without charge.

However, can a business oblige the consumer to opt out of the 14-day cooling-off period in the UK or EU? So for example can a business selling NFTs state in their terms and conditions that consumers opt out of the protection provided by the Consumer Rights Directive in the EU or the Consumer Contracts Regulations in the UK?

In January 2023 the German Carmaker Porsche launched NFTs which tanked on the initial offering but the more interesting aspect of the sale from a legal perspective was the terms and conditions at the point of sale which included the 14 days cooling off period. However, the consumer must opt out of the cooling-off provisions at the point of minting. Article 10 of the Consumer Rights `Directive extends the right of cancellation to 12 months where the consumer is not provided with the information on the right of withdrawal. This means that NFT vendors could face multiple lawsuits from consumers that wish to return NFTs where terms and conditions do not comply with consumer protection laws.

For all the above and other NFT and blockchain-related legal advice we run a knowledgable and specialist NFT and blockchain function.

Conclusion

There are great opportunities in the digital world for entrepreneurs. You can take advantage of being able to offer a myriad of unrelated products and services creating several different revenue streams via upfront subscription fees, revenue splits, royalty payments and or commissions from brokering interactive transactions. However, in all these opportunities there are risks of misrepresentation or misunderstanding of how to exploit, manage and protect content. Brands, creators, and blockchain entrepreneurs need to be as robust with risk management as they are imaginative with disruptive and transformative ideas.

To obtain an accurate, opinion from me about your case or matter please contact me on (020) 7305-7491 or at peter@pailsolicitors.co.uk we would be delighted to assist you.

The writer is a digital technologies specialist, owner and principal solicitor at PAIL® Solicitors. Peter Adediran's specialist niche areas of practice are digital media business SMEs and IP, both contentious and non-contentious. (Charge rates may vary).