An Expensive Copyright Mistake?

We have previously written about some of the legal issues surrounding the current NFT craze. Issuing an NFT presumes that the creator of the NFT owns the necessary rights to the underlying work. Did the group Spice DAO misunderstand this, costing them $3 million and a lot of embarrassment?

Spice DAO stands for Spice Decentralized Autonomous Organization, a collective of cryptocurrency owners with big plans. DAOs are not new but have recently become more prevalent. According to BuzzFeed, the ten largest DAOs currently hold almost $20 billion in cryptocurrency.

Spice DAO was hastily formed in anticipation of a Christie’s auction in November 2021, to purchase a rare copy of a “bible” containing artwork and the storyboard for a never-made Dune adaptation by cult-filmmaker Alejandro Jodorowsky. (The Jodorowsky work is often described as “the greatest movie that was never made.”) Dune is a 1965 science fiction novel by Frank Herbert about an interplanetary civilization fighting over a planet called Arrakis (the Dune Universe). There were five sequels to the novel authored by Herbert and more than a dozen additional books authored by his son and a co-author. Together with the books, television adaptations, comics and graphic novels, video games, board games and merchandising, the science fiction media franchise is known as the Dune Chronicles. There have been numerous attempts to turn the book into a movie, notably a David Lynch version in 1984 and a blockbuster film in 2021, the first of a trilogy (which just received 11 nominations for the BAFTA awards). But the Jodorowsky plans remain legendary – the film was to be 14 hours, with Salvador Dali playing the emperor of the universe at $100,000 per minute of screentime, Pink Floyd doing the soundtrack, and Orson Welles and Mick Jagger participating. A 2013 documentary recounts the failed attempt to make this film.

With great fanfare, Spice DAO announced its purchase of a rare copy of the book for $3M at the auction (approximately 100 times its estimate), to carry out various projects, including issuing NFTs of slices of the book and then burning it. The $3M was fronted by one of the principals, but the funds to carry out the project and reimburse the principal were raised via a crypto “crowdraise” mechanism. Contributors received a right to vote on the plans, managed on the Snapshot platform, in accordance with the token share of their contributions. The venture was presented as an attempt to “liberate” the Dune bible from private collectors and turn it into something for the public good.

Spice DAO presented a governance proposal, which was approved by 95% of its members. In addition to electing a management team, Spice DAO committed to doing the following between January and March 2022:

  1. Gain physical custody of Jodorowsky’s Dune book by arranging shipping and storage
  2. Digitally scan each page of the book
  3. Contract with a social media agency to produce PR/marketing to disseminate activities across all channels
  4. Present a film treatment and budget by Roble Ridge Productions for the original animated series inspired by the book for a community vote on Snapshot (Emphasis added)

The group was promptly lambasted on social media for not understanding that their purchase of the book did not come with the underlying rights needed to make the series or issue the NFTs to its members. The book, it was pointed out, was already available online for free.

Spice DAO has said, “while we do not own the IP to Frank Herbert’s masterpiece, we are uniquely positioned with the opportunity to create our own addition to the genre as an homage to the giants who came before us.”

Whether Spice DAO didn’t know this when it paid $3M for the book or whether it knowingly executed an expensive marketing strategy isn’t clear. Acquisition of the physical copy of the book is irrelevant to its rights to create the animated series. “Inspired by” works are frequently the subject of copyright litigation, and, without more specifics, it’s impossible to know whether a series “inspired by” Dune would infringe the copyright to the original book held by the Herbert Partnership, the rights of multiple parties in the Jodorowsky book or any other rights for that matter.

Whether a work “inspired by” a preexisting work infringes the copyright of the third party or is a fair use is at the heart of Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, which is the subject of a petition for certiorari currently pending before the Supreme Court. In March 2021, the United States Court of Appeals for the Second Circuit, reversing the lower court, found that a series of silkscreen prints and pencil illustrations of singer Prince by Andy Warhol did not constitute a fair use of an image by photographer Lynn Goldsmith. In so holding, the Court clarified the distinction between derivative works, the province of copyright owners, and transformative works which may qualify for the fair use defense against infringement. The Second Circuit’s restrictive ruling narrows the scope of the fair use defense for artists and hence, if it stands, may have implications for what Spice DAO can do with the Jodorowsky book.

What does seem clear is that Spice DAO has bought, along with the book, close scrutiny and inevitable challenge by the copyright holders. Stay tuned for more on Spice DAO and Andy Warhol!