Reed Smith LLP: how brands are using NFTs to support charitable giving

By Stacy Marcus and Emily Faro.

An increasing number of brands are embracing NFTs as a way to support global campaigns and marketing efforts. In addition, brands are increasingly engaging in creative collaborations with digital artists and charitable organizations. Last year, one of the most prolific digital artists and NFT creators, Beeple, auctioned off ‘Ocean Front’ – raising $6 million for the Open Earth Foundation.

Numerous household name brands – including adidas, Prada, and Taco Bell have embraced the NFT and charitable giving trend. Prada and adidas both engaged digital artist Zach Lieberman to create NFTs featuring community-sourced artwork submitted by consumers that was sold at auction with the majority of the proceeds going to a non-profit organization that seeks to address climate concerns and social inequities. Similarly, Taco Bell sold twenty-five taco-themed NFT GIFs to support the Taco Bell Foundation’s Live Más Scholarship.

Global Trends in navigating NFTs and charitable giving

New technology brings opportunity – but it also brings risk. For advertisers and charitable organisations alike, there are a number of ways to safely navigate the NFT landscape and create lasting charitable impact. Many brands choose to collaborate with third-party platforms knowledgeable in the space to provide tools to engage with consumers and develop sustainable income streams. Examples include The Giving Block and DoinGud. The Giving Block helps to establish a means of accepting cryptocurrency donations, as well as assisting in actively fundraising cryptocurrency.

DoinGud is an NFT platform that allocates a minimum percentage to a social impact organization chosen by an NFT creator. Other brands may choose to open their own digital wallets to manage assets directly. As the technology becomes more mainstream, brands may develop their own in-house processes to manage NFT and charitable giving initiatives. Brands using cryptocurrency in connection with their charitable initiatives should also consider the environmental impact of cryptocurrency mining and whether it aligns with the brand’s philanthropic/charitable efforts.

What are the legal implications?

Globally, there is a lack of specific guidance related to the use of NFTs for charitable fundraising. However, the same laws that apply to the real world apply equally to the digital world, including intellectual property, publicity, privacy, tax, consumer protection, regulatory and financial technology legal issues. Depending on the jurisdiction, advertisers should also consider the varying regulatory framework for both digital currency and charitable giving.

Any time a for profit company publicly communicates that the sale of something will benefit a charity, then any commercial co-venture (“CCV”) laws in the jurisdiction will be triggered –
even if that “something” is an NFT. In the United States, CCV laws vary by state. Which law applies depends upon where the offer is made and to whom it is accessible (e.g., if the CCV is open to residents of New York, then the company has to comply with New York’s CCV law).

This regulatory framework becomes complicated when applied to the metaverse. While a brand could void in certain states (e.g., purchases by residents in X states will not trigger the donation), with NFT/blockchain purchases you may not necessarily be able to know where an individual purchaser is located. It should also be noted that California enacted a new law that goes into effect in January that will impact CCVs accessible online.

Laws and regulations relating to commercial partnerships with charities are not unique to the United States. Globally, brands and charities alike should be mindful of a specific country’s laws regarding charitable giving. For example, commercial charitable partnerships in the UK must comply with the legal requirements detailed in Part II of the Charities Act 1992 and The Charitable Institutions (Fund-raising) Regulations 1994.

Seizing opportunities, remaining cautious

NFTs can provide a brand with an opportunity to harness the positive impact of partnering with a charity while also tapping into one of the hottest trends. Advertisers should ensure that they partner with artists and charities that align with their brand ethos and culture, and should consider whether they have the expertise and platform available internally – if not, it might be wise to leverage the expertise of a third-party platform. Finally, the laws that apply in the real world apply equally to the metaverse. Brands and charities alike must be mindful of laws and regulations that may apply, including IP, tax and charitable partnership regulations. Ultimately, NFTs are an opportunity brands would be wise to seize – as long as they remain cautious.

Stacy Marcus (left) is partner and Emily Faro associate at Reed Smith LLP.

Back to top button