Legal Considerations for Web3 Companies

Legal Considerations for Web3 Companies and Products

Web3.0 (“Web3”) is being touted as the ‘next big thing’ in software, services, and everyday life. From cryptocurrency, to non-fungible tokens (NFT), to development in the ‘metaverse’ – Blockchain based Web3 is primed to be the foundations of how we interact with technology in the near future.

This post assumes that you have an understanding of how Web3 and blockchain technology works, and will give you a high level overview of some of the legal considerations that Web3 companies must speak to.

  • Laws and Regulations – Several countries and economic areas across the world have enacted regulations around Web3 – either directly, or through other data related regulations. Many existing laws and regulations have been interpreted to apply to Web3 products as well. Wherever you are, have your Product Counsel consider all existing and upcoming legislation that will affect your offerings.
  • Data Privacy – Intertwined with laws and regulations, data privacy is a big deal – worldwide. You should make every effort to make sure that you are appropriately following data privacy regulations by, at a minimum, getting the appropriate consent from your data subjects, protecting the data you collect, and allowing your data subjects access to their data.
  • Licensing – Much of the subject matter of Web3 products are built based on licensing rights. Whether you’re building a product that serves as an exchange, or designing NFT’s for a marketplace – it’s important that you understand how licensing works, what your limitations are, and how to appropriately protect your business, technology, and your users/customers.
  • Intellectual Property – Intellectual Property (“IP”) comes in the forms of copyrights, trademarks, patents, trade secrets, and general ownership. In the legal landscape, there have already been several lawsuits regarding ownership rights of products like NFT’s. Does the original creator own the IP? How about the first purchaser? What about when the NFT is resold? Figure out how ownership works at development, and in terms of how your marketplace of choice defines what you can do with it.
  • Securities Law – In certain situations, the Securities and Exchange Commission, or local jurisdictions, can consider an NFT or a cryptocurrency as a security. Under these circumstances, your products will be subject to securities law. It’s important you understand how regulatory bodies may test this (using something called the Howey test), and whether what you are building should be subject to Securities Law or not.
  • Anti-Money Laundering Laws – If you’re dealing with security, currency, or something of value that can transfer ownership for value – you may be subject to anti-money laundering laws. Criminals are constantly finding ways to illegitimate funds, and as such, Anti-Money Launder Laws are being applied to Web3 products.
  • Enforcing Terms of Service – Just like any other software-based product, having a strong Terms of Service is imperative to properly protecting your products, business, and users. Outside of just the words behind them, Web3 companies should have the infrastructure to support enforcing the Terms of Service strictly, including all use restrictions, suspension rights, and intellectual property rights. As an emerging market with so-far undefined laws, Web3 companies may be targetted.

Let us Help

This post is by no means a comprehensive list of legal considerations, and provides just a high level overview of what Web3 companies should think about.

There are many more nuances and specifics, and you should have an experienced attorney help you through drafting the right one to make sure your business are protected.

Kader Law can help you through understanding these legal considerations. If you’re interested, feel free to contact us.

This post is not legal advice, and does not establish any attorney client privilege between Law Office of K.S. Kader, PLLC and you, the reader.