Compensation and Competition after NIL 

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By: Kelton McLeod

The sands of collegiate athletics have been shifting rapidly over the past eighteen months and have yet to find any stability. In 2021, the Supreme Court of the United States released its opinion in the case National Collegiate Athletic Association v. Alston. In that case, the NCAA lost in its appeal of the Ninth Circuit’s ruling related to violations of §1 of the Sherman Antitrust Act. In a unanimous ruling, the Supreme Court found that some of the “NCAA’s compensation limits [for student-athletes] ‘produce significant anticompetitive effects in the relevant market.’” In other words, the NCAA could not use its monopsony power to completely suppress or limit the amount of education related payments that a student-athlete could receive. 

The Supreme Court’s holding was a formal rebuke of how the NCAA, the largest proprietor of amateur collegiate athletics, was treating the athletes on which they so desperately rely. This rebuke resulted in the institution of so-called “Alston payments,” which allow some of the largest schools to now directly pay their athletes $6,000 per academic year for education related expenses. The result of this ruling was much greater than just these payments though; the ruling also paved the way for individual student athletes to be able to monetize their own Name, Image, or Likeness (NIL).

For years, student-athletes (and former student-athletes) have complained about the NCAA’s usage of their name, image, or likeness for profit. While schools could profit off a player’s NIL, the NCAA forbade student-athletes from doing the same. By the time the Alston decision was passed down, several states were already in the process of passing laws to wrest some control of a student-athletes NIL away from the NCAA. These states were attempting to compensate these student-athletes in some form for the work that the student-athletes were doing for both their collegiate institution and the NCAA. So, when the Supreme Court ruled against the NCAA, the NCAA was forced to recognize the shifting sands beckoning changes in compensation for collegiate sports. 

The NCAA acted quickly. Within weeks of the Alston decision, the NCAA instituted an “Interim NIL Policy”—which remains in place as of October 2022—that laid out ground rules for a policy allowing student-athletes to profit off their Name, Image, or Likeness. The NIL deals made possible by the NCAA’s new Interim NIL Policy can take many different forms, as the deals are permitted to include any form of advertisement that uses the athlete’s personal brand as a selling point. However, in the past year NIL deals have traditionally come in the form of making public appearances, posting on social media, or wearing a company’s products. The NCAA’s one-page Interim NIL Policy provides little direction but has five basic tenants that student-athletes and Collegiate Institutions must follow: (1) NIL agreements must include a quid pro quo, (2) NIL compensation cannot be contingent upon enrollment at a particular school, (3) pay for play compensation is not allowed, (4) institutions may not provide compensation in exchange for the use of a student-athletes NIL, and (5) the NCAA rules were subservient to any state NIL laws present. 

There is no federal regulation or policy that offers a uniform NIL experience to student-athletes. The Uniform Law Commission (ULC), a state-supported, nonpartisan, nonprofit organization drafted the “Uniform College Athlete Name, Image, or Likeness Act” (“NIL Act”) to provide a level of uniformity across state NIL laws. While some states acted quickly, instituting policies supporting student-athlete rights to NIL, no state has directly adopted the ULC’s NIL Act. Among the fifty states, twenty-eight currently have passed NIL legislation or have a some guidance in place, leaving the remaining twenty-two as the “wild west,” with athletes and colleges only beholden to the NCAA Interim Policy and whatever level of self-governance institutions have chosen to place on themselves. These differing state laws, or lack thereof, have posed a unique challenge for the institutions and athletes that are now obliged by them. Much like the athletic programs that they now have influence over, not all NIL rules are created equal. 

While similar to the NCAA’s policy, Oklahoma’s NIL law is noticeably stricter. In Oklahoma, a “student-athlete shall not enter into a contract with a third party that provides compensation to the student-athlete for use of his or her name, image or likeness or athletic reputation if . . . [t]he contract allows for the use or consents to the use of any institutional marks during the student-athlete’s third-party contract activities.” This wording restricts the student athlete to profiting off of only his or her NIL, while the institution may profit off its own brand combined with the NIL of such a student athlete. While Oklahoma’s bill attempts to even the playing field of NIL deals for athletes across the many Oklahoma institutions, the bill does so in a way where unequal standing is given to the University relative to the student-athletes. 

Compare Oklahoma’s approach to the state of Washington’s approach, where there are more expansive opportunities to the athletes that attend one of Washington’s several fine institutions. With no NIL law in place, the direction of NIL is largely left up to the institution. A key example of Washington’s openness to NIL opportunities relates to the usage of intellectual property and trademarks owned by its state schools. Student-athletes at the University of Washington—while forbidden by NCAA rules to secure NIL deals based upon attending the UW—can wear their uniforms or wear any of the University’s several trademarked logos while endorsing a product or making a post on social media. 

Still, the University of Washington does not want its student-athletes wearing or posting its trademarks or intellectual property for any and every NIL deal, certainly not ones the administration has deemed unbefitting of the University. As a state school, the University of Washington is operated like a government agency and is regulated by the ethics rules related to sharing of state property for gain. In Washington, “[n]o state officer or state employee may employ or use any . . . property under the officer’s or employee’s official control or direction, or in his or her official custody, for the private benefit or gain of the officer, employee, or another.” Intellectual property, such as the University of Washington’s trademarks, falls directly under this ethics statute. So, the University of Washington has used its inter-collegiate athletics compliance office and its trademark office to monitor NIL contract requests to ensure that any request that includes usage of UW trademarks does not hurt the brand. To further this goal, the University has instituted rules regarding products with which student-athletes may not utilize the school’s trademarks while endorsing. These products include alcohol, marijuana, tobacco, gaming, sports wagering, pornography or adult entertainment, or weapons/weapons manufacturers. Overall, the products that the University seeks to keep at arm’s length account for only a small portion of the products a student-athlete could advocate for, ultimately allowing broad use of the institution’s trademark in NIL dealings. 
With the sands of student-athlete compensation still shifting, these different NIL systems may only be in place for the next few months, or even weeks. A proposed Washington’s House Bill 1084 still has the possibility of becoming law and changing the standards in Washington. While Oklahoma already has its law in place, it remains new enough where modifications could be instituted with reasonable ease. Even within the NCAA, change is still likely; its NIL committee is rumored to be soon instituting further clarifications to the Interim NIL Policy for the first time since July of 2021 when it was placed into effect. These changes are not expected to be expansive but could have an outsized impact on the schools in states without NIL laws, like Washington currently. Only time will tell where NIL will be a year from now, but at least compensations for athletes are continuing to trend in a more equitable direction for student-athletes.

No One Should Own Exclusively AI Generated Art

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By: Jacob Alhadeff

On February 14, 2022, the Copyright Review Board (CRB) rejected Physicist Stephen Thaler’s claim for a copyright of his algorithm’s “authorship” because a “human being did not create the work.” On September 15, 2022, Kris Kashtanova received a copyright for their comic book Zarya of the Dawn, in which all of the art was AI generated, but Kris created the other aspects of the book. The difference in treatment is likely down to questions of originality, authorship, and simply that one work required human creativity while the other was effectively the work of a computer. Though these legal arguments are compelling in themselves, a necessary and implicit policy rationale seldom explicitly recognized by the law deserves highlighting — the relationship between work and incentives. Here, copyright incentivizes Kashtanova’s creative human work while reasonably denying that incentive to Thaler’s exclusively AI generated art. 

AI art, AKA generative art, uses machine learning (ML) algorithms that have been trained on billions of images frequently from licensed training sets and images publicly available on the internet. The images these algorithms use are frequently copyrighted or copyrightable. Users then type in a phrase, “carrot parrot,” for example, and a unique image is generated in seconds. Creating novel art can now be as simple as an image search on Google. This technology has been in the works for many years, but recently, platforms like DALL-E, Midjourney, and Stable Diffusion increased the volume of training data from millions to billions of parameters and the emergent result was an exponentially better output. In response, on October 17, 2022, Stable Diffusion announced the completion of a $101M seed round at a $1B valuation. Sequoia Capital then posted a blog suggesting that generative AI could create “trillions of dollars of economic value.” The future of Generative AI looms large, and at the very least promises to expose unexplored ambiguities in copyright. 

Functionally, in generative art there are two primary entities that may be incentivized through copyright — the programmer or the user. The programmer may have spent many hours writing and training the algorithm so that the algorithm may quickly create novel works of art. The user of the algorithm, on the other hand, is “the person who provides the necessary arrangements,” basically the person who prompts the program with a phrase. Providing either of these entities a copyright to exclusively generated art ineffectively balances incentives and ignores the purpose of copyright. 

Incentives and the Purpose of Copyright 

Copyright’s purpose is to “promote the progress of Science and useful Arts.” The Constitutional basis for copyright is therefore explicitly utilitarian. The Supreme Court has expanded on this language, suggesting that copyright’s purpose is to (1) “motivate the creative activity of authors and inventors by the provision of special reward” and (2) “to stimulate artistic creativity for the general public good.” Justice Ginsburg found that copyright’s dual purposes are mutually reinforcing because the public is served through copyright’s individual incentive. This mirrors James Madison’s claim regarding copyright, that “the public good fully coincides in both cases [copyright and patent] with the claims of individuals.” At its core, copyright is a monopoly-based incentive to create art to further public welfare. This incentive is at least implicitly predicated on the notion that creating valuable creative works is not easy, and therefore requires or deserves incentivizing. If improper law and policy are adopted, then Generative AI has the possibility to throw a wrench in this balancing of incentives.

The now rightfully defunct “sweat of the brow” copyright standard awarded a copyright partially because of the amount of work that went into the effort. One reason “sweat of the brow” was flawed was because it meant that facts themselves could be copyrighted if it took substantial work to attain those facts. The ability to copyright a fact “did not lend itself to support[ing] [] the public interest” and the standard was discarded. Though improper, the underlying concept was not entirely baseless. If the Constitutional purpose of copyright is to provide incentives to artists for public benefit, then copyright law must balance incentives, which implicitly balances work versus reward. 

Incentives are not absolute but are contextual and must at least tacitly recognize the difficulty of the act the incentive intends to induce. ‘Energy in’ must be somewhat commensurate with ‘value out’ — otherwise, the incentive structure is misaligned. This balancing of incentives is one of the reasons why a perpetual copyright is unconstitutional. If a copyright holder holds this monopoly right too long after its initial creation, they are rent-seeking, and the incentive that copyright provides far overshadows the public benefit. Rent-seeking is growing one’s wealth without “creating new wealth,” which has pernicious societal effects. For this reason, courts have determined that no amount of creativity, originality, or work merits an infinite monopoly on a creative work. 

Exclusively Generated Art Should Enter The Public Domain

Neither the user nor the programmer should receive a copyright for exclusively generated art, in part because doing so would misalign incentives. To be overly reductive, incentivizing someone to dedicate their life to an artistic craft requires a substantial incentive — a copyright for example. By contrast, if the effort required to create the art is effectively null (typing a prompt into generative AI), then the incentive required to promote the useful art is effectively null. As such, the law should not be reticent to reduce or eliminate the incentive for someone to type five words into a generative AI and provide a public benefit by creating exclusively generated art. Importantly, this reasoning excludes an artist’s creations that use generative AI as a tool or a component of their work – these artist’s works deserve copyright’s protection. Given that without any guarantee of copyright protection, over 1.5 million users are creating 2 million images a day using Dall-E, current evidence suggests that generative art users are not concerned about a monopoly on the economic returns for their creations. Lawmakers should not be concerned either. 

The owners of the generative AI algorithm should not receive a copyright for every work generated by their algorithm. Some in intellectual property suggest that AI generated art should be copyrightable because without protection, there will be a “chilling effect on investment in automated systems.” The argument is basically that if the owner of a generative art algorithm cannot hold a monopoly on the generated art, then there will be insufficient incentive to continue investing in automated systems. This ignores the concept of Software as a Service and the present reality that machine learning algorithms are currently effectively contributing to lucrative business models without guarantees of copyright protection. Relevantly, Stable Diffusion is valued at $1B.  

Further, a world where the algorithm’s owners automatically have a valid copyright claim could completely undermine the market for art. Similar to how no amount of work can justify a perpetual copyright, no amount of work could justify a handful of entities with machine learning algorithms copyrighting a substantial proportion of modern artistic creation. While generative art may simply become another tool for artistry, it is conceivable that someday the world’s human artists would not compare to the volume of work accomplished by ML algorithms. Lawmakers should not reduce artistic markets to whoever can create or purchase the most effective machine-learning algorithms.

Battle of the Bike Trainers: Following the Patent War Within the Cycling Community 

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By: Zach Finn

The move to integrate physical activity with rapidly changing technology is not a new endeavor. In the last ten years, gadgets such as smartwatches and smart mirrors, and companies  like Peloton have advanced the ways we exercise and  track our personal fitness. With this emerging field combining technology and exercise, a new market space has opened, causing companies to quickly create innovative equipment or fall behind to more inventive competitors. With the downfall of Peloton starting in March of 2021, the cycling industry has seen an uproar of technological innovation ranging from E-bikes to online virtual reality racing and exercising. With all the excitement and novelty that this brings, comes a battle for market dominance in this developing smart biking space. This has produced an exhilarating and dramatic patent war.

Wahoo Fitness (“Wahoo”) is a fitness technology company based in Atlanta, Georgia. In April 2022, the hardware developer acquired RGT Cycling, a virtual cycling platform, thus acquiring new software to help develop an indoor cycling and gaming program through a subscription service known as Wahoo X. Using Wahoo’s KICKR and KICKR CORE trainers, hardware that one attaches to the rear of a cycling bike making it stationary while connecting it to virtual software, Wahoo transformed its company to produce smart bike trainers that deliver a “realistic, accurate, and quiet indoor cycling experience.” Wahoo acquired patents for their hardware.

Zwift, a software company, owns and operates a multiplayer online cycling and running physical training program, enabling users to interact, train, and compete in a virtual world. In an effort to capitalize on the booming indoor cycling frenzy, Zwift partnered with JetBlack, a hardware developer, to develop its own bike trainer. This trainer, known as the Zwift Hub, became available in the United Kingdom and the United States on Oct. 3rd, 2022, and on that same day, Wahoo filed suit against both Zwift and JetBlack for patent infringement.

35 U.S. Code § 271, “Infringement of a Patent”, states that “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.” The U.S. Patent system is founded on protection which incentivizes businesses and people to continue to innovate and develop new products and ideas, with less threat from copycats. Wahoo alleges that Zwift has rebranded the JetBlack Volt Trainer, which they believe, in layman’s terms, is a rip-off of their KICKR CORE trainer. Wahoo has filed three patent infringement claims.

United States Patent No. 10.046.222, entitled “System and Method for Controlling a Bicycle Trainer” was issued by the United States Patent and Trademark Office on August 14, 2018. United States Patent No. 10.933.290, entitled “Bicycle Trainer” was issued on March 2, 2021. United States Patent No. 11.090.542, entitled “System and Method for Controlling a Bicycle Trainer”, was issued on August 17, 2021. Wahoo owns all rights and interests for each patent, including the sole and exclusive right to prosecute and enforce the patent against infringers. They have the right to collect damages against those who have infringed upon the patents. The KICKR and KICKR CORE practice the invention claimed by all three patents. Pursuant to 35 U.S.C § 287, Wahoo gives notice of the patent by listing them on its website.

Should the court find that Zwift has infringed upon Wahoo’s patent, Wahoo is seeking injunctive relief. This means Wahoo is pushing the courts to forbid Zwift from releasing the Hub in the United States retail space. Wahoo is also seeking compensatory damages for any harm the company endured from the release. Winter v NRDL (2008) is the leading case for requirements for preliminary injunctive relief. To obtain a preliminary injunction as Wahoo is currently seeking, the company will need to show 1) the likelihood of success of a permanent injunction based on the merits of the claim, 2) irreparable harm caused by Zwift, 3) a balance of equities (what would be fair), and 4) what is in the interest of the public. We should expect to see how the court rules on a temporary injunction very soon, and a permanent injunction down the line. It seems plausible for Wahoo to get a preliminary injunction against Zwift, if they establish the requisite likelihood of success on the merits, demonstrate an irreparable harm like monetary loss caused by Zwift, articulate the dangers of patent infringement, and portray how an injunction is to the betterment of public interest.

To thicken the patent war drama even more, in June 2015, Wahoo was sued for patent infringement over the very same stationary trainer that the company is suing Zwift and JetBlack for using. Powerbahn, another hardware company, sued Wahoo for patent infringement, seeking at least $1 million in lost royalties. Powerbahn licensed its patented hardware to a company called Nautilus Inc. In Powerbahn’s filed claim, Nautilus Inc.’s executive took the technology when he left the company to join another. The company he joined then licensed the patent to none other than Wahoo. The case was dismissed in April 2021, but it illustrates the theatrical and dramatic timeline of the trainer patent.

In summary, it is an exciting time at the intersection of the technological, cycling, and legal communities. As this new development in the patent war over biker trainers ensues, one must wonder the means and reasons for patent litigation today. In my opinion, as an avid cyclist enthusiast and law student, I question the motives behind Wahoo’s patent infringement claims against Zwift. If the JetBlack Volt Trainer, the hardware Wahoo believes Zwift developed and used for their Hub, was released in 2020, why did Wahoo wait until Zwift partnered with JetBlack, acquired the hardware, produced, and released it to the public? My thought is that Wahoo wanted to strategically undercut one of its biggest rivals, hoping that this patent infringement will lead to an injunction, which would severely destabilize Zwift’s success in the technological exercise market space. If this is the case, those who have interest in antitrust might also want to follow this development. Until then, we can only sit back and watch as this patent war unfolds like a soap opera, as Zwift had until October 24, 2022, to respond to Wahoo’s complaint.

Self-Driving Automobile Accidents—Who Should be Liable?

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By: Elliot Min

Ever since the gasoline shortages and soaring oil prices during the 1973 Arab Oil Embargo, many automakers have been exploring options for alternative fuel vehicles, including electric vehicles. Unfortunately, it took almost 30 years after the Arab Oil Embargo until technological innovations in electric and hybrid electric vehicles made it so that these vehicles could be a legitimate alternative to their gasoline counterparts. Technological innovations in electric vehicles have not only made it so that they rival their gasoline counterparts, but they also offer unique services and options that gasoline vehicles don’t have the capability of. For example, the significantly stronger battery packs in electric vehicles provide a stable power source that is necessary for the numerous complex sensors and computer systems used for autonomous driving.  

Alongside these technological advances came complex legal issues as these autonomous driving services began to create scenarios and situations in unchartered territory. As technology keeps moving forward at a breakneck pace, the law has struggled to match, especially with its heavy reliance on precedent. A huge legal issue arose: “who holds liability when an autonomous vehicle is involved in an accident?” 

Who is currently liable?

Currently, no case law definitively places liability at the feet of the automobile companies, the individual(s) using the self-driving technology, or the individual(s) not using the technology. Instead, the contemporary legal system is very analytical and fact specific. Though this may appear to be an equitable method it is not realistically sustainable.  With the rise of the number and complexity of these lawsuits, there needs to be a more solidified standard that courts can uniformly rely on. The problem intensifies when considering that the accident rate of self-driving cars is more than two times higher than in human-driven vehicles (though the severity of injuries is much lower than in human-driven vehicles). 

The National Highway Traffic Safety Administration has recently announced that it will be updating the regulations on self-driving vehicles so that they won’t need traditional controls like steering wheels or pedals. This change is immensely significant for the legal evolution of transportation and motor vehicle safety standards. Though no fully automatic vehicles are currently being industrially produced for the public, colossal corporations such as Google, Apple, and Tesla are all pushing to launch fully self-driving electric cars shortly. In addition to these influential companies entering the autonomic vehicle product market, the United States Department of Energy is incentivizing residents to purchase all-electric and plug-in hybrid vehicles. The Biden administration also secured a Bipartisan Infrastructure Law which is investing over 14 billion dollars in expanding electric vehicle charging infrastructures and critical minerals supply chains (which are necessary for batteries, components, materials, and recycling). 

Who should be liable?

The unfortunate reality is that it is inevitable that accidents will continue to happen on the road. Even with academic experts predicting that there will eventually be an extinction of human-driven vehicles on the road, accidents will continue until then (and potentially even after).  

Though the United States Department of Transportation has issued a series of guidelines for automakers, they have purposely left a bunch of autonomy to individual state courts to determine the liability of any accidents that involve autonomous vehicles. The Washington State Legislature has not considered any solidified policies regarding autonomous vehicles, but rather has created the Washington State Transportation Commission. This commission gathers information and develops policy recommendations for the Legislature to prepare for the operation of autonomous vehicles on public roadways across the state. 

There is precedent to show that the courts will look into each accident and analyze the facts to determine what directly or indirectly caused an accident. Was it a defect in the code or the product? Was it the mistake of the human driver? Was it a combination of factors that led to the accident that an average human driver could have avoided? These are just a few of the complex questions that the courts will have to answer before placing liability. Especially considering that this is the genesis of the autonomous vehicle law, the courts will have to be careful about where they place liability and how much liability (since it will serve as a landmark precedent for future cases). It could serve as a huge deterrent for individuals and corporations to innovate if the courts continue to place the bulk of the financial liability on the autonomous vehicle producers. On the other hand, consumers may be hesitant to purchase these vehicles if they view them as coming with a high legal risk (which could also influence the willingness of market competitors to enter this market).

Why does this matter?

These lawsuits will be extremely expensive as autonomous driving systems involve millions of lines of source code, the lives of every individual that uses public roads, and the corporate powerhouses that are willing and able to join the autonomous vehicle marketplace. These outcomes could also lead to expensive vehicle recalls which are common in defective automobiles because of their high safety concerns. Punitive damages can also come into play as the United States has allowed for punitive damages for outrageous conduct in the designing and/or manufacturing of a defective product. The future will likely be dominated by autonomous vehicles. The contemporary courts and legislature working in this field will be the original sculptors of the legislation that may become extremely important in the future. 

Code is Law: The Importance of Legal Engineering in DAOs

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By: Stephen Cromwell

Decentralized Autonomous Organizations (“DAOs”) are a revolutionary new way of conducting business, earning an income, and distributing profits to participants and investors. DAOs are, in essence, companies or organizations built on decentralized and permissionless blockchains using smart contracts. Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met, and can be customized to execute different business functions. Just as a company maintains one or more bank accounts in the real world, DAOs maintain one or more cryptocurrency wallets governed by smart contracts. 

The governance of the company is typically commanded by documents and legal precedents dictating standard procedures for the formation, fundraising, employment, and operations of the company. Company governance may take many forms depending on how the company is structured, and there are a multitude of legal considerations for differing corporate structures, such as tax implications, fiduciary agreements of officers and board members, and profit distribution mechanisms. Each of these considerations are affected by the conduct of individuals and are dictated by corporate charters and contracts, which typically assign power in a hierarchical way. Although some forms of partnerships may mandate a democratic process for business purposes, typically they still maintain a board to simplify control and gain efficiency in decision making. 

DAOs, however, are entirely governed by the terms of the smart contract and money cannot move without the terms being met. This concept is commonly referred to as “code is law.” This means the charter can be automatically executed, and dividends and wages can be paid without necessary authorizations coming from officers or employees. Additionally, the issuance of governance tokens, much like traditional shares of equity, are issued in a predetermined way in accordance with the code of smart contracts. This enables much greater flexibility with respect to compensation schemes, ways to earn shares, or how DAO voting is conducted. For example, a DAO may issue governance tokens to its employees or contributors, much like an employee stock option. This issuance may be done in a more traditional, scheduled manner by issuing tokens in a specific quantity for a given period of time. However, the DAO could choose to issue governance tokens in a less traditional way, such as automatically awarding tokens for work performed, almost distributing equity through micro contract arrangements. Therefore, after a X amount of work is done, a contributor may receive Y amount of shares. This incentive structure may produce greater work efficiency as the contributor is incentivized to work as hard as possible and maximize both the wage and dividend they might receive. Since smart contracts monitor work products automatically, efficiently, and without bias, this form of compensation may prove to be more fair and allow for changes in productivity given a dynamic workforce. 

However, DAOs are not exempt from the law, and it is critically important that DAO founders think about building compliance into their smart contracts. For example, Merit Circle is a DAO that develops play-to-earn video games in which assets within the game can be bought and sold on open markets. To get off the ground, Merit Circle raised $4.5 million dollars in a seed round of funding composed of 10 investors in October of 2021, including another DAO named YieldGuild and YieldGuild’s founder. Merit Circle and YieldGuild entered a Simple Agreement for Future Tokens (SAFT), constituting a $175,000 investment at a price of $0.032 for 5,468,750 Merit Circle governance tokens. Then on May 5, 2022, a member of the Merit Circle DAO named “HoneyBarrel” posted a governance proposal titled “MIP-13” on the DAO’s forums requesting that YieldGuild’s ownership in seed tokens be refunded prior to the public unlocking of the tokens, effectively canceling their investment. Many of the members of the DAO expressed support for the action while a few members criticized the action. Given the public nature of decision making that is inherent in DAOs, the proposal was set for voting on the DAO’s governance protocol and passed with 86% of the vote. This vote forced the DAO to refund the investment and remove the governance tokens. In response, the Merit Circle administration issued a counter proposal to buy back the tokens at a price of $0.32 for a total purchase of $1,750,000 under a settlement agreement. This vote passed with 100% support of the DAO’s voting members. Both parties decided it was in their best interest to settle the matter and avoid litigation, and YieldGuild accepted Merit Circle’s settlement offer. However, if YieldGuild had decided to litigate instead, it is likely the DAO founders would have been liable for the resulting roughly $3 million dollar loss. 

Harm, such as the case above, is avoidable so long as DAO founders consider the agreements or laws they might be held to during development. However, doing so is extremely difficult given the need to diagnose complex legal agreements, determine what law applies, and build statutory interpretation into code. Therefore, a new class of lawyering has arisen. A lawyer that can practice and code is referred to as a Legal Engineer. As the importance of smart contracts grows and Web3 expands, the demand for competent legal engineers will grow as well. Some lawyers are actively embracing this new class and are beginning to set certifications and standards for this new kind of work. Additionally, there is opportunity for the development of legal applications that can add ease, certainty, and dispute resolution to Web3 transactions, something that has been missing in the world of immutable crypto transactions. So whether you’re a lawyer, law school administrator, or law student, adding Legal Engineering skills to your skillset is a must-do as the nature of transactions and contracts begins to evolve around the world of Web3.