Legal Battles that are shaping the future of NFT Regulations
Are NFTs considered property? Can you airdrop NFTs to wallets for serving legal documents? Is MetaBirkin infringing the trademark of Birkin bags? Is what Ryder Ripps doing “no more a monkey business”?
1. Are NFTs Property?
As an NFT holder, do you sometimes wonder what would happen if my NFT gets stolen? Can you lodge a theft complaint? At least Bored Ape holders may have been having these questions when the exploit happened in June this year.
But the theft of what? An NFT? What is an NFT? According to Section 1 of the UK´s Theft Act 1968,
“a person is guilty of theft if he dishonestly appropriates property belonging to another with the intention of permanently depriving the other of it.”
The keyword here is “property”. In any country´s theft legislation, you will, most likely, find a reference to the term property. These laws safeguard property and ownership rights. No one in this world knows, for sure, if NFTs are properties except in the UK. The UK High Court´s decision, which recognized NFTs as property, is historical and has global significance. The case was Osbourne v (1) Persons Unknown and (2) Ozone Networks Inc trading as Opensea [2022] EWHC 1021 (Comm).
1.1 The case of Lavinia D. Osbourne
For those of you who are unaware, in January of 2022, Osbourne was taken aback when she realized that two of her Boss Beauties NFTs were stolen from her MetaMask wallet. After recognizing the wallets that were carrying her stolen NFTs, she approached the High Court seeking an urgent interim injunction to freeze the NFTs on OpenSea. This prayer of seeking an injunction to freeze NFTs was novel to the Court. Granting an injunction meant recognizing NFTs as legal property.
The High Court did precisely that. In its injunction order, the High Court said:
“The evidence demonstrates […] that these are assets which have a particular, personal and unique value to the claimant which extends beyond their mere Fiat currency value. The Court will readily grant injunctions to protect assets in such circumstances.”
Even though the High Court´s decision is only enforceable in the UK, it has global significance. The judgment may influence what courts in other jurisdictions decide about the legal status of the NFTs. I can cite at least one example. On May 13, Singapore High Court recognized NFTs as a digital asset and passed an injunction order to freeze BAYC NFT No.2162 sale on the blockchain.
Claimant Janesh Rajkumar had borrowed Ethereum worth $143,346 from chefpierre using his Bored Ape as collateral on NFTfi. The loan agreement had a provision of extension for repayment before foreclosure. But, instead of granting an extension, chefpierre foreclosed on the loan and listed the NFT on OpenSea for sale.
It is no longer hard to fathom that NFTs can be capable of being recognized as legal property and deserve legal protection.
2. You have been served via an NFT!
Yes, you read that right. One may very well file a case against unknown persons or wallet addresses and get a favorable order from the Courts, but servicing those legal documents has been challenging. The UK High Court is likely on a mission to set precedences for others. Web evolution has forced Courts and law enforcement agencies to find innovative ways to demand compliance from the offenders.
In the case of D’Aloia v. (1) Persons Unknown (2) Binance Holdings Limited and others, the UK High Court allowed serving its injunction order to offenders by way of NFT.
The NFT containing the worldwide freezing injunction order was airdropped to the wallets of the offenders.
In the blockchain world, where wallet address is perhaps the only available information about a person, Airdropping legal documents as NFTs seems the only practical way of servicing. I hope that, in the future, the judiciary and the executive will find more innovative ways to enforce judgments and regulations.
3. NFTs and Intellectual Property Rights
Is your tokenized digital artwork protected under the current Copyright laws? Or, is your registered trademark protected from infringement in the metaverse? Unfortunately, no one knows that for sure. Several potential landmark cases are pending, and hopefully, we will have more clarity in the future. Currently, parties are enforcing IP rights by recording them on Smart Contracts. However, that is not enough. An effective mechanism for dealing with plagiarized and fake works is still missing.
3.1 The case of Birkin Bag:
At the beginning of this year, in a New York court, the famous French fashion company Hermès sued an Artist called Mason Rothschild for the trademark infringement of its Birkin bag brand. Rothschild has released a collection of 100 NFT Birkin bags called MetaBirkins. These are faux fur bags in different colors and patterns.
Birkin Bags are considered a statement of eliteness and quite unaffordable for a large part of the population. The Birkin Bag brand does not sell to just anyone and cautiously vets its buyers to maintain exclusivity and protect itself from dummies. Surely any Birkin NFT project would baffle Hermès.
Before MetaBirkins, Rothschild, in collaboration with Eric Ramirez, had also launched a Baby Birkin NFT drop in May 2021. The NFT was an animation of a 40 weeks old fetus growing inside a transparent Birkin bag. The project, surprisingly, did very well commercially and was sold in an auction for USD 23,500, which was far more expensive than an actual baby Birkin Hermès bag sold by Hermès. This sale was also widely reported by the media outlets. In December last year, this NFT was resold for USD 47,000.
Hermès owns the trademarks for Birkin and Hermès. Besides, it owns trade dress rights in the Birkin handbag design. In his interview with Yahoo Finance, Rothschild compares owning a Birkin bag in real life to owning a MetaBirkin in the Metaverse. In reality, there was confusion about the association of Hermès with MetaBirkins NFTs. The New York Post and L’Officiel had also mistakenly reported that Hermès partnered with Rothschild in the MetaBirkin NFT project.
Rothschild argues that he used “MetaBirkins” as the title of his artwork and not as a source identifier of his products. Therefore, he deserves First Amendment protection under Rogers v. Grimaldi, 875 F.2d 994 (2nd Cir. 1989). The Roger test provides special protection to the use of trademarks for works for artistic purposes. As we await the judgment of this case, it will potentially shape the future of NFTs.
3.2 The case of a plagiarised Bored Ape Collection
Yuga Labs Inc has also filed an IP lawsuit against Ryder Ripps for creating fake Bored Ape NFTs. Allegations include unfair competition, false advertising, cybersquatting, and trademark infringement, but interestingly, no copyright claim is alleged! You might remember that a line from Yuga´s statement of claim was recently viral on LinkedIn. It said this “is no more monkey business” but a deliberate effort to harm Yuga at the expense of its consumers.
The above two images are not deceptively similar but the same. However, Ripps, in his defense, claims to have used satire and twists to educate people about BAYC and NFTs in general. He alleged that BAYC has “extensive connections” to “subversive internet nazi troll culture”. He has also alleged that BAYC´s Ape characters are racial and white supremacist, and his collection reimagines the Bored Ape by “illuminating truths about their origins and meanings as well as the nature of Web3”. Yuga has denied all the allegations of racism and white supremacy.
Conclusion
We still do not know the final judgments in the Bored Ape and Birkin Bag cases, but both these judgments will have far-reaching global ramifications. Just like the freezing injunction orders passed by the UK and Singapore High Courts.
Legal precedents play a crucial role in removing ambiguity and confusion. And it is always better to follow these cases from inception until they become landmark judgments. I am saving a few more NFT case laws for later ;).
