Welcome to our monthly NFT litigation roundup.

Non-Fungible Tokens (NFTs) are the topic of much debate and interest and the questions, legal issues and disputes around them continue to soar.

When faced with such a high growth phenomenon, the law can take time to catch up. Boodle Hatfield is closely monitoring the developments and each month will bring you a roundup of the key NFT disputes to be aware of.

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United Kingdom 

Lavinia Deborah Osbourne -v- (1) Persons Unknown (2) Ozone Networks Inc trading as OpenSea

• In this landmark ruling, NFTs have been recognised by the High Court as legal property capable of being frozen.
• The case concerns two NFTs (artworks from the Boss Beauties series), which were removed from the claimant's digital wallet in January 2022 without her consent or knowledge. In Court orders made on 10 and 31 March 2022, a proprietary freezing injunction was granted in respect of the NFTs until the end of the Court proceedings.
• Cryptocurrencies have already been recognised by the Courts as legal assets which can be the subject of court injunctions, but this is the first time that NFTs have had the same recognition.
• The ruling shows the flexible and willing approach the English courts have towards new technologies and is an important precedent in the legal status of NFTs. The ruling operates to give NFT holders some welcome legal recourse, and legal advice should therefore be taken as soon as an NFT owner discovers their NFTs may have been misappropriated.

Amir Soleymani -v- Nifty Gateway LLC 

• In May and June 2021, Soleymani was involved in an auction for an NFT associated with the artist known as "Beeple". Soleymani submitted one of the winning bids for the NFT, with his bid of $650,000 ranking third highest.
• According to the terms of sale, Soleymani and the other 98 top bidders were expected to accept second edition (and lower value) NFTs. This meant Soleymani would receive NFT edition number 3 for $650,000. He refused to pay, arguing that his bids were made "with the intention of acquiring the original artwork offered for sale in the Abundance Auction and not the third or any other edition thereof".
• Nifty Gateway subsequently froze Soleymani's account and blocked access to his assets (which included over 100 NFTs).
• Nifty Gateway commenced arbitration proceedings in New York, and Soleymani filed a counterclaim in New York and issued a separate claim in London. Nifty Gateway contested the English Court's jurisdiction and sought a stay of proceedings.
• The questions before the English Court were whether the English court had jurisdiction and whether Nifty Gateway was entitled to stay the proceedings.
• The Court stayed the proceedings favour of the New York arbitration. It was not disputed that Soleymani was party to an arbitration agreement which provided for arbitration in New York and so the issues at hand relating to that arbitration should be heard by that tribunal.
• Although the case centred on jurisdiction issues, the High Court judge recognised an "interesting issue on the evidence as to the nature of NFTs as assets, and whether they are artwork, with the Claimant's position being that he was trading in digital art whereas the Defendant maintained that an NFT is merely a unique string of code stored on a blockchain ledger that makes a digital artwork accessible, and marks authenticity". This is perhaps a taste of arguments to come.

Overseas 

Qice - v - BigVerse

• A court in eastern China has handed down a judgment in the country's first landmark case relating to NFTs. The Court ruled that online trading marketplaces are responsible properly verifying and removing fake NFTs.
• A copy of an artwork by artist Ma Qianli was sold on the marketplace NFTCN by an unnamed user for around $137.
• The copyright holders of the original artwork subsequently filed a claim against BigVerse (the operator of NFTCN), claiming that the marketplace did not take sufficient steps to disallow or remove fake NFTs, and that the fake undermined the value and scarcity of the original NFT.
• The court agreed, and decided NFTCN had indeed failed to check whether the creator was the rightful owner of the artwork, and that this constituted aiding infringement under copyright law. BigVerse was ordered to pay Qice 4,000 yuan ($611) and burn the NFT involved.

Nike Inc v. StockX LLC

The background details of this case are covered by our February litigation roundup and can be found here. 

• UPDATE:
• StockX responded to the claim on 31 March, calling Nike's lawsuit "baseless and misleading". StockX said that its NFTs are merely "tickets" to depict proof of ownership of physical trainers stored in its vault and are "absolutely not virtual products or digital sneakers" as Nike claimed.
• StockX claims that it was only using NFTs to authenticate its physical shoes and was not selling them as standalone products. It explained that the NFTs essentially made it easier to trade the trainers stored in the vault. StockX believe the Vault NFTs save customers "time and money while reducing the environmental impact of repeated shipping".
• The response from StockX raises interesting questions over how NFTs are classified - whether that be as a (1) ticket to depict ownership, or (2) a digital asset in their own right. How the Court decides to deal with this case could have significant implications, particularly for those who use NFTs to record ownership of assets (such as fine art).
• Nike has since asked a judge to allow it to amend the original complaint against StockX, because "additional facts transpired or were discovered that are highly relevant to [its] claims against StockX". More information will follow on this in our May litigation roundup.

 Hermès International & others - v - Mason Rothschild

The background details of this case are covered by our February litigation roundup and can be found here. 

• UPDATE:
• On 2 March 2022 Hermes filed an amended complaint in the proceedings, stating that Rothschild featured the MetaBirkins trademark and Hermès "Birkin" and " Hermès " trademarks prominently on his social media and website. Hermes argue that this will confuse consumers as they will "see a wide variety of brands, including luxury fashion brands, exploiting the NFT space and would expect that NFTs featuring famous brands are affiliated with those brands, or wonder why the famous brands are permitting such dilutive use of their valuable assets and think less highly of them".
• On 21 March Rothschild filed a new motion to dismiss, on the basis that his NFTs are artistic expressions only, and are not tied to a physical object. Rothschild states on his Instagram “The First Amendment gives me the right to make and sell art depicting Birkin bags, just as it gave Andy Warhol the right to make and sell art depicting the Campbell’s soup cans.”
• Hermes has (on 4 April) filed an opposition to the motion to dismiss, stating "[Rothschild] did indeed successfully “accomplish the goal of his infringing conduct: consumers and the press alike believed Hermès was involved. Elle magazine, the New York Post, and other sophisticated commentators reported that Hermès authorized the Metabirkins infringement “experiment.” Likewise, [Rothschild]'s social media account is steeped in posts from third parties expressing confusion about Hermès’ sponsorship of and/or collaboration with [Rothschild] and his Metabirkins infringements. [Rothschild's] “experiment” did not stop with his sale of Metabirkins digital handbags. He has used Metabirkins as a pseudonym and trade name to promote his digital business ventures. The confusion is sure to grow."
• A Judge has since decided that Hermès be allowed to proceed with its claim.

This month’s disputes show that the NFT and digital asset market shows no sign of slowing down. We continue to monitor this evolving market and the legal issues that arise.

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