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.
Interested in hearing more? You can sign up to future roundups and other content from Boodle Hatfield by follow our subscription link here.
The recognition of NFTs as property
Janesh S/O Rajkumar v Unknown Person ("Chefpierre")
- In a landmark ruling in the Singapore High Court, the Court has ordered an injunction to stop the sale and transfer of a Bored Ape Yacht Club NFT on the Ethereum blockchain. The move to protect an NFT in this way is the first in Singapore and Asia.
- The dispute centres around a loan agreement between the claimant, an active dealer in crypto and digital assets, and the defendant, a frequent lender. As part of the agreement, the claimant transferred the NFT to an escrow account to be held until full repayment of a loan was effected. The claimant asked for a refinancing of the loan, and when the defendant considered the claimant unable to pay, the defendant moved the NFT to its personal Ethereum wallet before listing it for sale on OpenSea.
- The court filing states that this particular Bored Ape Yacht Club NFT is "one of the Claimant's most treasured possessions" of which he had "no intentions to ever part with or sell".
- The court has ruled that the NFT should not be sold pending the resolution of the dispute. With an injunction now preventing such a sale, the claimant is seeking an order that the defendant be compelled to accept repayment of the loan and return the NFT.
- The lead counsel on the case has commented that this is "the first decision in a commercial dispute where NFTs are recognised as valuable property worth protecting […] so more than merely strings of numbers and codes imprinted on a blockchain, the implication is that an NFT is a digital asset and people who invest in it have rights that can be protected".
This follows a ruling earlier this year by the High Court of England & Wales which recognised NFTs as legal property capable of being frozen (Lavinia Deborah Osbourne -v- (1) Persons Unknown (2) Ozone Networks Inc trading as OpenSea - for further details please see our April roundup here).
Hermès International & others v Mason Rothschild
- As noted in our April roundup, Rothschild had filed a motion to dismiss Hermès' claim, on the basis of the First Amendment and the test in Rogers v Grimaldi. The "Rogers test" is used to protect First Amendment interests and establishes that the use of a trademark in artistic work is not an infringement if it (1) is relevant to the underlying message of the work; and (2) does not explicitly mislead as to the source or content of the work. Subsequently, on 4 April, Hermès filed an opposition to Rothschild's motion to dismiss.
- The Court has now rejected the motion to dismiss, allowing Hermès' case to continue. The Judge held that the Rogers test applied because the MetaBirkins “could constitute a form of artistic expression”, and that “Rothschild’s use of NFTs to authenticate the images” does not “change the application of Rogers: because NFTs are simply code pointing to where a digital image is located and authenticating the image, using NFTs to authenticate an image and allow for traceable subsequent resale and transfer does not make the image a commodity without First Amendment protection any more than selling numbered copies of physical paintings would make the paintings commodities for purposes of Rogers.” However, because Hermès' complaint includes allegations of explicit misleadingness, the motion to dismiss was denied.
Nike Inc v StockX LLC
- On Tuesday 10 May, Nike sought the Court's permission to amend its complaint against StockX. Nike claims that since it lodged its initial complaint, "additional facts transpired or were discovered that are highly relevant to [its] claims against StockX".
- Nike is arguing that StockX has altered its terms for the "Vault NFTs" referred to in the original filing which in turn means Nike needs to amend its claim. Nike argues that "StockX has made a series of modifications to its representations surrounding [the] Vault NFTs", for example deleting and/or replacing specific terms that had come to light in the claim as problematic and deceptive.
- Nike also wishes to add counterfeiting and false advertising claims to its existing lawsuit. Nike claims that it purchased four pairs of counterfeit shoes on StockX's website between December and January, despite StockX's promises that it only markets authentic shoes.
- Nike said "Those four pairs of counterfeit shoes were all purchased within a short two-month period on StockX's platform, all had affixed to them StockX's 'Verified Authentic' hangtag, and all came with a paper receipt from StockX in the shoe box stating that the condition of the shoes is '100% authentic'".
- StockX responded in a statement on Wednesday 11 May. StockX described Nike's filing as "nothing more than a panicked and desperate attempt to resuscitate its losing legal case against our innovative Vault NFT programme"; "Nike's challenge has no merit and clearly demonstrates their lack of understanding of the modern marketplace".
Jay-Z / Roc-A-Fella Records v Damon Dash
The background details of this case are covered by our March roundup and can be found here.
- As reported in our previous roundup, Jay-Z's legal team had previously stated that lawyers on both sides were in discussions to reach a settlement. It has now been confirmed that the opposing sides "have reached an impasse and are unable, at this time, to reach a stipulation to resolve their claims and counterclaims".
- Jay-Z's team have confirmed that they will be filing for summary judgment. They note their belief that this is the only way to stop Dash from "altering in any way, selling, assigning, pledging, encumbering, contracting with regard to, or in any way disposing of any property interest in the album Reasonable Doubt, including its copyright and including through any means, such as auctioning a non-fungible token (NFT) reflecting, referring or directing such interest".
SK Stiftung Kultur v Julian Sander
A copyright dispute has arisen in Germany following the great-grandson of August Sander, Julian, bringing his great-grandfather's iconic photo collection onto the blockchain via OpenSea.
- August Sander was a German photographer who captured key moments in German history. The collection would have made up his total archive, which had 10,700 photographs.
- Julian's intention was to "secure the legacy of August Sander on the blockchain", calling the collection a "pioneering step" into a "brave new world". The project stated that each NFT was a "unique 1/1 and a source of provenance to all known physical manifestations of the photograph" and would have been the first time the archive of a major figure in photography would be made available as NFTs.
- The collection launched on 10 February, with prospective buyers only being asked to pay minting fees for the NFTs. Julian was to receive 7.5% for each resale. Cartagena’s Fellowship Trust would take 2.5%.
- After much attention on social media, the collection vanished from OpenSea. It transpired there was a dispute over the ownership of the collection and OpenSea had suspended the sale.
- SK Stiftung Kultur ("SSK"), a German-based non-profit cultural foundation, claim that Julian's father, Gerd, sold the collection to them in 1992. If found to be true, this would mean that the distribution and preservation of the collection is the responsibility of the foundation, and not the Sander family, and the sale would amount to a violation of copyright law.
- Julian's view is that he was able to launch the project without involving SK Stiftung Kultur because of “fair use”, a term used in copyright law under the Digital Millennium Copyright Act which allows persons other than the copyright owner to make certain limited uses of copyrighted material without the owner's permission.
- The case could set a precedent for photographers entering the NFT market.
We continue to monitor this evolving market and the legal issues that arise.
About Boodle Hatfield
Boodle Hatfield has specialist art and digital assets teams offering expert know-how and pragmatic legal advice. The group brings together specialists from around the firm, who can advise on everything from corporate structuring and intellectual property through to tax, financial claims in divorce, dispute resolution and estate planning.
Click here to read more.
NFTs are simply code pointing to where a digital image is located and authenticating the image, using NFTs to authenticate an image and allow for traceable subsequent resale and transfer does not make the image a commodity without First Amendment protection any more than selling numbered copies of physical paintings would make the paintings commodities for purposes of Rogers. (Hermès International & others v Mason Rothschild)