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The British Web3 community hailed an important legal precedent in early May, when the High Court of Justice in London, the closest parallel to the US Supreme Court, decided that nonfungible tokens (NFT) are "private property." However, the court's opinion states that this private property status does not apply to the underlying content that NFT represents. Cointelegraph spoke with legal experts to learn more about how this ruling might affect the legal environment in the United Kingdom.
Boss Beauties have been stolen
Lavinia D. Osbourne, founder of Women in Blockchain Talks, tweeted in February 2022 that two digital works from the Boss Beauties — a 10,000-NFT collection of empowered women made by "Gen Z change-makers" and exhibited at the New York Stock Exchange — had been stolen.
The tokens come with a variety of benefits, including invitations to exclusive events, free books, and reduced licensing fees. The pieces, according to Osbourne, were taken from her MetaMask wallet and later appeared on the OpenSea market. Mitmark, a security and intelligence business, assisted her in tracking down the NFTs.
The case was brought to court in March, and The Art Newspaper reported on the verdict of the United Kingdom's High Court on April 29, in which the judges acknowledged NFTs as legal property. In addition, the court ordered an injunction freezing Ozone Networks' (OpenSea's) assets and requiring OpenSea to provide information regarding the two account holders in possession of the stolen NFTs. OpenSea discontinued the selling of these NFTs – Boss Beauties 680 and 691 — shortly after.
The injunction was granted against "unknown persons" because the identity of the wallet holders are unknown. The Stevenson Law Firm described a freezing injunction as a "nuclear weapon" of law in their response to the decision, calling it "quite a draconian (i.e. old fashioned and punitive) remedy."
Following the court's ruling, Osbourne triumphantly declared:
"Women in Blockchain Talks was formed to bring the benefits of blockchain technology to women of all ages, genders, nationalities, and backgrounds." This lawsuit should help to make the blockchain world safer, allowing more individuals to interact with intriguing and significant assets like NFTs."
The asset and the token
The judgement, according to Racheal Muldoon, the case's attorney, "removes any ambiguity that NFTs are property in and of themselves, distinct from the item they represent, under the law of England and Wales." Other experts, however, are doubtful of the court's decision's revolutionary significance due to the aforementioned fact.
While the NFTs are currently treated as property by the Internal Revenue Service in the United States, the stated distinction between the token and the underlying asset offers little to remedy the current legislative void in the United Kingdom and the United States. "So if you've got a token, you've got a token." As Juliet Moringiello, a professor at Widener University Commonwealth Law School, pointed out to Artnet News, "but not necessarily any rights in anything else."
In her opinion piece on the issue, Emily Gould, assistant director of the Institute of Art and Law, said that over the last few years, U.K. courts' rulings, legislative developments, and governmental research have all been increasingly consistent in defining crypto assets as property. She cited AA v. Persons Unknown from 2019 as well as the UK Jurisdiction Taskforce of the LawTech Delivery Panel's "Legal statement on cryptoassets and smart contracts" study from the same year.
What comes next?
"The underlying property or asset that the NFT represents, be that artwork or any other copyrightable material, is still governed in the U.K. by the same copyright rules as in the United States," said Tom Graham, CEO and co-founder of Web3 firm Metaphysic.ai. "This ruling contributes nothing to the clarification of that distinction."
The verdict, however, set a "interesting precedent," according to Graham, because the court had imposed an injunction against OpenSea. This is significant in terms of courts intervening and issuing injunctions when NFTs are stolen. He added:
"It is now clear that NFTs are subject to the same property laws as all other property in the United Kingdom." It establishes a strong precedent for those investing in NFTs that their property rights will be protected by the legal system, at least in the United Kingdom."
Anna Trinh, chief compliance officer of digital finance provider Aquanow, told Cointelegraph that the verdict is not innovative, but it is "executive in nature." Establishing legal precedent that supports what most people already believe may give NFT platforms more confidence in demanding that malicious actors' accounts be frozen. Trinh stated,
"I don't think it's surprising that NFTs are now considered private or personal property. NFTs can be bought, sold, or traded, implying that they are personal property in the first place. If the court had ruled that NFTs were not personal property, it would have been much more startling."
The existing legal protections for the underlying assets do not concern Trinh. These are governed by the contract's content at the time of acquisition, therefore depending on the asset's nature, both contractual and intellectual property law may apply. Trinh believes that there are more pressing legal issues that regulators should focus on, such as creators' rights.
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