Are NFT’s a Beautiful Asset?

Pictures of bored apes have become synonymous with the face of non-fungible tokens (NFTs), populating newsfeeds over the last 18 months. With the global NFT market estimated to be around $11 billion and predictions that this will rise to $231 billion by 2030, the market is a hotbed of activity leading to the all-important question - how is this emerging market policed and protected?  

As NFTs touch on many areas of law - from copyright and intellectual property rights to anti-money laundering regulations and estate planning, the recent case of Osbourne v (1) Persons Unknown and (2) Ozone Networks Inc trading as Opensea [2022] EWHC 1021 (Comm) (“Osbourne v Opensea”) is of particular importance.  

This landmark case recognises NFTs as legal property not only capable of protection but also being held on trust by unblown third parties.

The Case

The case concerned the theft of two NFTs, Boss Beauties #680 and Boss Beauties #691, from Ms Osbourne’s crypto wallet. Ms Osbourne is the founder of the ‘Women in Blockchain’ talks and purchased the NFTs from the Boss Beauties Foundation, which received notoriety in 2021 for having the first NFT collection displayed at the New York Stock Exchange!

On discovering the theft of her NFTs, Ms Osbourne took action and commissioned an audit of the relevant blockchain, which located the NFTs. They were found in two separate wallets on the world’s largest crypto asset market platform, OpenSea.  

The case established important rights and protections for NFTs.

Are NFTs Property? Yes – The High Court determined that NFTs are capable of being property and, as such, are capable of protection by virtue of a freezing injunction. The injunction froze the assets, preventing further transfers of the NFTs in question. Whilst urgent freezing injunctions of this nature are common in commercial disputes, this application was a ‘leap of faith. There was no legal precedent expressly recognising NFTs as a kind of property capable of protection, although previous cases have established that cryptocurrency assets are property.  

The importance of the NFTs being viewed as property is that it enables a wider variety of relief and protection to be applied by the courts rather than just being able to bring a claim for monetary loss.   

    1. Isn’t possession 9/10 of the law?

No, not in this case - the adage that possession is 9/10 of the law did not apply here. Importantly the Court found that despite the assets being held by unknown third parties, such third parties did not get title to the assets but were holding them on trust for Ms Osbourne. The legal title to the assets had not passed to the unknown third parties just because they owned the NFTs.  

    2. Does the asset have to have a high in-value?

No - the value of the NFTs, in this case, were relatively low, around £4,000, but this did not prevent the 

Court deciding that damages would provide an adequate remedy as the assets:

“ have a particular, personal and unique value to the claimant which extends beyond their […] currency value”, and therefore the High Court was willing to afford further protection to the assets.

    3. Is Jurisdiction a leap into the unknown?   

The matter was complicated as the Opensea platform has no physical presence in the UK as a US entity operates it; however, the Court considered that, as the NFTs were held in Ms Osbourne’s crypto wallet, and she is domiciled in the UK, the theft occurred within the UK and the NFTs should come under the Jurisdiction of the UK courts.  

The unknown identity of the third parties in possession of the NFTs added further complications. The Court was able to overcome this hurdle by establishing that had Opensea been present in the UK, it would have been a party to the proceedings and should, through “know your client” practices, be able to ascertain the identity of the third parties holding the NFTs on its platform. The Court, therefore, granted a disclosure order requiring OpenSea to provide documents to identify the account holders in possession of the NFTs.  

Consequences

The case highlights that the English Courts are fully prepared to apply established principles to modern technologies and assets. NFT holders now have a means of protecting and enforcing their rights as:

• English law recognises NFTs as property capable of protection; and
• The international nature of NFTs should not prevent lawful owners from seeking appropriate relief and protection for their assets in the UK.  

Other takeaways:

1. The effective use of blockchain to trace the ownership of the NFT efficiently and robustly – which is of utmost importance as injunctive relief should be sought urgently as delay can be a bar to this.  
2. NFT’s can be held on trust – we may therefore see them being used as security for a loan, insured or dealt with like any other tangible assets, something to bear in mind when tax planning.   

Our specialist Tech lawyers are on hand to advise on all aspects of protecting and exploiting intellectual property rights, including enforcement, licensing and disputes.