The Landmark NFT Lawsuit And What It Means For Creators
Recent news that the developers of Cryptokitties, the most famous non-fungible token (NFT) blockchain game to date, are being sued by a group of their investors highlights an important issue in the burgeoning decentralized economy the question of how users can protect their intellectual property and monetize assets moving forward.
What does this mean for all those who create, own, and invest in digital assets? The answer? It’s complicated, and there are no easy answers right now, but it will have far-reaching implications across the entire NFT ecosystem.
Who Is Behind This Lawsuit?
The lawsuit was filed by a group of well-known creatives and investors in the NFT space who are seeking to establish clear guidelines for how NFTs can be created, owned, and traded. The lawsuit names some of the biggest names in the space as defendants,
including the Ethereum Foundation, MetaKovan (the largest NFT holder), and Polygon (a popular Ethereum scaling solution).
What Is The Goal Of The Lawsuit? (three sentences):
The goal of the lawsuit is to set a precedent for how NFTs can be created, owned, and traded moving forward.
This will help protect the intellectual property of creators and investors and ensure that they can monetize their assets.
What Are The Implications Of The Lawsuit? What does this mean for you?:
If you’re an investor, this case may have an impact on your ability to make decisions about which NFTs you want to invest in.
If you’re a creator or owner of an asset like CryptoKitties, this lawsuit could set a precedent for how other companies might deal with digital IP rights. For example, if it’s found that Ethereum doesn’t have any rights over its code because it’s open source software,
other companies may be able to use the same defense when they’re accused of stealing ideas from creators or inventors.
Why An Initial Coin Offering (ICO) Was Used
In order to raise money for their project, the team behind Decentraland decided to hold an ICO.
This allowed them to sell virtual land in their game world for Ethereum. The sale was a success and raised over $26 million. However, the team is now
being sued by one of their investors. The investor claims that the sale of the virtual land was actually an unregistered securities offering.
If the court agrees, it could have major implications for how creators, owners, and investors can protect their intellectual property and monetize assets moving forward. That’s because many other successful blockchain-based companies used similar tactics when they were raising funds. One example is Brave, which holds its own Basic Attention Token (BAT) tokens on a blockchain and sold these during its ICO to fund its development of an ad-blocking browser.
The company also has plans to create BAT-related services like microtransactions and tipping.
Another example is Kik, which held its own Kin token (KIN) ICO this past summer with the goal of raising about $125 million. As part of its terms and conditions, Kik planned to lock up some KIN tokens for four years as a way to provide an incentive for continued development of the platform.
Kik also pledged not to sell any more KINs until 2020 or so
– even if there are people who want them
– but this type of lockup agreement isn’t uncommon in token sales.
Notable Individuals Involved In The Landmark NFT Suit
The case is being brought by artist Mike Winkelmann, better known as Beeple, against former business partner Justin Blau, also known as 3LAU. Beeple is represented by intellectual property law firm Pierce Bainbridge and online copyright service provider Copyright Clearance Center.
3LAU is represented by Latham & Watkins. The other notable individuals involved in the case are: digital artist Bob Ross, Jr., game company Epic Games, Inc., and software company Adobe Systems Incorporated.
Digital artist Mike Winkelmann created a painting called Snow Day which he shared on social media platform Instagram with fellow artist Brian Swiridoff. Swiridoff then created a mobile app called Simplify which was very similar to Snow Day but had slight differences like altering the color of some of the background. Shortly after that, the app disappeared from all social media platforms including Apple App Store and Google Play Store; it is unclear what happened to it.
What Are Non-Fungible Tokens (NFTs)?
Non-fungible tokens are digital assets that are unique and cannot be replaced. NFTs are stored on a blockchain, which is a decentralized ledger that records transactions. Because NFTs are stored on a blockchain, they can be bought, sold, or traded like other cryptocurrency.
However, unlike other cryptocurrency, the value of an NFT comes from its uniqueness. As such, some have criticized this type of token as being an easy way for scammers to steal people’s money.
A recent lawsuit illustrates just how costly these scams can be to innocent investors who have had their funds stolen through such methods. The creators of CryptoKitties filed suit against Ethereum founder Vitalik Buterin for allegedly promoting a scam by tweeting about the game in December 2017 without disclosing his ownership stake in it.
The complaint was dismissed with prejudice in April 2019 after Buterin agreed to delete all tweets about CryptoKitties and refrain from promoting any product or service related to it, including by posting tweets linking to CryptoKitties.
Why Tokens Should Actually Be Considered Securities
In the lawsuit, the plaintiff is seeking a declaratory judgment that would establish that the defendants’ NFTs are actually securities.
This would have a few implications. First, it would mean that the defendants would have to comply with securities laws going forward.
Second, it would provide more clarity for creators, owners, and investors in the space.
Third, it could help deter bad actors from taking advantage of people in the space.
Fourth, it would establish a legal precedent that could be used to go after other companies in the space.
Fifth, it could lead to more regulation in the space, which could be a good or bad thing depending on your perspective. Sixth, it could create more opportunity for litigation in the space.
Do Crypto Collectibles Actually Fit Into An Existing Legal Framework?
On March 1st, a lawsuit was filed in the U.S. District Court for the Southern District of New York that could have a big impact on the world of non-fungible tokens (NFTs).
The suit, brought by artist Justin Blinder and his company White Rabbit against Block.one and its EOSIO blockchain protocol, alleges that Block.one violated federal securities laws by selling unregistered securities in the form of EOS tokens.
If successful, this landmark case will establish legal precedent to determine how creators, owners, and investors can protect their intellectual property and monetize assets moving forward.
Proposed Solutions From Project Participants Within Ethereum And Beyond
1. Establish an industry-wide set of best practices for minting, storing, and managing NFTs.
2. Develop an open-source standard for tracking provenance and licensing information for digital art assets.
3. Work with artists and other rightsholders to help them understand their options for protecting their intellectual property and ensuring that they are fairly compensated when their work is used commercially.
4. Advocate for changes to copyright law that would better protect creators of digital art and other digital assets.
5. Educate the public about the value of NFTs and the importance of supporting the artists who create them.
6. Collaborate with law enforcement to investigate and prosecute cases of fraud and theft involving NFTs.
7. Create a new legal framework for governing ownership of in-game items within virtual worlds.
8. Find ways to provide utility tokens that can be traded and speculated on as liquidly as Bitcoin or Ethereum without exposing token holders to price volatility or liquidity risk.
9. Provide a mechanism for transferring ownership rights without disrupting gameplay and minimizing confusion among players about which character will be controlled by a given player in future rounds of gameplay.
10. Conduct research into methods for authenticating online identities and content using distributed ledger technology.
11. Offer incentives to developers to create games with robust ecosystems and economies that reward long-term investments, ensure easy interoperability between different games, promote fair competition between game developers, and offer true world persistence (as opposed to short-lived virtual worlds).