Is reselling digital collectibles infringing? The first case in the country! Wang | Works | Collection
Recently, in the case of Wang suing Hainan Chain Box Technology Co., Ltd. for infringing on his right to network dissemination of work information, the Sichuan Provincial High People's Court made a final judgment, rejecting Wang's appeal and upholding the original judgment. It is worth noting that this case is considered the first time that the people's court has responded to the legal nature of the resale of NFT works and whether the resale income belongs to the illegal gains of the infringer in the judgment.
Case Review and Controversy Focus
In this case, the plaintiff Wang completed the artistic work "Xi" on July 9, 2020 and applied for registration of the work on December 17, 2021 for the "Xi Dynamic Video Version". The defendant, Chain Box Company, sold the dynamic art work under the name of Wang on the website under the name of Chain Box Company without his permission. This work has been put on shelves for a total of 30 pieces, each priced at 599 yuan. All of them have been sold, and multiple buyers have put the work on shelves again after purchasing it, and it has been sold multiple times.
The plaintiff Wang believes that the actions of Chain Box Company have infringed upon his right to reproduction and information network dissemination of the work. He demands that Chain Box Company stop the infringement, delete the infringing works published on its website, disclose the real name information of all users who sell infringing works on the defendant's website, and compensate Wang for a total of 584215 yuan in economic losses and reasonable expenses.
The Chengdu Intermediate People's Court, after trial, believes that the sale and resale of digital collections are neither within the scope of distribution rights nor the control of information network dissemination rights, and do not constitute copyright infringement. However, the transaction amount of sale and resale can serve as the basis for determining the amount of compensation for damages. Chain Box Company, without Wang's permission, forged the involved works into digital collectibles and made them available to the public through the website, infringing on Wang's right to information network dissemination regarding the involved works. Therefore, Chain Box Company was ordered to compensate Wang with a total of more than 63000 yuan. Wang was dissatisfied and appealed to the Sichuan Provincial High People's Court.
In the second instance, the Sichuan High Court determined that the focus of the dispute was whether the resale of the accused infringing digital collectibles constituted infringement, and whether the compensation amount determined by the first instance court was appropriate. The Sichuan High Court believes that the resale of the accused infringing digital collectibles in this case is not an infringement in the sense of copyright law. There is also no evidence to prove that Chain Box Company had a common intention of infringement with the involved network users in the subsequent transfer of the accused digital collectibles, or engaged in aiding infringement. Therefore, it should not bear infringement liability for the resale behavior of network users. The first instance court has correctly determined this. Wang did not provide evidence to prove the actual losses he suffered due to the infringement behavior of Chain Box Company, nor did he provide evidence to prove the specific amount of profit that Chain Box Company gained from the infringement behavior. The first instance court found that the statement "the transaction amount of sale or resale can serve as the basis for compensation for damages" was inappropriate and corrected. In summary, Wang's appeal request is rejected and the first instance judgment is upheld.
Lawyer Weng Xiaoping, a member of the legal expert pool of the Rule of Law Daily and a partner at Beijing Kyoto Law Firm, analyzed that the court did not adopt the "digital commodity ownership transfer theory" for the legal nature of NFT transactions, but adopted the "debt transfer theory", which is more in line with the legal essence of NFT transactions. In addition, it also responded for the first time to the legal nature of the resale of NFT works and whether the resale income belongs to the illegal gains of the infringer, which has important reference value for the handling of similar cases in the future.
The Art of "On the Chain" - Digital Collectibles are on the Fire
In fact, since the first year of the "Metaverse" in 2021, digital collectibles are no longer the "high-tech" and "new intelligence" that are unknown. Related buzzwords such as blockchain, Internet of Things, and artificial intelligence have frequently appeared in the public eye. Discussions and research on immersive virtual scenes created by technology that are parallel to the real world have swept the world, becoming a highly anticipated blue ocean. In the metaverse world, blockchain technology will build a decentralized cloud computing market and create a new economic system through smart contracts.
NFT is an abbreviation for Non Fungible Token, often translated as a non-homogeneous token, which can be easily understood as a data format that can store various forms of information on the blockchain. NFT digital collectibles refer to the unique digitization of artworks in the metaverse assets by mapping specific content onto the "chain" through NFT means.
With the help of blockchain technology, digital collectibles have unique, non replicable, tamper resistant, and permanently certified artistic and collectible value, breaking people's traditional beliefs and pushing art collection towards networking, digitization, and intelligence, gradually becoming a new race in the metaverse that everyone is competing to enter.
In 2021, the digital art piece "Every Day: The First 5000 Days" was sold for $69.34 million, becoming Christie's first NFT art piece to be auctioned off. For a while, digital collectibles became popular. Later, NBA star Stephen Curry replaced his social media account avatar with a digital collectible called "Bored Monkey," spending 55 virtual currencies on Ethereum, equivalent to approximately $180000. Afterwards, renowned artist Jay Chou also joined this team and posted the image of "Phantom Bear" on social media. For a while, digital collectibles became synonymous with trendsetters and fashion, and were highly sought after. Various "data collection" platforms have emerged, including Tencent's Huanhe, Alibaba's Jingtan, Baidu's Super Chain, and so on.
The development trend of digitalization of cultural products is also highly valued at the national level. On May 22, 2022, the General Office of the Communist Party of China Central Committee and the General Office of the State Council issued the "Opinions on Promoting the Implementation of the National Cultural Digitalization Strategy", which pointed out that "accelerate the digital layout of the cultural industry, cultivate a group of new cultural enterprises in the fields of cultural data collection, processing, trading, distribution, and presentation, and lead the direction of digital construction of the cultural industry."
On August 16 of the same year, the General Office of the Central Committee and the General Office of the State Council issued the "14th Five Year Plan for Cultural Development", which pointed out the strengthening of digital copyright protection, promoting the development of digital copyright and the integration of copyright formats, encouraging eligible institutions and units to build copyright protection platforms based on blockchain technology, and strengthening copyright protection in traditional culture, traditional knowledge, and other fields. It is considered a direct benefit for digital collectibles.
The digital collection of the treasure "King Goujian Sword of Yue" in Hubei Provincial Museum Town.
The "Universiade Rongbao Aerospace Series" digital collection. Image provided by the issuer
Wild Growth: Wind or Risk
However, with the prosperity and growth of the digital collection market, legal issues and interest disputes are also exposed, such as copyright infringement, investment fraud, price foam, and so on.
In the "First NFT Infringement Case" - Hangzhou Internet Court hearing the "Fat Tiger Vaccine NFT Case", the publisher of digital collections was involved in infringing the copyright of a third party. The plaintiff in this case, Qice Company, is authorized to enjoy the copyright, property rights, and rights protection rights of the cartoonist Ma Qianli's "I'm Not a Fat Tiger" series of anime works. As a metaverse platform, the defendant allows users to publish unauthorized NFT works of the anime character on it. The Hangzhou Internet Court held that "the casting and trading of NFT digital works include the copying, selling and information network dissemination of the digital works", so the NFT publisher infringed the plaintiff's right of information network dissemination in copyright. In addition, the platform involved in the case did not have a high obligation of careful examination for the published NFT digital works, and the defendant's behavior constituted "infringement of information network dissemination rights". The court ultimately ruled that the defendant immediately deleted the "Fat Tiger Vaccination" NFT work published by the involved platform, and compensated the plaintiff with a total of 4000 yuan for economic losses and reasonable expenses.
In February 2023, the Shushan Public Security Branch of Hefei, Anhui Province, cracked a fraud case under the guise of issuing "digital collections", and arrested seven suspect, involving more than 2 million yuan. The gang incites ordinary investors to purchase worthless images in their collections through platforms such as free giveaways or low-priced quantitative first releases. Then, through price intervention, rampant speculation, and promised buybacks, they induce investors to buy first. When the price of the collection is rapidly raised, the platform company impersonates investors and sells the images at a high price to achieve high level cashout. At the same time, it closes the selling channels of other investors and scams investment money.
In addition, the constant speculation of digital collections has led to speculation, resulting in a false foam of digital collections. Previously, the first digital collection "Dunhuang Flying Skins" launched by Jingtan APP was initially sold at the price of "10 Alipay points+9 yuan 9", and the highest price was speculated to 1.5 million yuan. On April 13, 2022, the China Internet Finance Association, the China Banking Association and the China Securities Association jointly released the "Initiative on Preventing NFT related Financial Risks", saying that we should resolutely curb the tendency of NFT financialization and securitization, and strictly prevent the risks of illegal financial activities; On June 30 of the same year, the China Cultural Industry Association, in collaboration with nearly 30 institutions, launched the "Self discipline Development Initiative for the Digital Collectibles Industry", which opposes secondary trading and speculation, resolutely opposes financialization and malicious speculation, and advocates rational consumption.
Regarding the legal risks associated with the current distribution of digital collectibles, Wang Feng, a member of the Lawyer Expert Database of the Rule of Law Daily and a senior partner of Beijing Yingke Law Firm, as well as lawyers, pointed out that there are mainly three categories of civil, criminal, and administrative risks. From the perspective of civil liability, before issuing NFTs, the underlying works should obtain authorization from the original copyright owner or intellectual property holder, and are not allowed to cast NFTs without authorization, otherwise it is suspected of infringing on the reproduction rights and information network dissemination rights of the original copyright owner. Secondly, the risk of criminal liability is reflected in the existence of illegal fundraising, illegal absorption of public deposits, fundraising fraud, infringement of copyright, organized and leadership pyramid schemes, and other criminal situations in NFTs. Administrative liability risk mainly targets violations of administrative supervision regulations and corresponding administrative penalties are imposed on practitioners in the metaverse.
Integration and Coexistence: Compliance construction relies on all parties involved
Regarding the risk prevention of digital collectibles, Wang Feng and his lawyer stated that the regulation of the metaverse is still in a vague area, presenting a pattern of Nine Dragons controlling water. As an emerging industry with development potential, compliance construction should be emphasized from the beginning, and all parties should cooperate with each other to ensure compliance is implemented, in order to avoid going astray.
Among them, from the perspective of the platform and its stakeholders, the principle of legality should be followed, otherwise it will involve criminal issues; Adhere to the principle of compliance on a legal basis, operate the organizational form of the industry in a good manner, and achieve its own path; Under the premise of compliance, it is reasonable for business entities to achieve a high degree of autonomy on the basis of industry self-discipline, improve enterprise standards, and enhance the social credibility of data collection enterprises.
From the perspective of investors, the first step is to have patience and abandon the mindset of "getting rich overnight"; Secondly, it is important to maintain rationality. The irrational mentality of investors and platforms may lead to industry instability.
From the perspective of regulators, it is necessary to adopt a cautious, inclusive, and open attitude towards new industries and formats, and try to avoid the regulatory mindset of "hitting everything with a stick if there are problems". Industrial development and standardized operation need to maintain synchronous development.
