The first NFT copyright infringement decision handed down in China

Background (NFT Copyright)

The case focused around a comic image depicting a chubby tiger receiving a vaccine shot, which was one of many artworks from the popular cartoon series “Fat Tiger” released on Weibo, China’s principal social media site, by a Chinese artist. Shenzhen Qice Diechu Cultural Creativity Co., Ltd. (the plaintiff) filed a lawsuit against Hangzhou Yuanyuzhou Technology Co., Ltd. (defendant), who controls the marketplace of NFT Bigverse, a digital art trading platform. On Bigverse, the plaintiff learned that a user had created and sold a nearly similar NFT digital work to the copyrighted item in dispute, complete with the artist’s Weibo watermark.

 Significance of that the plaintiff filed a lawsuit in Hangzhou Internet Court against the defendant for contributory copyright infringement. The issue concerned the intermediary liabilities and obligations of an NFT platform with respect to NFT digital works on its platform. Because it is a specialised NFT marketplace, Bigverse, according to the lawsuit, bears a greater obligation. 

Bigverse, according to the lawsuit, must safeguard its IP in such a case by undertaking a preliminary evaluation to determine whether a user who publishes an NFT digital work on its platform holds the copyright in the underlying artwork.

The plaintiff claimed that the defendant not only failed to fulfil that commitment, but actually charged a percentage of the transaction fees as well. as a result, the plaintiff demanded that the defendant stop infringing behaviour and sought RMB100,000 (about US$15,100) in damages from the defendant.

In response to the plaintiff’s claim of infringement, the defendant contended that as an intermediary, it should not be held responsible for infringement and its only duty is to eliminate the infringing elements it he/she receives copyright owner’s notice of infringement.

The ruling of the court

Case was considered by the Hangzhou Internet Court on the april 20, 2022, and a decision was published shortly after it was discovered for the copyright holder.

Court ruled that a transaction including an NFT digital work is related to copyright owner’s right to information distribution through a network under the PRC Copyright Law. The defendant was deemed to have aided the plaintiff’s infringement right and was ordered to destroy the infringing NFT digital work by sending it to an inaccessible address (i.e., burning the NFT) and pay the plaintiff RMB4,000 (about US$600) in damages for monetary loss and reasonable expenses.

The court confirmed in its finding that in China, the NFT platform may be held liable for infringement of copyright. as an internet service provider, the court stressed that an NFT marketplace should create a Conduct a preliminary ownership check of the digital works on its platform using its IP review method. Court further ruled that if platform does not receive a copyright owner’s warning, it should assess the likelihood of an NFT digital work infringing on copyright and take appropriate action. If it fails to do so, the NFT platform may face copyright infringement penalties.

The court went into great detail about the transaction mode and technological characteristics of NFT digital works, as well as the defendant’s Bigverse platform’s business and operational suggestion. In determining that the defendant had a greater need to take reasonable steps to prevent copyright infringement, the court emphasised the following:

• NFT transactions entails the replication and distribution of the digital creations created by their respective owners. Operator of a platform should be informed that seller must possess copyright in a digital work in addition to the digital work itself.
• If evidence of ownership is not secured, it will corrode the confidence and trust in NFT transactions, which are at the heart of the NFT ecosystem, which is based on blockchain and smart contract technology.
• Technology has enabled complete control on the digital work along with the progress and monitoring of IP without incrementing/incurring any additional cost.
• The platform immediately profits from NFT digital works by charging both gas expenses (as transaction fees) and commissions on every transaction.

ConclusionThe Hangzhou Internet Court’s judgement in the first NFT copyright infringement case in China throws some clarity on how copyright law applies to a new asset class in the burgeoning NFT market. It will be intriguing to follow up case law in this area as it makes progress. In the interim, NFT platforms should be conscious of their potential intermediary liability, at least one Chinese court has ordered a preliminary IP appraisal and monitoring of NFT works housed on their platforms.