Blockchain’s Very Big (and Very Bad) IP Day

Though Blockchain technology may not be dominating the mainstream news cycle as they did a year or two ago, the industry has carried on, weathering both crashes and large changes along the way. 

Also continuing have been the various legal battles over the future of technology built on top of the blockchain, including cryptocurrency and NFTs.

To that end, yesterday was a significant day as not one but two very different rulings came in that discussed the intersection of blockchain and intellectual property. One of those rulings is being widely hailed by supporters of cryptocurrency as a positive step, while the other is being decried by those supporters as a significant blow to NFTs.

As such, it is worth taking a moment to look at both rulings, discuss their possible implications and understand what changes blockchain advocates might expect in the future.

No Copyright in the Bitcoin File Format

For years, Craig Wright has claimed that he is the person behind the pseudonym Satoshi Nakamoto, the person named as the author of the original Bitcoin white paper, which was published in 2008. 

However, that claim has been met with widespread doubt and Wright, for his part, has not provided significant or compelling evidence that he is Satoshi. Despite that, Wright has been on a legal campaign, attempting to protect the copyright both in the original white paper and the Bitcoin format itself. 

Unfortunately for Wright, the latter part of that battle took a blow yesterday. In the United Kingdom, a judge dismissed copyright claims related to the file format of Bitcoin. 

The issue, according to the judge, was that Wright failed to prove that format had been fixed in a tangible medium of expression.

This is a significant issue for Wright. For a work to qualify for protection under copyright in the UK, it must be an original work of authorship that is fixed into a tangible medium of expression. According to the judge, Wright was unable to prove that the format was fixed and was only able to show that code read and created blocks using that format.

The ruling is largely unrelated to the larger case, in which Wright is suing to force Bitcoin developers to allow him to access some 111,000 BTC that is in digital wallets attributed to Satoshi. He claims that the access codes were lost in a hack and destroyed.

Likely Implications

The ruling is being heralded as a major win for the blockchain community. There was widespread fear that Wright could use this to halt both Bitcoin and Bitcoin Cash in favor of his own favored version, Bitcoin Satoshi Version. 

However, the ruling may not have the giant global impact that some are hoping it would. 

Under the Berne Convention, the largest copyright trade agreement, fixation is something that countries can decide for themselves. As such, there is no standard. 

Countries such as Australia, Spain and France don’t require a work to be fixed. However, other nations, such as the United States and Canada, do and have similar standards to the UK.

Normally, this issue comes up when dealing with live performances that aren’t necessarily “fixed” but may be broadcast or streamed. Here, though, it may open the door for Wright (or anyone else) to try a similar gambit in another country.

So, while developers of Bitcoin, Bitcoin Cash and others that use the same file format can breathe easier, it’s not necessarily the last word on this particular matter, especially if Wright chooses to appeal this issue.

NFTs Are Not Art

As big as the Wright ruling was, it was another ruling that stole the spotlight yesterday.

The fashion brand Hermès filed a lawsuit against artist Mason Rothschild over an NFT project he launched entitled “MetaBirkins”. The project featured a variety of digital mock Birkin bags with everything from mammoth tusks to famous paintings. 

According to Hermès, the collection violated their trademark rights and was attempting to trade on their good name to sell NFTs. The case ultimately went before a New York jury, which found that Rothschild had infringed Hermès’ rights and awarded the fashion brand $133,000 in damages. 

Rothschild was estimated to have made about $125,000 off the 100 released MetaBirkins, which were each initially priced at $450 each. 

To make matters worse for both Rothschild and other NFT creators, the jury also ruled that NFTs are strictly commodities and not art that is protected by the First Amendment.

Rothschild decried the jury verdict, saying that it was a great day for large companies but a terrible one for artists. However, Hermès lauded the ruling, saying that their brand was the reason that the NFTs were popular and that they had a right to protect their trademarks.

Likely Implications

In the United States, the implications of this ruling are potentially very dire for creators of certain NFTs.

The reason is because of the Rogers test. Under trademark law, a work is allowed to use a trademark if the work is artistically relevant. However, that threshold of “artistic relevance” is extremely low. 

That judge had earlier denied a motion by Rothschild to dismiss the case because he felt Hermès raised a genuine question whether Rothschild used the name “MetaBirkins” as an artistic expression or solely to associate it with the brand.

The jury, ultimately, sided with Hermès and, while the case is very fact-specific, it points to a broader skepticism about the artistic relevance of NFTs. In short, the jury said that the use of Hermès trademarks were not artistic and, instead, were an attempt to trade on the name. That doesn’t bode well for other NFT projects that base their theme on someone else’s trademark.

Furthermore, while this case deals with trademark and not copyright, it’s easy to see similar arguments in a copyright case. With copyright in the United States, the more transformative a work is, the more likely it is to be ruled a fair use. This includes using the work in an artistic method that is meant to change the meaning of it. 

If basing an NFT off a copyright-protected work is seen with similar cynicism, it could bode very poorly for a fair use argument. However, that would require a separate case to see how it fares.

Bottom Line

Both of the cases above are old lawsuits that were filed during halcyon days for blockchain-based technologies. Though cryptocurrencies and NFTs still have their supporters and advocates, they don’t enjoy the public awareness and popularity they once did.

However, that doesn’t mean that the legal cases surrounding them end. As these two rulings show, those cases are continuing and may have impacts well beyond the blockchain.

In the end, that’s the nature of the legal system. Cases take time and, just because others have moved on from whatever the case is about, doesn’t mean that the legal implications have ended. 

So, for those interested in copyright and trademark issues, we’re likely going to be hearing a lot about the blockchain for many years to come. Whether we want to or not…