There has recently been the result of the first and unique NFT infringement case in China. The decision ruled, in this case, will have immense consequences for the entire nation of China and potentially, the world.
On April 20th, 2022, the Hangzhou Internet Court held an online public hearing in the dispute between Shenzhen Qicediechu Culture and Creative Co., Ltd. (“the Plaintiff”) and Hangzhou Yuanzhou Technology Co., Ltd, an NFT (“Non-Fungible Token”) platform trading as “Bigverse” at www.nftcn.com.cn (“the NFT platform”).
The dispute is about the right to share information over the network regarding a comic work called “Fat Tiger Vaccination”.
As its name, the work details a fat tiger wearing a mask, shaken visibly as a doctor, who is also somewhat nervous, is trying to give it a dose of vaccination.
The tiger skin is removed comically as a kind of shirt while ‘the tiger’ is seen breathing heavily, expressing his worries about the vaccination.
The Plaintiff of the lawsuit, Shenzhen Qicediechu Culture and Creative Co., Ltd., is the exclusive copyright owner of the cartoon series “I am not a fat tiger” (“Fat Tiger”) created by the cartoonist Ma Qianli.
The cartoonist had posted the work “Fat Tiger Vaccination” on their Weibo account named “Uncle Bu Er Ma” in December 2021. Weibo’s watermark was automatically applied to the image when it was published on weibo.com.
Plaintiff discovered in March 2022 that an NFT work called “Fat Tiger Vaccination” was available for purchase for RMB 899 on the NFT platform “Bigverse” (www.nftcn.com.cn).
Not just the name, but this NFT work also bares the same image as the work by Ma Qianli on weibo.com, even including Weibo’s watermark and documenting Uncle Bu Er Ma as the creator of the NFT work.
Uncle Bu Er Ma was indeed the creator of the Tiger work but not the NFT variation of such work, and furthermore, the author isn’t notified or received any compensation for even being credited here.
QiCeDieChu was authorized by the author to enjoy exclusive copyright in the series of works worldwide. Therefore, it argued that the use of the artwork as an NFT infringed upon its exclusive rights.
Consequently, Shenzhen Qicediechu Culture and Creative Co., Ltd. sued the NFT platform for infringing on its right to disseminate information over a network concerning the cartoon work.
Arguments and reasons
The defendant, Hangzhou Yuanzhou Technology Co., Ltd, or Bigverse, argued that they are not liable for the infringement action of the uploader of the cartoon work.
They stated that Bigverse was a third-party platform and therefore, they are just a ‘platform’ that has the responsibility to control the work uploaded on their platform, which they did.
As for the infringing nature of the work uploaded on their platform, Bigverse sees that they should bear no responsibility.
They tackle that violation by reviewing the contents after it has been posted through the mechanism called “post review” in which they will notify the parties related and delete the contents.
Regarding the case, Bigverse said that they have already put the disputed works into an address ‘black hole’ and fulfilled the obligation of notification and deletion after the work has been posted.
As per the specific blockchain and node location of the NFT corresponding to the work involved, Bigverse said that they don’t have the obligation to reveal that as this is not expressly stipulated by the law.
However, the court doesn’t agree with Bigverse, stating that post-review is not enough. The platform needs to provide more care to the work on their platform. They ruled that the NFT platform is liable for its failure to fulfill its duty of care to verify the copyright owner of the work when approving the NFT.
As punishment, the NFT Platform Bigverse must delete the NFT work on their platform and compensate the plaintiff for losses of a total of Rmb4,000 (US$620) – Qicediechu originally sued for compensation of Rmb100,000 (US$14,900).
The outcome of the case
The term “metaverse” was first mentioned by author Neal Stephensen in 1992 in the science fiction novel “Snow Crash.” It depicts a virtual world where people interact with each other through digital avatars. Movies like The Matrix and Ready Player One are the best examples of this idea.
However, it was only when it was mentioned by Mark Zuckerberg, CEO of Meta, during an event in June 2021 that it started to get world recognition.
In parallel, consistently with the metaverse, are non-fungible tokens, intangible assets with value. Yet, in China, the expansion of metaverse and NFTs are highly limited because the Chinese government is extremely firmly opposed to cryptocurrency.
Therefore, in this jurisdiction, NFTs are called “digital collections” rather than “tokens.” It is treated as a digital commodity stored on the blockchain which can be bought and sold online.
Although there have been some articles and provisions in the China Law to deal with data and network virtual property but overall, it is very limited.
Therefore, many NFTs scammers and violators use this situation to think that they can bypass the law, such as in the case of Bigverse and the uploader of “Fat Tiger Vaccination” on this platform.
However, with this first-of-its-kind judgment in an NFT case, violators in the metaverse world need to be more cautious as they now know that China is not the country to be messing with.
From a legal perspective, the decision of the court also has many major implications for future conflict in the NFT area or more specifically, the arguments with virtual network properties.
According to the Hangzhou Internet Court, an NFT trading platform is a new type of network service provider in terms of transaction mode, technical characteristics, platform control ability, and profit mode. The transaction fee of NFT digital works can provide direct economic benefits to the NFT trading platform.
Therefore, it’s easy to understand why the NFT platforms may seem to downgrade their security on the rights of the works, to make more profits, as they won’t make much money by limiting the transactions on their platform.
However, with this ruling, the platform from now on must have the ability to review and remove NFT digital works and must do it tighter, on a regular basis to the best of their capability.
As a result, the digital collection trading platform should bear the obligation of ‘notice deletion’ not only after when the work has been posted, creating impacts on the market, but also a higher duty of care in advance before such work ever makes it to the surface like a pending work mechanism.
Furthermore, the court emphasized the need for an innovative approach in order to stop the infringement of NFT digital works, not just the passive mechanism applied right now, as it can’t delete the NFT works entirely on the platform.
Because the trading of NFTs combines the technical characteristics of blockchain and smart contracts, the NFT cannot be deleted on all blockchains once the transaction transfer is completed.
As a result, to stop the infringement, the infringing NFT digital works must be disconnected from the blockchain and enter an address ‘blackhole’ like what Bigverse claimed that they have applied in this case to the “Fat Tiger Vaccination” NFT.
The decision is also significant for Chinese and foreign companies looking to actively protect their rights in China’s NFT space.
Furthermore, it should be noted that cases like the aforementioned infringement of unauthorized NFT works are just the tip of the iceberg in a slew of NFT piracy issues.
You can find a list of China IP firms here.