The first Italian judgment granting a preliminary injunction concerning NFTs (that were deemed to be infringing trademark rights, see our post here) has been followed by another European judgment on the matter: at the end of October 2022, the Commercial Court of Barcelona issued a partial preliminary injunction, ordering the custody of the allegedly infringing NFTs in a wallet to be safe-kept at the clerk of the Court and a bond of Euro 1,000.00, pending the decision in the main proceedings.
This preliminary injunction fits into the broader framework of proceedings on the merits instigated by a Spanish collecting society (VEGAP, Visual Entidad de Gestión de Artistas Plásticos) against Punto FA, trading as Mango, namely the well-known Barcelona-founded clothing company, and aimed at declaring that Mango infringed the copyright on five paintings by creating NFTs and posts starting from those works and using them “on the Metaverse and on the NFTs’ marketplaces”, Opensea in particular, on social media and in the brick and mortar store of the clothing chain in New York. VEGAP also requested the Court to enjoin the defendant from creating NFTs and order them their withdrawal, along with damages compensation.
More in detail, VEGAP acted on behalf of the rightsholders of the works by Mirò, Tàpies and Barcelò, alleging that this unauthorized use of “Oiseau volant vers le soleil” and “Tète et Oiseau”, “Ulls i Creu” and “Esgrafiats” and “Dilatation” infringed both moral rights (right to the integrity of the work and disclosure of the work) and economic rights (right of reproduction, communication to the public and adaptation of the work).
In its defense, Mango argued that (a) being the owner of the copies of physical works, it has the right to publicly display them; (b) the creation of digital works starting from physical works and their display do not amount to unauthorized use (so-called “safe use”) and does not damage the authors; (c) it has correctly disclaimed that those digital works were the result of the adaptation of the original, physical works of those authors; (d) the NFTs have not been minted yet, i.e. have not been published on a blockchain, thus it cannot be downloaded, bought and traded but can only be viewed on the marketplace and (e) the NFTs had not been transferred into a wallet of the Group, thus it cannot access the NFTs while they are on the marketplace.
In light of the above, the Court is now called, in the main proceedings, to assess the extent of the rights of Mango as the owner of the original, physical works (or rather, of the material support of the works), i.e. to rule whether turning works into NFT goes as infringing adaptation of the work or whether, on the contrary, owning the work grants the right to exploit it in such a manner and, finally, whether Mango made a “safe use” of the works that not required authorization from the authors. On a preliminary basis, however, the Court recognizes that the motion met the prima facie case requirement, as it is questionable that such a right of display of the owner of the physical copies extends to the right of reproducing and adapting the works by creating NFTs incorporating those works or that it can be considered as “safe use”.
Thus, although the decision is issued at a preliminary stage and involves mainly procedural aspects, it preludes to a groundbreaking judgment on NFTs and copyright issues. If it is undisputed that the owner of the material support of the work gains no economic rights on the work itself – unless provided otherwise –, it is not as crystal-clear whether the digitalization of physical works is a safe adaptation of it. Moreover, as raised by the claimant, further uses of the NFTs (such as their minting and trading) imply the exploitation of other economic rights of the author, i.e. the right of reproduction and communication to the public. In such a doubtful context, careful due diligence of the rights acquired on the work shall be in order for the owner of the corpus mechanicum.
Even though the Court dismissed the issue on the merits, reserving the final decision to the judge of the main proceedings and focusing mainly on procedural issues – in particular, on the requirement of danger in delay –, the judgment is still remarkable, at least because of the – in principle – smart and innovative precautionary measure that the Court came up with.
As anticipated above, in fact, the Court, eager to give proper preliminary protection of the rights of the authors, ordered the custody of the NFTs “by the clerk of the Court, in a wallet to be made available by the claimant” until a final judgment is granted, on the following grounds.
First, the Court rebutted the main arguments of the claimant that feared that Mango could keep infringing the rights pending the proceedings on the merits, because the defendant proved to have ceased the use of the works and, additionally, the NFTs were withdrawn and de-listed from Mango’s showcase page on the marketplace and that, in any case, it has no access to those NFTs as they were not transferred to its wallet.
Nevertheless, despite these measures that the defendant itself has spontaneously adopted with the cooperation of Opensea, the Court found to be a certain yet partial danger due to the lack of safety guarantees that the mere stop from making available the NFTs on the marketplace offers; in fact, the withdrawal was temporary and, in the Court’s view, the modalities of the custody are uncertain, also considering that Opensea has been frequently attacked by hackers that have tried “to steal “juicy” NFTs, like those at stake”, thus the risk that the final judgment on the merits will have no effect is real. However, having Mango ceased to use the works both in the physical and in the digital world and not being the NFTs at the disposal of the clothing company, the Court addressed the injunction only to Opensea and with reference only to the NFTs – hence the “partial” danger.
Kudos to the Court, but kudos especially to the claimant who acted fast and avoided that the NFTs were put on the open market, where Court measures, as smart and innovative as they can be, could in practical terms face a number of “enforcement dilemmas”. In this case it is interesting to note that Mango claimed to have not minted the NFTs yet, something that could sound a bit strange but, in fact, looks possible under the NFTs creation “rules” of Opensea, which has implemented a “lazy minting” procedure, allowing “creators to make NFTs without any upfront gas cost, as the NFT isn’t transferred on-chain until the first purchase or transfer is made” (for a quick and easy explanation see https://opensea.io/blog/announcements/introducing-the-collection-manager/).
Also in light of such technical considerations, the decision by the Barcelona Court reveals itself as one of the most interesting among those first judgements – on a global stage – that, although still raw, are the first bricks in a wall of rules and case law that is being slowly built. Moreover, especially in our European and comparative system of law, it is important to glance at what other countries rule, to increase the chance of contributing to this wall.
An English machine-translation of the judgement is available here.