The United Kingdom Court considers NFTs as ‘private property

At the beginning of May, the High Court of Justice in London, the closest counterpart to the United States Supreme Court, decided that nonfungible tokens (NFT) are “private property,” causing the British Web3 community to exult. According to the court’s conclusions, this private property status does not extend to the real underlying content that NFT represents. Cointelegraph asked legal experts to determine how this verdict might impact the legal climate in the United Kingdom.

Boss Beauties Robbery

Lavinia D. Osbourne, the organizer of Women in Blockchain Talks, tweeted in February 2022 that two digital pieces from the Boss Beauties, a 10,000-NFT collection of powerful women created by “Gen Z change-makers,” had been stolen and placed on the New York Stock Exchange.

Among other things, the tokens provide access to special events, free publications, and licensing costs. The stolen things from her MetaMask wallet, according to Osbourne, finally emerged on the OpenSea market. Mitmark, a security, and intelligence firm assisted her in tracking down the NFTs.

The matter was brought to court in March, and The Art Newspaper reported on April 29 that the United Kingdom’s High Court has recognized NFTs as legally protected property. Furthermore, the court issued an injunction freezing the assets of Ozone Networks (OpenSea’s host) and ordered OpenSea to produce information on the two account holders in possession of the stolen NFTs. The Boss Beauties 680 and 691 NFTs were later withdrawn by OpenSea.

Because the wallet owners’ identities are unknown, an injunction was filed against “persons unknown.” Stevenson Law Firm described a freezing order as a “draconian (i.e. antiquated and punitive) remedy” and a “legal nuclear weapon” in its response to the ruling.

Following the court’s decision, Osbourne announced triumphantly:

“Women in Blockchain Talks was founded to open up the opportunities blockchain offers to anyone, regardless of age, gender, nationality, or background. This case will hopefully be instrumental in making the blockchain space a safer one, encouraging more people to interact with exciting and meaningful assets like NFTs.

The token and the asset

The case’s counsel, Racheal Muldoon, stressed the judgment’s “uttermost significance,” noting that it “eradicates any question that NFTs are property in their own right, independent from the commodity they represent, under the law of England and Wales.” However, it is exactly this characteristic that has led several experts to question the decision’s revolutionary importance.

While the IRS presently regards NFTs as property, the proclaimed separation between the token and the underlying asset does little to address the existing regulatory gap in the UK and the US. “So if you have a token, you have a token. But not necessarily any rights in anything else,” said Juliet Moringiello of Widener University’s Commonwealth Law School.

In her opinion piece on the subject, Emily Gould, associate director of the Institute of Art and Law, said that over the past few years, U.K. court judgments, legislative changes, and governmental research have converged in recognizing crypto assets as property. She referenced AA v. Persons Unknown as well as the “Legal statement on crypto assets and smart contracts” research published in 2019 by the LawTech Delivery Panel’s UK Jurisdiction Task Force.

What’s going on?

“It is now unambiguous that NFTs are governed by the same property laws in the U.K. that govern all other property. It sets a great precedent for people investing in NFTs that the court system, at least in the U.K., will protect their property rights.”

Even though the court found against OpenSea, Graham considered the court’s injunction as an “interesting precedent.” This is critical when it comes to judges issuing injunctions in cases where NFTs have been stolen. He continued:

“I don’t think NFTs being recognized as private or personal property is much of a surprise. You can buy, sell or trade NFTs, which essentially points to them being personal property on first principles. It would have been more shocking had the court held that NFTs were not personal property.”

Aquanow’s chief compliance officer, Anna Trinh, said that although the judgment is not novel, it does have “executive relevance.” Establishing a legal precedent that verifies what the majority previously believed to be true may give NFT platforms more confidence in demanding the freezing of bad actors’ accounts. Trinh stated:

“It is not strange to me that NFTs are viewed as private or personal property. NFTs may be bought, sold, and exchanged, implying that they are essentially private property. It would have been even more astonishing if the court ruled that NFTs are not personal property.”

Trinh believes that the present legal protections for the underlying assets are adequate. These are governed by the terms of the contract at the time of purchase, therefore depending on the nature of the asset, contractual and intellectual property law may apply. According to Trinh, authorities should prioritize more serious legal issues such as the author’s rights.

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