NFTs And The Metaverse: Another Legal Landmark On The European Stage

The landmark Italian ruling between Juventus F.C. and Blockeras s.r.l. at the end of last year, notably the first time a European court has deemed an NFT to be infringing IP rights, has been followed by another milestone European judgement in the field.

Indeed, in a case between VEGAP and Punto FA, the Commercial Court of Barcelona, Spain, has issued a partial preliminary injunction ordering the custody of several supposedly infringing NFTs until the case’s main proceedings have been closed. Providing further legal precedent in what is a significantly uncharted international legal terrain, this case is novel in its interface of issues of IP rights on artworks, NFTs and the metaverse, as well as in the court’s contriving of unique legal solutions in the face of such issues.

The case:

The Court of Barcelona’s preliminary injunction figures as part of a wider framework of proceedings instigated by VEGAP (Visual Entidad de Gestión de Artistas Plásticos), a Spanish collective society for artists, against Punto FA, trading as the renowned clothing chain Mango.

In March of 2022, Mango announced its plan to set foot into the metaverse, through the exhibition of NFT pieces, dresses and garments in the Museum District of the 3D virtual world Decentraland. These artistic pieces interpreted and took inspiration from the paintings of Spanish artists Miró, Tàpies and Barceló, and namely their respective works ‘Oiseau volant vers le soleil’ and ‘Tête et oiseau’, ‘Ulls i Creu’ and ‘Esgrafiats’, and ‘Dilation’.

Assuming the role of the artists’ collective manager, VEGAP subsequently sued Mango for copyright infringement, and for the illegal digitisation and unauthorised use of their paintings.
Indeed, by making digital tokens and publishing posts on the metaverse and NFT marketplaces, VEGAP argued that Mango compromised both the artists’ moral (right to integrity and dissemination) and economic rights (rights to reproduction, adaptation, communication to the public), and as such demanded that the Court prohibit the defendant from creating further NFTs, as well as requesting the withdrawal and compensation for those already in existence.

Mango’s defence: 

The defendant’s response to the above consisted in four principal arguments:

  • Owning the physical copies of all the works which they allegedly misappropriated, Mango primarily claimed to legitimately possess the right to publicly display them.
  • Secondly, the defendant argued that the digitisation and displaying of these works is not an unauthorised act, but rather constitutes the harmless or ‘safe use of the works’, which does not undermine the artists’ rights in any way.
  • Thirdly, Mango clearly distinguished between the processes of reproduction (infringement) and reinterpretation or reimagination (not infringement), affirming that their use of these artworks falls under the latter definition.
  • Moreover, since the formal NFT minting (creation) process had not yet taken place at the time of trial, and since the assets had thus not been officially recorded via blockchain technology, they remained in an un-downloadable and un-tradable state. Thus Mango further argued that the NFTs were not even in their possession, and that they merely existed as a listing on the NFT marketplace Opensea.

Innovation at the Court

After assessing the validity of the above arguments, in October 2022 the court made a preliminary decision that confirmed the claimant’s fulfilment of the prima facie requirement, and questioned the extent of Mango’s rights as owner of the physical works to then legitimately adapt and reproduce them digitally.

In order to discontinue the alleged infringement and to solve the issue of the NFTs’ possession until a final decision was reached, the Court subsequently devised a novel solution as follows;

VEGAP must create a cryptocurrency wallet, and provide a deposit of 1,000 euros. With Opensea’s cooperation, the NFTs will then be transferred from the marketplace into this software wallet. The wallet will be kept in the Court’s custody and safekeeping until a final ruling has been made.

Why is this ruling significant? 

Whilst not final, this first resolution constitutes an innovative precautionary measure which ensures the preliminary protection of rights and avoids common enforcement issues that commonly arise when dealing with NFTs. Indeed, given NFTs’ necessary immutable and perpetual nature, imposing legal sanctions to stop their circulation on the market can be challenging. There are a few possible solutions that can be adopted (e.g. the NFT can be transferred back to the owner of the infringed trademark, or alternatively, transferred to a genesis block or ‘zero-address’, which prevents it from being further circulated on the blockchain), but each come with their own respective challenges.

Although uncertainty remains, given that the NFT withdrawal is temporary and the modalities of custody are undefined, the Court of Barcelona’s ruling prevents Mango’s further infringement of the artists’ rights, whilst the claimant’s prompt legal action meant that this was done before the formal minting process took place.

What is more, the case’s very nature as an intersection of NFTs, the metaverse and IP rights is of great significance. It provides further precedent and clarity in modern and muddied legal waters, for which specific legal and regulatory structures, both in an European and worldwide context, are yet to be concretely built. Moreover, the Court’s ruling emphasises the need for legal thoroughness in the clearing of rights, and sounds a potent cautionary alarm for the adequate protection and safeguarding of such rights.

It remains to see how the main proceedings of this case will unfold, however, the Court of Barcelona has demonstrated an exemplary pragmatism and precautionary shrewdness in the face of the legal hurdles that the digital universe has, and will continue to pose throughout the physical world that it inhabits.