The first case in relation to NFTs and copyright infringement in China was ruled on April 20, 2022, referred to (2022) Zhe 0192 Min Chu No. 1008 Civil judgement, which has attracted great public attention since it determines that NFT trading platforms should conduct intellectual property due diligence prior to the publication of NFTs, otherwise they are supposed to be liable for users’ copyright infringements.
In this case, the defendant, known as NFT trading platform, works as a digital market to allow particular users to create and sell NFTs. According to the claim raised by the plaintiff, the platform owner has an obligation to exercise reasonable efforts to make sure the lawful right of NFTs in transaction. However, they failed to meet the above expectation and provided a channel to its users to earn illegal profits. Therefore, the claimant insists that the platform should pay compensation to make up their loss. As declared in this decision, the judge supported the plaintiff and determined the role of the platform as aiding infringement.
To understand the verdict, it is necessary to look through business mode of NFT platforms in China. Since a NFt transaction is under strict government supervision, and normally only valuable art collections are included in NFT market. Moreover, domestic NFT platforms are actually accessible limited to its membership. In other words, only those who receive platforms’ official invitation can join the game. Compared to other forms of online service providers which are totally open to the public, it makes sense that NFT platforms are obliged to take higher precaution responsibility of IP rights checking on their NFTs.
Apart from conducting IP due diligence, there are other situations which might cause legal punishment which NFT platform operators should be aware of, such as failing to perform ‘notice-deletion obligation’ without reasonable excuse when receiving complaints from interested parties; refusing or delaying forwarding complaints to relevant users; or taking passive attitudes towards malicious claims. If the platform commits any of the above-mentioned activities which incurs the damage against IP right owners, they shall be required to assume joint responsibility alongside with direct infringing parties.
For daily operations of NFT platforms, this case also provides guidance to platform owners in relation to identification and formulation of risk management.
- Performing IP due diligence covering initial evidence which could prove the copyright ownership of NFTs, such as original draft of the work, lawful publications, copyright certificate and other official statement issued by governmental authorities.
- Introducing burden-sharing scheme with users in case of infringements. For example, charging users a certain amount of deposit to assure the legal right of their NFTs.
- Creating customer service protocol for handling complaints. Efficient and quick response always help to relieve the liability for damages even when they are not negligent.