The 10 Best Worst NFT Disputes of 2021
Image: Gaakmann, Great Redistribution of the Climate Change Disaster, 2021.
As we come to the end of what has turned out to be a surprisingly spectacular year for the development of NFTs, it’s time to reflect and learn from the many legal issues that have arisen in this space. From a burnt Banksy to a fake sale, a Pulp Fiction stand-off to Stormtrooper helmets, there was no shortage of entertaining, mind-bending scenarios. Here’s Guest Work Agency’s wrap up of the best worst NFT disputes of 2021.
1. The Burnt Banksy
The ‘Burnt Banksy’ stunt, which occurred in March of this year, is one of the earliest examples of an NFT brushing up against the law. A 2006 Banksy screen print entitled Morons (White) was bought by Injective Protocol, a blockchain firm whose aim is to “inspire” tech enthusiasts and artists. The Banksy print was burnt and destroyed in a livestreamed video which was then minted as an NFT and sold for 228.69 Ether (at the time of sale the equivalent of USD $380,000) on Superfarm. “We view this burning event as an expression of art itself,” said Mirza Uddin, a spokesman for Injective Protocol. Uddin added, “[w]e specifically chose a Banksy piece since he has previously shredded one of his own artworks at an auction.” Fast-forward 10 months or so, and we’re still scratching our heads at this one – how does Banksy’s original stunt give legitimacy to the destruction of artworks by others?
February and March also saw a number of spin-off Banksy works being sold as NFTs on OpenSea and Rarible by a user named Pest Supply. Pest Supply says their work examines “how value can be created from satire” and that they “meticulously create art that’s not the exact same copy of Banksy, but with style inspired by Banksy while focusing on different concepts, objects, and events that may impact the society or the artist [sic]”.
Pest Supply has claimed to be working in the vein of Elaine Sturtevant, the late American artist whose practice was built on the precise repetition of other artists’ works playing on the concepts of authorship and originality. When Andy Warhol was quizzed about Sturtevant’s copying of his Flowers silkscreen series, he famously responded “Ask Elaine”. Banksy’s authentication body Pest Control has publicly stated that “there isn’t an affiliation in any way, shape or form” with Pest Control and the NFT series. While Warhol was willing to play the game, the real Banksy isn’t having a bar of it.
2. The Mars House
Collaboration is de rigueur these days, that is until one collaborator benefits from the project more than the others. One of the early well-publicised disputes in the NFT space concerned the first “NFT house” – MARS house. As part of the creation of Mars House, artist Krista Kim engaged a 3D-modeller to create visualisations of the house, and commissioned musician Jeff Schroeder of The Smashing Pumpkins to produce a soundtrack to accompany the visual elements. Kim minted the digital file of Mars House using SuperRare, and the NFT sold for 288 Ether (at the time equivalent to USD $514,558) in March 2021.
Interestingly, the description of the NFT included the conditions of purchase that “Krista Kim Studio Inc. retains ownership of Mars House NFT copyright. All rights reserved. All reproductions of Mars House (NFT) in both digital and physical formats, are restricted.”[1] Following the sale, the 3D-modeller described the sale as a “fraud” and that he had “created the project with [his] own hands, combined with her direction. I do possess the full intellectual property.”[2] Like many disputes involving more ‘traditional’ art transactions, the varying expectations of project collaborators tend to only be brought to light when a transaction involving the resulting artwork is about to, or already has, occurred.
3. The Twitter Escapades
In the past year a number of artists have had their digital files minted as NFTs and/or listed for sale on NFT platforms without their permission. For example, glitch artist Rosa Menkman discovered a work that she alleged to be hers had been minted on OpenSea without her knowledge. Her response was to ‘call out’ the copyist on Twitter. Tales from the Loop author Simon Stalenhag also took to Twitter when he discovered images of his artwork on the blockchain collectible marketplace Marble Cards.
Artist Derek Laufmann discovered a verified profile on Rarible impersonating him. Laufmann said to Verge magazine, “I dealt with having my art stolen for years. And I’m sort of numb to that. But when somebody is claiming to be you ... that kind of, you know, pisses me off.” Like Menkman and Stalenhag, Laufmnn also posted on Twitter about the situation.
The ‘calling out’ approach on Twitter continues to be a cost effective (yet risky) avenue that is regularly being used by artists to address NFT copycat situations. To help combat this issue, we recently heard that digital art platform DeviantArt has created a free copy-detecting AI to help alert artists to the misuse of their work.
4. The Basquiat
In the past year many art world heavy-weights have been drawn into the NFT hype, whether they have chosen to or not. One such example is the late Jean-Michel Basquiat, whose paintings have reached astronomical prices on the secondary auction market (Tiffany recently purchased a Basquiat work with the dominant background colour reminiscent of the Tiffany blue). In April, a firm called Daystrom listed an NFT of a mixed media on paper work by Basquiat, Free Comb with Pagoda, 1986, for sale on OpenSea. In the listing Daystrom claimed that the work was authenticated by the Basquiat Foundation in 2002 and offered “reproduction and IP rights that will be sold to the highest bidder in perpetuity.” Allegedly, Daystrom had even commented at one point that “best copyright practices have yet to evolve for the digital economy.”
Lo and behold, once news of the sale hit the press, Basquiat’s Estate swiftly stepped in and the listing was removed. A representative of the Estate told Artforum magazine that: “The estate of Jean-Michel Basquiat owns the copyright in the artwork referenced,” and that “[n]o license or rights were conveyed to the seller and the NFT has subsequently been removed from sale.”
5. The Music Album
2021 has also seen several NFT-related claims being filed in Court, particularly in the US. While the case is yet to be heard, the claim filed by Roc-A-Fella Records Inc. gives us some important clues as to what legal issues will be addressed in the dispute.
In June Jay-Z’s co-owned record label, Roc-A-Fella Records Inc. (RAF, Inc.), was granted a temporary restraining order halting the proposed sale by Damon Dash of his share of copyright in the album Reasonable Doubt – recognised as one of the greatest records in history – which Dash had listed for sale as an NFT on Superfarm.
SuperFarm had originally advertised the NFT as:
The auction of Damon’s ownership of the copyright to Jay-Z’s first album Reasonable Doubt. This marks a new milestone in the history of NFT’s, entitling the new owner to future revenue generated by the unique asset. The monumental event will last for two days starting on June 23 and concluding on June 25. SuperFarm is excited to host this truly remarkable auction and immortalize one of the world’s greatest artists on the blockchain!
RAF, Inc. filed a suit in the US District Court Southern District of New York on 18 June 2021. In the complaint RAF, Inc. noted that after several decades since Reasonable Doubt was first released, RAF, Inc. remains the sole owner of the rights in Reasonable Doubt, which it describes as its “most prized asset”. In particular, RAF, Inc. claims to “own the copyright and all rights, title, and interests to and in Reasonable Doubt, including, without limitation, right to sell, record, reproduce, broadcast, transmit, exhibit, distribute, advertise, and exploit the album.” Although Dash is a minority partner in Roc a Fella, RAF, Inc. argues that this does not provide him with the legal right to sell his share of the copyright to Reasonable Doubt as “Dash’s status as a minority shareholder in RAF, Inc., gives him no right to sell a company asset.” It is also questionable whether copyright attribution can even be sold as an NFT. This issue was expertly discussed by Associate Professor Tonya Evans in episode 59 of her excellent tech law podcast Tech Intersect. The United States Southern District Court of New York is scheduled to hear Dash’s argument as to why a permanent injunction should not be granted.
Another similar case filed around this time was the securities class action lawsuit filed by Jeeun Friel against Dapper Labs Inc. in July 2021. In this case Friel alleged that the defendant’s NBA Top Shot platform sold securities when it offered up NBA-centric NFTs, and as the NFTs were not registered with the Securities and Exchange Commission, their conduct has run afoul of U.S. securities laws. Whether NFTs can be categories as securities is a pressing, but otherwise unaddressed question in all jurisdictions. We recommend keeping an eye on this space,
6. The Pranksy Banksy
By September, yet another Banksy-related scam had arisen. This time a collector named Pranksy (yup, that’s right) bought an NFT titled the Great Redistribution of the Climate Change Disaster on OpenSea for over 100 ETH (then the equivalent of USD $330K), from a seller named gaakmann. The NFT image depicts an 8-bit style CryptoPunk smoking a cigarette, with factory chimneys smoking away in the background. Deep. A link to an image of the NFT had appeared on Banksy’s website, but within hours of the sale, the link was removed. Yet again, Banksy’s team was quick to clarify that the real Banksy “has not created any NFT artworks” and that “any Banksy NFT auctions are not affiliated with the artist in any shape or form”. In an unusual twist, following the publication of the story in the press, Pranksy contacted The Art Newspaper to report that the 100 ETH had been refunded to him.
7. The Beeple Collector
In October the first NFT-related claim was filed in a UK Court. Computer programmer and NFT collector Amir Soleymani is suing Nifty Gateway in the Queens Bench division of the UK’s High Court, alleging that there are unfair and thus unenforceable terms in the NFT platform’s Website Terms of Service (Website Terms), and that the Website Terms had been amended without notice between when Soleymani joined as a user, and when the sale in question occurred.
Soleymani opened an account with Nifty Gateway on 26 February 2020 with the username “Moindor”. As at the date of the claim Moindor had purchased 106 NFTs on Nifty Gateway (a seasoned NFT collector, you could say). Each NFT had been purchased by Soleymani via auction on the Nifty Gateway marketplace, where moindor was the highest bidder. Between late April to early May, Moindor had placed several bids on an artwork by Beeple titled Abundance. Moindor’s last bid of US$650,000.00 was overtaken by two other bidders, with the highest bid before the close of the auction reaching the equivalent of US $1,234,567.88. About a day after the auction ended, Nifty Gateway informed Moindor that he had been a “winner” in the Abundance Auction and that he would receive a numbered edition of the Beeple NFT corresponding to the position of his respective bid (being edition 3).
However, Soleymani argues that he placed his final bid, and all of his bids, with the intention of acquiring the original artwork offered for sale in the Abundance Auction and not the third or any other edition thereof. To prevent the Nifty simply deducting Moindor’s bid from his Account, Moindor then withdrew all of his monies from his Nifty Gateway account and did not pay the sum claimed by the Nifty, being the equivalent to US $650,000.00).
Nifty Gateway’s response to Moindor was to freeze his account, limiting Moindor’s ability to access and control other NFTs which he had paid for. In taking this step, Nifty allegedly relied on their Website Terms to give them the right to do so. They also allegedly referred to item 7 of the Website Terms, which was added in the months following Soleymani’s signing up to Nifty Gateway, and which include the following provision:
By placing an order on Nifty Gateway, you agree that you are submitting a binding offer to purchase the non-fungible token “Nifty” or service from Nifty Gateway, LLC. Your order is accepted and confirmed once purchase is complete, and Nifty Gateway displays the Confirmation Page (“Confirmation Page”). YOU HEREBY EXPRESSLY AGREE THAT THE SUPPLY OF NIFTY BEGINS IMMEDIATELY AFTER THE CONFIRMATION PAGE IS DISPLAYED.
On 20 July 2021 Nifty Gateway filed a Demand for Arbitration Form, requesting arbitration to take place in New York as the Website Terms included a disputes term which provided that any disputes had to be resolved in the jurisdiction of New York and had to go through Nifty’s preferred process of arbitration. In the Demand, Nifty Gateway alleged that in creating a Nifty Gateway account, Soleymani had agreed to the above-mentioned item 7. However, Soleymani argues in the particular that these were unfair terms under the UK Consumer Rights Act. By restricting Soleymani’s (and other users’) ability to take action in a UK based Court, the platform created a significant power imbalance between Nifty and its users, therefore rendering item 7 unenforceable. This is interesting as the question of which jurisdiction takes precedence in these disputes is still very much up in the air, and a matter for each court to decide when a relevant matter is before it.
8. The Fake Sale
On 29 October 2021 Punk #9998 sold for 124.450 ETH (which was then equivalent to US $529.77 million), the highest sale of a CryptoPunk at the time. After a Twitter Bot which tracks sales of Crypto Punks picked up on the transaction, the creators of CryptoPunks, Larva Labs, confirmed that the seller of Punk #9998 had bought their own punk using a ‘flash loan’. For a bit of context, flash loans use smart contracts and require the borrower to pay back the loan in the same transaction that it is lent out through. Hence the ‘flash’ in ‘flash loans’ – get it? According to Larva Labs, while these single transactions are “technically briefly valid, the bid can never be accepted.” Larva Labs then committed to “add filtering to avoid generating notifications for these kinds of transactions in the future.”
9. The Tarantino NFTs
Just last month it was announced at the NFT.NYC conference which is all about, yup, you guessed it, NFTs, that award winning film director Quentin Tarantino is going to join the frenzy and mint his own NFTs consisting of “exclusive content” from Pulp Fiction. Tarantino asserts that “[e]ach NFT contains one or more previously unknown secrets of a specific iconic scene from Pulp Fiction” and which would be viewable only by the NFT purchaser. These NFT’s are now the subject of a claim filed by Miramax against Tarantino and a few other related defendants. By way of background, this NFT project was a collaboration between Tarantino and the Secret Layer-1 blockchain network, which has partnered with OpenSea to mint and sell Secret NFTs. When it comes to Secret NFTs, only some of the metadata is publicly visible on the blockchain, other parts of its metadata are private or “secret” and only available to the holder of the NFT.
A claim was filed by Miramax in the United States District Court of the Central District of California on the 16th November 2021, just 14 days after the announcement was made by Tarantino and Secret. Miramax allege that Tarantino deliberately kept them out of the loop, noting that the Tarantino NFT’s were “particularly problematic because [Tarantino] had granted and assigned nearly all of his rights in Pulp Fiction (and all its elements in all stages of development and production) to Miramax in 1993.” In particular, the filed claim notes that under the original agreement between Tarantino and Miramax, Tarantino was only granted reserved rights to the “soundtrack album, music publishing, live performance, print publication…interactive media, theatrical and television sequel and remake rights, and television series and spinoff rights.” And even these rights were subject to restrictions, such as Miramax’s rights of first negotiation and last matching rights with respect to certain deals.
The claim says that Miramax were left with no choice but “to bring this lawsuit against a valued collaborator in order to enforce, preserve, and protect its contractual and intellectual property rights relating to one of Miramax’s most iconic and valuable film properties. Left unchecked, Tarantino’s conduct could mislead others into believing Miramax is involved in his venture. It could also mislead others into believing they have the rights to pursue similar deals or offerings, when in fact Miramax “holds the rights needed to develop, market, and sell NFTs relating to its deep film library”. The fact that this case touches on the legal issue of misleading conduct is an interesting one, and one that we have seen occurring in a number of disputes in a similar vein.
10. The Stormtooper Saga
Most recently we caught wind of the Stormtrooper saga. While a claim is yet to be filed in court, some of the parties have taken to the press to voice their grievances. The dispute concerns London-based curator Ben Moore, who created an ongoing exhibition of life-size Star Wars stormtrooper helmets which form the project called Art Wars and have been custom-painted by high profile artists like Damien Hirst and Yinka Shonibare MBE. Minted photographs of the helmets were made available by Moore on OpenSea. As the listings explained, “[f]or the first and only time, these iconic images, alongside a new set of interpretations from famous digital artists and our own in-house artists, will be made available as a collection of 1,138 unique and individual ArtWar NFTs. These will be randomly assigned to buyers of the initial mint.” According to the Financial Times, numerous artists who created versions of the helmets are considering taking legal action against the project. More than 1,600 ETH (the then equivalent of US $7 million) has been transferred since the collection of images was listed on OpenSea on 22 November 2021. The Art Wars NFT page on OpenSea was swiftly taken down on the same day. Interestingly, the U.K.’s Design and Artists Copyright Society (DACS), is handling media requests for the matter and have provided the following statement in relation to the Stormtrooper NFTs:
As the art market evolves with new and emerging technology such as NFTs, we must ensure that we protect both the creative, intellectual, and moral rights of artists. The minting of NFTs without artists’ permission has the potential to destroy how we as a society value creativity and within this, guarantee that artists are protected through existing intellectual property laws and mechanisms such as the Artist’s Resale Right.
We think that DACS’ sentiments are spot on, the ramifications of disregarding artist’s copyrights and moral rights in the NFT space will have disastrous effects on the protection of creative value. And if we don’t value creativity, then what?
So, to wrap up, we’ve seen the weird, the wacky, and the downright unbelievable when it comes to disputes in the NFT space in 2021. Here’s to another year in the evolution of art and tech…watch this space.
At the time of writing another NFT dispute has come to light, involving luxury brand Hermes and a collection of fluffy-looking ‘MetaBirkins’ NFTs. With thanks to Guest Work Agency Paralegal, Mia Schaumann for her edits on this piece.