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Osbourne v Opensea: The Right to Freeze NFTs

The recent landmark ruling in the case of Osbourne v Ozone Networks Inc. trading as Opensea and Persons Unknown has potentially groundbreaking implications for the enforcement of Intellectual Property (“IP”) rights infringed by NFTs.

The Osbourne case confirms that the courts will treat NFTs in the same way as other property (assets) for the purpose of legal remedies: injunctions providing for the freezing of NFTs can be granted.

Below, I discuss the relevance of the Osbourne case to the enforcement of IP rights and NFTs, and why it is critical to seek legal advice without delay if you suspect your IP rights may have been infringed.

What happened in the case?

Two NFTs from the Boss Beauties series were stolen from the claimant’s digital wallet and transferred to two separate, third party wallets. The claimant sought and successfully obtained an injunction that froze (meaning they could not be disposed of or transferred on) the NFTs in the third party digital wallets pending the outcome of the case.

Why is this relevant to me? 

In respect of NFTs, the ruling in Osbourne has different implications, depending on how you are approaching an NFT:

    • As a Third Party IP Rights Owner – I have spoken in a previous blog about the threat to IP rights posed by NFTs – to copyright, moral and trade mark rights.

In a case of an infringement of IP rights, a typical remedy sought by the party enforcing their rights is the seizure and eventual delivery-up of the infringing item(s) (in addition to any financial compensation). This remedy is sought to stop any ongoing infringement, preventing further damage to the claimant’s business from the sale/use of infringing items.

It may be necessary to apply to the court for an injunction at the outset of the litigation, seizing the infringing items/assets, pending the outcome of the case.

Following Osbourne, being able to freeze an infringing NFT is a very useful and valuable enforcement method for an IP rights holder, preserving evidence and protecting the IP rights holder’s position.  Delay is a bar to an injunction, so if a third party has infringed your IP rights through an NFT, it is recommended that legal advice is sought as a matter of urgency.

    • As a Buyer – something I have spoken about in my previous article are the risks when buying an NFT, particularly when they can change hands for such large sums. It is not uncommon now for NFTs being minted to infringe a third party’s copyright, moral and/or trademark rights (such is the lack of due diligence in the process).

The risk for the buyer is that in purchasing an infringing NFT, they potentially buy a worthless crypto asset, which could lead to legal action against them. Following the recent Osbourne case, if it is suspected that the NFT you have bought infringes IP rights, it could be frozen such that nothing can be done with the NFT. It may also be that the eventual outcome at trial is the court ordering the delivery up of the NFT to the IP rights holder or the destruction of the NFT. Your only remedy as a buyer will then be a claim against the seller, which can be difficult if the seller is out of the jurisdiction (making enforcement expensive and difficult) and the seller may not be able to refund the purchase price if they have already disbursed the purchase monies.

Due diligence and legal advice are therefore recommended before buying an NFT, to ensure you understand the risks and mitigate those, where possible.

    • As an NFT Creator – I have spoken about the risks of being a creator of NFTs in another previous article: if the NFT you create infringes third party IP rights, then it can be subject to legal action, which can now include a freezing injunction.

It is therefore essential to obtain legal advice to ensure you have the necessary rights and permissions before minting any NFT using third party IP.

Conclusion

The importance of the Osbourne case cannot be underestimated. By establishing a new precedent in the crypto space, clarity and certainty is given in a rapidly developing area of law that is often unclear and uncertain.

It is important to be aware of the Osbourne case, and the recognition that the court has given to NFTs as assets which may be the subject of freezing injunctions.

If you are a buyer, due diligence is key before purchasing; if you are a creator, ensuring the rights and permissions are present is key before creating; and if you are an IP rights owner, taking action as soon as possible is key.

Delay is a bar to an injunction, so if a third party has stolen your NFT, or has infringed your IP rights through an NFT, it is recommended that legal advice is sought as a matter of urgency.

Will Charlesworth, a lawyer specialising in IP rights and NFTs can be contacted at will.charlesworth@saunders.co.uk

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