NFT Infringes Copyright and Determination of

OSP’s Legal Liability First Made by a Chinese Court

Attorney Le Quang Vinh – Bross & Partners

Email: vinh@bross.vn

(Source of picture: WeChat account of Hangzhou Internet Court)

On April 22, 2022, the Hangzhou Internet Court, China first time heard the copyright infringement case relating to non-fungible token (NFT). According to Fortune.com, NFT market sales in 2021 grew 21,000% with a record of 17.6 billion USD.[1] Below Bross & Partners briefly introduces the first-ever ruling of a Chinese court regarding NFT-based copyright infringement and how to determine legal liability of the intermediary service providers (OSPs or ISPs)

NFT Infringes Copyright and OSP's Secondary Liability

The case originates from the fact that the Plaintiff, Shenzhen Qice Diechu Cultural and Creative Co., Ltd who is authorized by the famous artist Ma Qianli - the author and copyright owner for the artwork "a fat tiger being vaccinated” (as shown above), discovered that an end-user created and offered for sale NFT digital artwork on the platform named BigVerse that matched the Plaintiff’s copyrighted artwork "a fat tiger being vaccinated"

The defendant, Hangzhou Yuanyuzhou Technology Co., Ltd., a company that operates a NFT marketplace called BigVerse on which include digital artworks, is accused of infringing upon the exclusive right of dissemination of copyrightable works to the public.

The Plaintiff brought action and asked the Court to force the Defendant to stop the infringement and compensate over $15,000, contending that Bigverse has a higher obligation than other platforms because it is a specialized NFT trading platform, which means that the Defendant is obligated to protect the other’s intellectual property rights apprearing on its platform by reviewing whether there is any end user creating and selling NFT artworks on its marketplace without the rightholder’s permission or not. The Plaintiff further alleges that the Defendant not only failed to fulfill that surveillance duty, but also charged an end user transaction fee against sale of NFTs that infringed the Plaintiff's copyrighted artwork.

Objecting to the Plaintiff's claim, the Defendant argued that it is just an OSP acting as an intermediary service provider and shall be exempted from legal liability for copyright infringement made by the end user. And moreover, the Defendant defended that it has only obligation to remove the infringing work upon having received a take-down notice by the right holder.

According to judgment no. (2022) Zhe 0192 MinChu 1008 Hao, the Hangzhou Internet Court decided that the fact that Defendant had failed to perform his obligations as an OSP and was therefore not exempt from liability for copyright infringement committed by any end user. Therefore, the Defendant was forced to cease the infringement and compensate the Plaintiff an amount of 600 USD.

Determining Legal Liability of ISPs/OSPs in China

The 2006 Regulation on the Protection of the Right of Communication Through Information Networks (the “Regulations”) which is involved in the implementation of the Chinese Copyright Law aims to build up a legal basis to deal with online piracy. The Regulations also have the safe harbor provisions applicable for internet services providers or online service providers (ISPs or OSPs).

Article 20 of the Regulations stipulates that ISPs that only transmit in the telecommunications network the information provided by its users (mere conduit) shall not be liable if they do not select or alter transmitted works or does not make the transmitted works only available to the targeted recipients rather than the general public.

Article 21 exempts ISPs from liability for automatic storage service (automatic caching) if they do not alter the transmitted works and does not affect the access of the original content provider.

Article 22 provides for that ISPs that provides network storage services (hosting services) for subscribers are not responsible if they do not alter the transmitted works, do not know, or have no reasonable reason to know that the data transmission is an infringement, nor does it benefit directly from such transmission. Article 23 of the Regulations waives liability to ISPs that provide searching or linking services if they immediately remove or disables access to the infringing content upon receipt of a take-down notice from the right holder.

However, the Regulations also state that in order to be exempt from liability, ISPs that provide hosting services must immediately remove the infringing digital content after receiving a take-down notice from the right holder.

In determining whether an ISP infringes a copyrighted work, courts in China generally carefully and prudently analyze the following factors: (1) is the ISP aware of copyright infringement by end user or not; (2) intent to infringe; (3) what is ISP's material contribution to the infringement; (4) the ability and right to control access or infringement; and (5) direct financial gain arising from the infringement.[2]

Bross & Partners, an intellectual property company ranked First (Tier 1) by Legal 500 Asia Pacific, has experience in resolving complicated IP disputes including trademarks, copyrights, patents, plant varieties

Please contact: Vinh@bross.vn; mobile: 0903 287 057; Zalo: +84903287057; Skype: vinh.bross; Wechat: Vinhbross2603.