On July 13th, Opensea, the leading marketplace for secondary NFT purchases, delisted CryptoPhunks from their platform and threw the NFT world into a storm. Some people came to the defense of Opensea, claiming this is a good step in protecting the intellectual property rights of artists. Others bashed Opensea, because censorship and regulation can be the highest form of treason in a decentralized world. What most people don’t realize is that Opensea protected not only itself, but the people who use their marketplace from potentially huge legal repercussions.
First, some background. Opensea received what is known as a Digital Millennium Copyright Act (“DCMA”) notice. Under the DCMA safe harbor provision, online content providers get certain protections from copyright infringement liability so long as that provider has a policy which allows artists to provide notice and have the infringing works taken down. Most people are familiar with DCMA “strikes” from their favorite YouTuber or social media influencer complaining about getting strikes for having a copyrighted song playing in the background of a video from five years ago.
So while most people complaining about Opensea’s actions saw it as a CYOA move giving in to Larva Lab’s demands, what they might not know is that OpenSea saved them from themselves. Under the section 504 of the Copyright Act, any person who sells an infringing work, even if that person is a completely innocent actor who had no idea what they were selling violated somebody else’s copyright, is liable for actual damages or statutory damages of $750-30,000 per infringement. If that infringement is found to be willful (i.e., the person knew this was a copyright infringement but sold it anyways) that number bumps up to up to $150,000.
Let’s say you purchased 10 CryptoPhunks for 0.1ETH each because you enjoyed they were knockoffs of CryptoPunks and liked that middle finger/homage to the godfather of NFTs. Then, they started mooning and you were able to sell them all for 1 ETH each. If Larva Labs were to find out who you were (which, let’s be honest, for 99% of you that wouldn’t be hard), and convinced a court that CryptoPhunks infringed on their CryptoPunks, then you could be liable for 10 ETH (even though you only made 9ETH in profit) or up to $1.5 million! And that’s just statutory damages. If they can prove you devalued their copyright as a whole you are looking at even more damages. Add in the costs of hiring an attorney to defend you and you better hope your other investments paid off. Thanks to the wonders of the blockchain, those sales are forever memorialized. So after Larva Labs is done going after you they can go after who you purchased it from, and who you sold it to, and everybody else in that line of ownership.
The take-away from this situation is next time you are thinking about purchasing a Bored Drape Rug Club or some other NFT which toes the line between parody and intellectual property theft, ask yourself if its worth the legal headache and potential damages if the NFT world ever stops being so friendly and starts getting litigious.
If you have any questions or would like me to write about anything else NFT and legally, let me know on either of my twitter pages! As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.