Milan Fashion Week and Fashion Law Trends: the liability of NFT marketplaces for infringing content

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After two years of digital shows, Milan Fashion Week is finally returning to the city and we’re proud to announce that our fashion law column is back too. In this series of articles (one for each SFM day) we will highlight those that we believe are the top fashion trends from a legal perspective in intellectual property, data protection and consumer law. So we hope you enjoy our return as much as the fashion shows and cocktail parties! This is all the more so since all the authors of the contributions are the (and hopefully fashionable) lawyers of the Italian IPT team.

Everyone knows the importance of a designer’s debut in a fashion show, so with our first article, we also want to start big by introducing the topic that last year revolutionized many industries, including certainly fashionable: NFT, crypto art and the protection of intellectual property rights in the metaverse. In fact, it is now clear that the real value of NFTs and unique avatars like the CryptoPunks collection is that they are status symbols, guaranteeing their owners recognizability and membership in an exclusive community, just as it is. produced with luxury and fashion.

Those who follow us regularly know that we have already dealt with the main legal implications of NFTs and the first cases related to them in the fashion industry here and here, so we will now go further and try to understand the remedies available. . for rightholders and the liability regime applicable to NFT marketplaces for infringing content. If you approach this market as a seller or a buyer, you have probably wondered how platforms like OpenSea, Rarible, etc. guarantee that the NFTs for sale do not infringe the intellectual property rights of third parties? What can a brand do to remove infringing content from platforms and what obligations do platforms have in this regard? What if the NFT had already been sold in the meantime?

Given the incredible amount of money at stake, especially when successful brands or collections are at stake, we are seeing the proliferation of fake NFTs related to the artworks and brands of others without the authorization from the owner of the rights as well as fake accounts selling them, resulting in allegations of trademark and/or copyright infringement.

Indeed, since marketplaces do not provide a system to authenticate their users and verify that they have obtained the appropriate rights before minting and/or selling the digital asset, NFTs can guarantee ownership but not authenticity because if the information originally entered is false or in error from the start, the NFTs will confirm and perpetuate this falsehood in all its future sales. Just to give you an idea of ​​the phenomenon, OpenSea recently reported that it had seen an “exponential” increase in the “misuse” of its free typing tool and that “more than 80% of the items created with this tool were plagiarized works, fake collections and spam”.

However, in most cases, it is impossible to identify the seller who listed the NFT on the platform and, especially when the number of counterfeits is high, rights holders act directly against the platforms.

Just a few days ago, a lawsuit was filed in the United States against OpenSea after a famous Bored Ape NFT was stolen in a hack on the grounds that, according to the owner of NFT, the platform form breached its fiduciary duty, trust, contract and implied contract by failing to adopt an appropriate security system. In another case involving the Cipher Punks collection with 450 NFTs featuring the fathers of blockchain and cryptocurrency without their consent to use their likeness, the platform failed to act fast enough and the creative team took action. decided to destroy the collection, to redeem the NFTs purchased from the buyers, and to reimburse those who had already invested.

In particular, like social media platforms and e-commerce marketplaces, NFTs and crypto-art platforms can also qualify as a hosting provider and are subject to the applicable liability regime. to Internet service providers.

According to Italian law, pursuant to article 17 of Legislative Decree no. 70 of April 9, 2003, which implemented Directive 2000/31/EC on electronic commerce, since hosting providers, marketplaces such as OpenSea, Rarible, etc. do not have a general obligation to control the legality of content published by users on their platform. However, upon notification of the rights holder, the latter has the obligation to take action to remove the illegal content when its infringing nature is proven.

In addition, in its decision of October 3, 2019 in case C-18/18, the CJEU considered that the Internet service provider could also be required to remove content equivalent to content deemed illegal. Therefore, platforms may be asked to remove any other NFT with the same characteristics (i.e. containing the same infringing content) as the contested NFT.

To this end, major marketplaces have adopted a notice-and-takedown system not dissimilar to eBay or YouTube, allowing rights holders to request removal of infringing content directly through the platform by including URLs relevant. In most cases, the platforms seem to be collaborative, but the timing may be delayed and such a procedure does not allow the complainant to know whether the NFT has already been sold in the meantime, to whom and at what price.

Therefore, rights holders could also consider sending a cease and desist letter to the platform to request it not only to remove the infringing content and accounts, but also to disclose the aforementioned information on the sales.

If the supplier fails to comply with these requests, under Italian law, a temp worker a procedure can be initiated to seek a “dynamic injunction”, i.e. an injunction extended not only to the NFTs available on the platform at the time the legal action is brought but – on indication of the right holder – also to the following NFTs offered for sale which present an objective and subjective continuity with those which were the subject of the initial injunction.

Here are some steps that, based on existing laws, rights holders could take to enforce their intellectual property rights in the metaverse. However, some lawsuits have already been filed (mostly in the US) and major platforms are considering additional tools and measures to police the market, so more metaverse-related remedies are likely to be enacted.

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