Art collector’s lawsuit points to potential legal and contractual issues with NFTs
While Soleymani’s claim represents one of the first legal cases in the UK regarding the sale of NFT, it certainly won’t be the last.
The Abondance auction
Bidders for Abundance participated in a “ranked auction” on Nifty Gateway between April 30 and May 2, 2021, where the top 100 bidders each “won” a numbered edition of Abundance – the number corresponding to their position. respective offers. The best deal came from Ethereum co-founder Taylor Gerring, who received the first edition for $ 1.2 million.
When the auction closed, Soleymani was the third highest bidder and Nifty Gateway asked him to pay the value of his bid for a second edition of the work Beeple. However, claiming that he had only bid on the piece with the intention of acquiring the original work offered for sale and not another edition, Soleymani refused to pay Nifty Gateway the value of his third bid. square.
It is widely recognized that NFTs that are not a “first edition” have a significantly lower value than an “original” first edition. Therefore, if Soleymani were to auction off the second edition of the NFT “Abundance” as an individual lot, it would be highly unlikely that he would attract a bid close to his bid of $ 650,000 for the first edition.
In response, Nifty Gateway froze Soleymani’s account and access to his collection of approximately 100 NFTs on his site, estimated to be in the millions of dollars, and filed arbitration proceedings in New York in July against Soleymani for request payment of the unpaid amount.
Since then, Soleymani has taken legal action in the UK and a counter-suit in the US, where Nifty Gateway is based.
Why did the NFTs take off?
An NFT is a single, non-divisible digital asset that, unlike “fungible tokens” or fiat money – a government-issued currency that is not backed by a commodity – has no interchangeable value. NFTs are verified and powered using blockchain, a technology in which a network of computers records transactions and gives buyers proof of authenticity and ownership.
NFT owners have the ability to download and “create” the NFT with metadata or other related facets, such as images, 3D animations, video clips, and music. This process codifies the work, establishes a permanent record of price, authorship and provenance, and prevents the file from being infringed, altered or digitally deleted. As a result, no two NFTs are exactly the same, since each work contains unique digital properties.
Digital artists are therefore attracted by the ability of technology to integrate uniqueness, rarity, proof of provenance and even features linked to future sales of the work. For example, with NFTs, artists can embed code in the form of “smart contracts” to secure certain benefits, such as a continuing share of royalties from all aftermarket sales.
The popularity, value and importance of NFTs in the international art market have recently increased, with another work by Beeple – “Everydays: the First 5,000 Days” – breaking records when it reached 69.3 million dollars at a Christie’s sale earlier this year. This is the third highest award achieved by a living artist to date.
According to the 2020 NFT report, published by L’Atelier BNP Paribas and Nonfungible.com, the value of the NFT market grew by 299% in 2020. Nonfungible.com also said that more than $ 2 billion was spent on NFT. in the first quarter of 2021 alone.
While the creators of NFT and other advocates of “cryptoart” are excited about the huge sums poured into this emerging digital product market, some critics are put off by the speculative craze surrounding NFT and the resale market that has drives up prices, as well as the unique legal and regulatory problems that DTVs can create.
The Soleymani case illustrates the types of contractual disputes relating to the sale of NFT that can arise, but it remains to be seen how existing laws – for example relating to copyright, anti-money laundering and cybersecurity – will interact with the emerging digital asset classify.
Copyright issues, for example, have arisen when artists have their work copied and sold as TVN without their permission.
Recently, 27-year-old digital artist Ludwig Holmen discovered that an anonymous person defrauded over 2,000 people in a pre-sale auction by creating NFTs allegedly for a collection of photographs of digital Holmen figurines. The pre-sale brought in $ 138,000 to the bidders, who only received images of emoticons in exchange for their bids.
It is not yet clear whether NFTs represent the future of the art market or a high-profile bubble. Either way, as the nascent NFT market continues to grow and evolve, so too will the legal and regulatory issues surrounding it.
Written by Oliver Tapper, Litigation Expert in the Art and Cultural Property Law Team at Pinsent Masons.
You can contact Olivier by email at: [email protected]