An interesting new decision from a court in Singapore sheds light on the nature of non-fungible tokens (“NFTs”) and the applicability of existing laws to such relatively novel technologies, with the High Court of the Republic of Singapore ultimately determining that NFTs may be considered property and thus, “be the subject of a proprietary injunction.” The NFT in this case is Bored Ape #2162, which Plaintiff Janesh Rajkumar alleges was taken from his possession when he “foreclosed” on a loan – for which the NFT was used as collateral – that he obtained from the defendant, chefpierre.eth. Exclusively identified by his ENS domain, chefpierre subsequently listed the NFT for sale on OpenSea, prompting Rajkumar to seek an injunction barring him from “dealing with the Bored Ape NFT in any way” for the duration of the case.
In his October 21 decision, Judge Lee Seiu Kin sided with Rajkumar, ordering the defendant to refrain from selling off the NFT, which has since been frozen from trading on NFT marketplace OpenSea. Setting the stage, the court stated that while “cars, books, wine and luxury watches … are a few examples of highly sought-after items for collectors, [f]or digital nomads, especially those steeped in the world of blockchain and cryptocurrencies, NFTs have emerged as a highly sought-after collectors’ item.” Drawing an analogy, Judge Lee says that certain NFTs are “the equivalent of a Rolex Daytona or a F.P. Journe to a horology enthusiast.”
Addressing some additional background, Judge Lee asserts that in a previously-decided case, he dealt with the question of whether stolen crypto assets, specifically Bitcoin and Ethereum currencies, can give rise to property rights and therefore, be the subject of a proprietary injunction.” In that case, the court found that the plaintiff “was able to prove a serious arguable case that the stolen cryptocurrency assets were capable of giving rise to proprietary rights that could be protected via a proprietary injunction.”
The case at hand “raise[s] similar issues,” per Judge Lee, which is “unsurprising given the rapid pace at which modern technology develops, disputes arising out of the application and deployment of such new technologies will become more common.” Against this background, the judge maintains that “the one pressing concern that most lawyers will encounter” – in connection with NFTs and web3 more broadly – is “whether the fabric of the common law can be extended, in a principled fashion, to cover disputes involving these technologies.” (In light of the outcome of this round of the Bored Ape NFT case, as well as in the stolen crypto case, both of which resulted in a finding of property rights in the digital assets and preliminary injunctions for the plaintiffs, it seems that the answer is yes.)
In furtherance of his injunction determination, the court contends that the plaintiff had to show that he has “a seriously arguable case that he had a proprietary interest” in the Bored Ape NFT, which “naturally rest[s] on the assumption that the Bored Ape NFT, or NFTs in general are capable of giving rise to proprietary rights.”
NFTs: Information or Property?
As for what NFTs actually consist of, the court asserts that “in most cases and certainly in the present case, all an NFT contains is a link to the server where [an] actual image can be found,” noting that “even if one is dealing with an ‘on-chain’ NFT, it is, essentially, a string of code that includes the code for the image.”
With this in mind, Judge Lee says that “it could be argued that all that is acquired when one ‘buys’ an NFT is merely information.” If NFTs are “characterized as information, one may expect to find serious objections towards granting it property status,” according to the judge. “However, where crypto assets (i.e., cryptocurrencies, tokens, and NFTs) are concerned, it may not be entirely appropriate to characterize them as information.”
On this point and citing the outcome of Ruscoe v Cryptopia Ltd., in which the New Zealand High Court held that cryptocurrencies, as digital assets, are a form of property under common law, the judge provides his opinion, holding that “NFTs, when distilled to the base technology, are not just mere information, but rather, data encoded in a certain manner and securely stored on the blockchain ledger.” Here, the court similarly points to the Amir Soleymani v Nifty Gateway LLC case, as well as the May 2022 memorandum order in Hermès International and v Mason Rothschild, in which Judge Jed Rakoff of the U.S. District Court for the Southern District of New York denied Mason Rothschild’s motion to dismiss Hermès’s claims against him, holding that while there may be an “artistic aspect” to the images tied to the MetaBirkins NFTs, Hermès, nonetheless, sufficiently pleaded its case for trademark infringement, dilution, and cybersquatting.
Doubling-down on his decision, the judge states that “to characterize NFTs as mere information would ignore the unique relationship between the encoded data and the blockchain system which enables the transfer of this encoded data from one user to another in a secure, and verifiable fashion.” And while there may be grounds for treating information as property, such a determination “depends on the functions [the information] is used for rather than on the plain fact that it is information.” In the context of NFTs, the information concerned is “a string of computer code (at its essence, zeros and ones) that does not provide any knowledge to those who have read it,” per Judge Lee, but that simply “provides instructions to the computer under a system whereby the ‘owner’ of the NFT has exclusive control over its transfer from his wallet to any other wallet.”
Against that background and in light of “growing judicial support for ‘deploying property concepts to protect digital assets,’” the court sided with Rajkumar, agreeing to issue an injunction, and in the process, shedding light on how NFTs are being treated in jurisdictions outside of the U.S.
The case is Janesh s/o Rajkumar v. Unknown Person (“CHEFPIERRE”), 2022 SGHC 264.