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A digital art collector gets locked out of his account and is left unable to access millions of pounds worth of digital assets. To get this back he issues court proceedings against the platform he once successfully traded on.

What has Happened? 

A well-renowned collector of art named Amir Soleymani has issued court proceedings in the US and UK in a last resort bid to access his 100 NFT assets held on an online platform. The dispute began after he placed an unsuccessful bid for a valuable piece of artwork. Mr Soleymani then discovered he was counted in a ranking system involving 100 others, and had automatically become an active bidder for 100 other editions of the artwork. The higher editions of the work were sold after the value of each closing bid was considered. Mr Soleymani, who placed 3rd, rejected the notion of this, claiming he only wished to purchase the original version of the artwork and he was not aware that his bid would be counted in a second auction. 

What Does This Mean? 

The collector is seeking a court decision on liability for the outstanding amount held. Mr Soleymani seemingly faces an uphill struggle because the internet platform have the contractual right to dispute the High Court’s jurisdiction and insist on negotiating by virtue of the Arbitration clause and under the Civil Procedure Rules. Mr Soleymani claims the sale terms were changed in April 2021 without his knowledge as the auction organisers failed to communicate the real nature of the auction ranking system. In response, he issued legal proceedings in the High Court. Secondly, he is opposing the enforceability of the arbitration clauses contained in the terms and conditions, contending that the clauses are incompatible with their “right to be sued in this country.”   

What Impact Could This Have on the Legal Profession?

Lawyers await the outcome with baited breath especially in cases where online platforms suspend accounts over unpaid monies, and consequently retain assets. Emma Gould, from the Institute of Art and Law highlighted the “uncertainties” and the “complex” SMART contract structures involved.    

The case concerns the enforceability of Arbitration clauses in the terms and conditions of online platforms. If the platform had been proactive, the matter need not go to court because the contract would have had a requirement for both parties to consent to court action before it proceeds. 

Where no alternative dispute resolution procedures are in place, the parties are presented with the option to negotiate for one month, with an aim to preserve their relationship and reach an amicable settlement. 

Whichever outcome, there could be untold consequences for many legal sectors.  Firstly, these contracts have complicated structures. The parties will need to consider seeking specialist advice from experts in the field of SMART contracts so transactions can be managed, owned and traded according to the agreement. Secondly, it is troubling that intellectual property issues are not considered when negotiating these contracts. The Parties seemed so keen to enter into the contract that they failed to determine a provision for the ownership of the intellectual property rights of the art. They failed to establish this prior, during or post termination of the contract, while also not identifying their rights if a dispute did arise.    

Thirdly, licensing is important to consider. In April 2021 an NTF of a drawing named “Free Comb with Pagoda” by Jean-Michel Basquiat was withdrawn from sale on a platform named “OpenSea” because the seller did not own the licence or rights of the work. In fact, the picture was owned by Daystrom which claimed it owned the intellectual property rights and presented a “certificate of copyright” as evidence of the copyright.           

Whilst negotiating prospective terms, parties need to provide clarity in the event of a dispute. In this regard, a lawyer will need to urgently protect their client’s legal position and distinguish ownership of all their digital property. They will need to consider property that has had previous ownership, and ensure they can establish a trail of legitimate ownership. Due to the level of money involved they also need to explore liability caps, or their clients may end up in the same situation as Mr Soleymani. 

Finally, despite the complexity (or certainty) involving these SMART contractual arrangements the best advice is to opt for simplicity by reminding clients to keep to the Latin maxim of ‘caveat emptor’ or “let the buyer beware”. This applies to the complex universe of transactions involving NFTs and perhaps even more so.  There will also need to be watertight provisions which are compliant with the money laundering regulations and cyber-security measures implemented to mitigate potential losses flowing from any dispute.  

Assessing firms

#DLAPiper #Bird&Bird #GTLaw #Allen&Overy #CliffordChance #HoganLovells #Latham&Watkins #LinklatersLLP #NortonRoseFulbright #Slaughter&May 

This Article was Written Using the Following Sources: 

[Source 1] Tipp,Oliver - Art collector’s court case signals potential legal and contractual issues with NTFs – 26 October 2021 - Art collector's court case signals potential legal and contractual issues with NFTs (pinsentmasons.com)

[Source 2] Pryor, Riah - The Art Newspaper – Art collector sues NFT platform Nifty Gateway over Beeple auction – October 2021 - https://www.thearatnewspaper.com/2021/10/01/art-collector-sues-nft-platform-over-beeple-auction

[Source 3] Part 62 Civil Procedure Rules - PART 62 - ARBITRATION CLAIMS - Civil Procedure Rules (justice.gov.uk)

[Source 4] Part 1 Civil Procedure Rules - PART 1 - OVERRIDING OBJECTIVE - Civil Procedure Rules (justice.gov.uk)

[Source 5] Lewis et al – Non-fungible tokens (NTFs) and copyright law – 06-2021 - Non-fungible tokens (NFTs) and copyright law (twobirds.com)

[Source 6] Nga, Michael and Weber, Madeline – Copyright issues and NFTs - SCL: Copyright Issues & NFTs

[Source 7 – Hugo md – ERC-721 Non-Fungible Token Standard – 13 September 2021 - ERC-721 Non-Fungible Token Standard | ethereum.org

[Source 8] Consumer Rights Act 2015 – Section 34 – the digital content is not of satisfactory quality 

[Source 9] Consumer Rights Act 2015 – Section 41 - trader’s right to supply digital content;

Written by Jason Connolly