For Dr. Craig Wright, most would have expected 2023 to be remembered as the precursor to next year’s highly anticipated Satoshi identity trial, where Wright will face a legion of powerful commercial interests in order to prove—in a court of law—that he is Satoshi Nakamoto, pseudonymous inventor of Bitcoin.
As consequential as that trial is set to be, to view the year’s litigation solely in that light is to miss the forest for the trees. The various cases involving Dr. Wright are much larger than Wright, his legacy and even the identity of Bitcoin’s inventor: they are about demonstrating that the law does apply to Bitcoin and digital assets.
It is this quest which defined 2023 in Dr. Craig Wright litigation. To see this in action, look no further than the U.K. Law Commission’s long-awaited reported on digital asset law, delivered to Parliament in July 2023. In canvassing the state of digital asset law in the United Kingdom, the Commission highlighted Tulip Trading v Bitcoin Association and others—a case brought on behalf of one of Dr. Wright’s companies—as having ‘brought a high degree of certainty to the law.’
In particular, the report noted that “it recognizes that crypto-tokens can be things to which personal property rights can relate, that they can be rivalrous and that their characteristics are manifested by the active operation of software.”
A finding that digital assets are subject to the same property laws as anything else might seem rudimentary, but it is a demonstration of the purpose of Dr. Wright’s litigation: the law already applies to digital assets—all that is needed is the right litigant and set of facts to establish how this works in practice.
UK Court of Appeal rubberstamps fiduciary duties argument
As significant as that ruling is, the Tulip Trading case—which is awaiting trial—is about a much larger (but perhaps no less rudimentary) legal issue. It argues that developers of blockchains owe legal duties to those who use and rely on their blockchain. More than that, these duties would compel the developers to take action to restore access to the true owners of digital assets if they are lost or stolen.
To a group of developers who have until this point remained entirely free of liability, this inevitably sounds like an enormous additional burden. However, the duties Tulip Trading is arguing for are well established in law and the courts are used to recognizing the existence of legal duties in novel contexts. Tulip Trading is arguing that this is what the courts should do in the case of blockchain developers.
As alien as this thesis might sound to anyone used to the status quo, Tulip Trading accounted for Wright’s first major victory of the year. In February, the Court of Appeal—the U.K.’s second-highest court—reviewed the case and decided it had enough prospect of success to go to trial, overturning an earlier ruling from the lower court. The Lord Justices considering the case were receptive to the legal theory behind Dr. Wright’s argument:
“…there is, it seems to me, a realistic argument along the following lines. The developers of a given network are a sufficiently well defined group to be capable of being subject to fiduciary duties. Viewed objectively the developers have undertaken a role which involves making discretionary decisions and exercising power for and on behalf of other people, in relation to property owned by those other people. That property has been entrusted into the care of the developers. The developers therefore are fiduciaries. The essence of that duty is single minded loyalty to the users of bitcoin software. The content of the duties includes a duty not to act in their own self interest and also involves a duty to act in positive ways in certain circumstances. It may also, realistically, include a duty to act to introduce code so that an owner’s bitcoin can be transferred to safety in the circumstances alleged by Tulip.”
With a seal of approval from the Court of Appeal, Tulip Trading is expected to go to trial some time in 2025. There will first be a preliminary trial on whether or not Tulip Trading owns the coins in question or not.
Court of Appeal rules that the Bitcoin file format is protected by copyright
Court of Appeal appearances are relatively rare. From the outside, it must seem highly unusual for a litigant operating in a novel area of law to have multiple appearances before an appellate court and come away with precedent-setting judgments. Dr. Wright had two such cases go to the Court of Appeal in 2023 alone.
Just a few months after the Tulip Trading ruling, Dr. Wright’s copyright and database rights case against the BTC partnership—which includes individual core developers as well as entities within the BTC ecosystem who are indispensable in propping it up, such as Coinbase (NASDAQ: COIN)—went to the Court of Appeal. Dr. Wright was claiming three separate violations on the part of the BTC partnership: one over his rights in the Bitcoin database as its true owner, one over his rights over the Bitcoin white paper, and one over his rights in the Bitcoin file format. The first two limbs of this claim were accepted by the High Court, but the claim regarding the file format was thrown out because it did not have a realistic prospect of success. Dr. Wright appealed that ruling to the Court of Appeal.
The question was whether or not the Bitcoin file format—which is essentially the structure of each block on the Bitcoin blockchain—was capable of being subject to copyright. Dr. Wright was arguing that as the creator of Bitcoin, including its file format, his copyright was being violated because each subsequent block that is added to the blockchain cannot be read without relying on the original.
The defendant BTC partnership argued—which was originally accepted by the High Court—that the file format was not capable of ‘fixation’—a key test for whether something is capable of copyright protection. Fixation is set out in the U.K.’s Copyright, Design and Patents Act 1988:
“Copyright does not subsist in a literary, dramatic, or musical work unless and until it is recorded, in writing or otherwise; and references in this Part to the time at which such a word is made are to the time at which it is so recorded.”
The High Court judge ruled that as there was no content recording or designating each field within the structure, there was no fixation.
The Court of Appeal disagreed. They said that there was no requirement that the structure be explicitly described within the block. They agreed with Dr. Wright’s argument that fixation is evident from the fact that third parties—many of whom have created software based on the ability to interpret the file structure of each block—are clearly able to deduce the file format without any such description.
Cøbra masked: Paving the way for open justice
Amazingly, Dr. Wright’s cases are even setting precedent long after he’s already won.
Cøbra, the pseudonymous operator of bitcoin.org, was sued by Dr. Wright in 2021 for breaching his copyright in the Bitcoin white paper, which was being hosted on Cøbra’s website. Dr. Wright won that case in full, and Cøbra was forced to stop hosting the white paper and post a notice to his website informing visitors of the ruling. Importantly, Cøbra had refused to identity himself to the court at every stage in the lawsuit—meaning he was unable to make submissions in his defence.
But the case didn’t end there: as is standard, there was the matter of how much of Dr. Wright’s legal costs must be paid by Cøbra as the losing party. Cøbra attempted to challenge the costs claimed by Dr. Wright, but once more refused to identify himself to the court. It’s elementary that a person cannot participate in a trial anonymously, but what about costs proceedings?
Such a state of affairs is unusual. Cases which involve an unidentified party are typically criminal cases, where the unknown person is absent and not taking part in the proceedings at all. In this case, Cøbra has refused to identify himself yet has continually attempted to participate in the lawsuit. Neither Dr. Wright’s lawyers nor Cøbra’s could find any precedent which fit these facts.
Cøbra attempted to argue that he should be able to participate in costs proceedings without identifying himself and to prevent this would be ‘draconian.’
Dr. Wright’s lawyers argued in return that it is an obvious and foundational principle of the U.K. justice system that a party must identify themselves in order to participate in any legal proceedings—including those relating to costs. That fact, they argued, is implicit in the U.K.’s civil procedure rules.
Cøbra’s argument was initially rejected by the magistrate’s court, and he was given leave to appeal to the High Court—which he did.
The High Court ruled against Cøbra, agreeing with Dr. Wright that an anonymous defendant cannot make costs submissions without revealing themselves. The judge noted that there were ‘many’ risks and shortcomings which would arise from allowing a defendant to do so, saying that “the court would have a much diminished ability to supervise and control its own proceedings and to conduct them fairly, raising the very prospect of the denial of justice, unfairness and abuse canvassed by the defendant itself. The court cannot entertain that state of affars.”
To further illustrate this, the court quoted the case of R (on the application of C) v Secretary of State for Justice:
“The principle of open justice is one of the most precious in our law. It is there to reassure the public and the parties that our courts are indeed doing justice according to law. In fact, there are two aspects to this principle. The first is that justice should be done in open court, so that the people interested in the case, the wider public and the media can know what is going on. The court should not hear and take into account evidence and arguments that they have not heard or seen. The second is that the names of the people whose cases are being decided, and others involved in the hearing, should be public knowledge.”
In other words: a win for Dr. Wright was a win for open justice.
Ira Kleiman loses his appeal—and his last chance at the Satoshi fortune
More success came from the clean-up of another already-resolved case: the Kleiman v Wright fiasco.
Ira Kleiman had sued Dr. Wright in 2018, arguing Dr. Wright’s invention of Bitcoin was done in partnership with Kleiman’s late brother Dave. Because of that, Ira argued half of the Satoshi fortune belonged to both the Dave Kleiman estate and W&K Info Defence Research LLC, the company Ira thought was used by the alleged partnership to mine Bitcoin.
In 2021, a jury ruled against Ira Kleiman more or less in full. The only award the jury gave was $144 million—but not to Ira or the Dave Kleiman estate: it was awarded to W&K. As it turns out, W&K is at least majority-owned by Dr. Wright and his family—so none of the $144 million is headed Ira’s way.
Ira attempted to appeal the verdict on three bases:
- That trial Judge Beth Bloom had erred in instructing the jury on the law around partnerships, arguing that Bloom had used an outdated definition for what constitutes a ‘partnership’ which had been replaced by a 1995 Act.
- That Bloom was wrong to overturn sanctions that were imposed on Dr. Wright before trial. Those sanctions were initially issued by Magistrate Judge Reinhardt, and related to Dr. Wright’s inability to comply with a court order to provide a list of his Bitcoin holdings until he was given access to a key slice that would enable him to unlock an encrypted file containing the information. Reinhardt’s response was to call Dr. Wright a liar and issue sanctions which effectively would have deemed as proven that Wright and Dave Kleiman had a partnership. Bloom overturned these, saying that they were ‘improperly imposed’ and said no sanctions were necessary as long as Wright eventually unlocked the file. He did.
- Finally, Kleiman was arguing he was entitled to a new trial because Dr. Wright’s lawyers at trial had ignored a pre-trial order preventing the parties from referencing Dave and Ira’s ‘sibling relationship’.
Ira filed his arguments in August 2022. It took until October 2023, but the Florida court rejected Kleiman’s appeal. They said that the 1995 did not create a new definition for partnerships and merely clarified the existing test, which Bloom had correctly set out. They also ruled that Bloom was correct to overturn the sanctions order in light of the fact that Dr. Wright’s story regarding the key slices turned out to be true. As for the final ground, the court ruled that though Wright’s attorneys may have overstepped in some respects during trial, it was the responsibility of the trial judge to determine where the line lay and that judge had found no issue.
Assuming Kleiman’s lawyers are still interested in pursuing the case at all, his only hope at seeing some pay-off for his multi-year legal war against Dr. Wright is that he can convince a Judge he or Dave Kleiman’s estate has any stake in W&K and the $144 million award.
Cases pushed into 2024 and beyond
Let’s not forget that for as packed as this year’s legal calendar has been, many cases were pushed out to 2024, until after the result of the COPA is delivered.
Dr. Wright was set to argue his appeal in Granath v Wright in Oslo, Norway in September. Twitter troll Magnus ‘Hodlonaut’ Granath had sued Dr. Wright in the hopes that he could secure an order that his online campaign of bullying and harassment against Dr. Wright did not amount to unlawful defamation.
The Oslo District Court, which oversaw the initial trial, ruled in favor of Granath. They found that Granath’s online activities did not amount to defamation, in part because Dr. Wright is a public figure within the Bitcoin community who has made a controversial assertion which must be subject to criticism. Notably, the Judge said she had not taken a position on whether or not Dr. Wright is Satoshi Nakamoto in reaching her judgment, though she found that Granath had some factual basis for his tweets owing to the public discussion and media perception of Satoshi’s identity.
Dr. Wright appealed that ruling, and was scheduled to be heard in September. However, Dr. Wright’s attorneys in Norway (Scjhodt) requested that the case be stayed until the resolution of January’s mega identity trial. That request was granted.
Similarly, Dr. Wright’s passing off lawsuits against Coinbase and Kraken are stayed pending the outcome of the identity trial. Those cases are directly impacted by that outcome, with parties agreeing to adhere to whatever the court rules regarding the identity of Satoshi Nakamoto after January.
It all rests on 2024 – or does it?
For Dr. Wright, much rests on January’s COPA identity trial, with a number of cases—the passing off cases against Coinbase, Kraken and the BTC partnership—are effectively on hold and bound by the ruling in COPA.
However, given the progress he has made in 2023 in establishing that the law can and does already apply to the digital asset industry, it’s hard to imagine that anything that could happen in COPA would dissuade Wright from continuing to pursue that goal. After all, he didn’t need a ruling in COPA to get this far.
Watch: Exchange corruption and CZ fines, COPA trial, Mining Bitcoin and Halving
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