Chinese court makes first public ruling involving NFTs

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China has recorded its first public ruling on a lawsuit involving non-fungible tokens (NFTs). The order also holds a lot of indications of how the country may likely regulate the industry. The ruling was in a case of copyright infringement and intellectual property theft of an NFT.

According to a South China Morning Post (SCMP) report, an unknown user of the popular Chinese NFT marketplace, NFT China (NFTCN), minted a copyrighted artwork of Ma Qianli, a Chinese artist. The piece, which features a cartoon tiger receiving a vaccine shot, was sold for 899 yuan ($137).

The report revealed that Qice filed the lawsuit against BigVerse, the parent company of NFTCN. Qice, which is the sole copyright owner of works made by the artist, claimed that the user stole the work.

Based on the evidence, a court in the Chinese city of Hangzhou ruled that NFTCN was at fault for failing to check if the user who minted the NFT was the owner of the artwork. The court said it found the NFT marketplace guilty of facilitating the infringement of the owner’s “right to disseminate works through information networks.”

BigVerse has been ordered to pay Qice 4,000 yuan ($611) in compensation. NFTCN was also ordered to stop the NFT from circulating by sending it an “eater address” —the NFT equivalent of a digital currency burn address.

The ramifications of the landmark ruling

While the ruling is the first of its kind in China, it still leaves a lot of questions unanswered about the status of the NFT industry in the Asian country.

Ni Longyan, a researcher at Zhejiang Sci-Tech University, opined that the ruling confirms that NFT transactions in China are protected by the information dissemination act. However, it also means that the ‘safe harbor’ rule for network service providers may be reviewed in relation to NFTs.

Despite being opposed to digital currencies, China has been relatively receptive to NFTs. The country has refrained from placing a blanket ban on NFTs but has warned about the financial risks inherent in trading them.

The Chinese financial regulators, namely the China Banking Association, the Chinese Internet Financial Association, and the China Securities Association, issued a joint statement reminding all the commercial banks that they have to abide by regulations when dealing with NFTs.

The notice also warned citizens against trading the digital collectibles with digital currencies like BTC, Ethereum, and Tether’s USDT. This is in contrast to the blanket ban China has placed on all digital currency trading, ICOs, and block reward mining. Meanwhile, China has gone ahead to launch its CBDC—the e-CNY.

Watch: CoinGeek New York presentation, BSV Blockchain in China