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Satoshi Nakamoto settlement offer to COPA in Satoshi Trial (COPA v Wright) analysis

Business

Jordan Atkins

The world of high-stakes litigation is a complicated one, as shown by the surprising settlement offer made by Dr. Craig Wright which would have seen the various Bitcoin-related cases he is involved with put to an end just weeks before the Satoshi Trial (COPA v Wright) in February.

Though the offer drew plenty of comment, it will take time before the full implications of the settlement offer (and its social media rejection post by COPA) are fully digested by the public. It will take longer still for the legal ramifications to play out. Legal strategy is necessarily opaque, and you often have to dig deep to discover the true purpose of each move.

Despite this, the offer was swiftly rejected by COPA before the day was out. Too quickly, given the complexities buried within.

So what are they missing? And given any individual member of the COPA coalition (including each BTC developer) can accept on their own, what can we expect as reality sets in over the coming days?

What if they had accepted the settlement?

On first glance, the consequences of accepting the settlement are relatively straightforward: they are described in Dr. Wright’s preamble to the offer and set out in detail in the offer itself.

First and foremost, the parties must agree to discontinue all the claims that were set to be affected by the settlement agreement: that means that the COPA case against Dr Wright, the passing off cases against Coinbase (NASDAQ: COIN) and Kraken, and his passing off and database rights claims against the BTC partnership.

The potential liability of the counterparties in these cases was (and continues to be, thanks to COPA’s rejection) enormous. This is particularly true for Coinbase and Kraken, who are facing a potential multi-billion dollar bill to account for the years spent using the Bitcoin name to sell unrelated products—such as BTC and BCH. Taking that off the table would have removed a heavy weight off the back of those defendants. The same can be said for the BTC Core developer defendants, albeit the amount likely to be recovered from them will pale in comparison to the exchanges.

The legal fees that would have been spent on taking each of these cases to trial would have been similarly gargantuan. Under the agreement, all parties agree to bear their own costs (as opposed to the most common scenario of the losing side bearing the entire cost of the litigation) to this point. Further, the money that would have been spent on the trial itself was instead to be sent to charity—beginning with a £1,000,000 donation from Dr. Wright to a church in Australia which supports single mothers.

As for the status of Bitcoin going forward, Dr. Wright would have afforded the parties an “irrevocable license in perpetuity to exploit, use, assign, or license” with respect to his copyrights and database rights in the BTC, BCH and ABC blockchains. In exchange for this, the parties would have had to sign a declaration which acknowledges Bitcoin and its derivatives (BTC, BCH and ABC) stem from Satoshi Nakamoto’s white paper. They must acknowledge that Satoshi Nakamoto’s original vision was for ‘small casual transactions’ otherwise known as micropayments and ‘scaling on-chain’, and formally recognize that BTC, BCH and ABC “now have separate purposes and uses not contemplated by Satoshi Nakamoto.”

To the extent that the parties retain control of their Bitcoin derivatives, they must undertake to ensure that they will not be used for illegal activities and must be operated in full compliance with all applicable laws.

Notably, this would not amount to an explicit declaration that Dr. Wright is Satoshi Nakamoto—a concept that has barely registered on Wright’s radar since he was initially outed as such by Wired and Gizmodo. It would, however, be an acknowledgement that BTC, BCH and ABC do not represent the Bitcoin described by Satoshi Nakamoto in his white paper.

This precise point has been the common thread throughout all of Dr. Wright’s litigation to date—so much so that you could call it Wright’s primary legal objective. For instance, his intellectual property cases against Coinbase and Kraken necessarily implicate the question of whether Dr. Wright is Satoshi Nakamoto, but the core of the case is about preventing the use of the Bitcoin name to market unrelated products. A passing off claim technically doesn’t even require a claimant to be the original inventor of the passed-off product in question (though it is more straightforward if they are)—they merely need to prove that their product belongs to a class of goods that has been passed off. In Wright’s case this means he would still have a passing off claim as the inventor of BSV (BSV being part of a class of goods representing the original Bitcoin) even if he does not claim to be the inventor of the original. Wright’s willingness to give up this aspect of his claim even though it would remain unaffected by the outcome of February’s trial speaks volumes by itself, as it’s a concession he has no legal reason to make.

As much as the offer would have fulfilled Dr. Wright’s goals, the true beauty of this offer—as generous as it is on the part of Dr. Wright—is that it gives his opponents exactly what they claim to be after, too.

Led by COPA, Dr. Wright’s legal opponents have all loudly complained that his litigation has the effect of stifling innovation and hindering the development of the digital asset industry. This supposedly opposes COPA’s stated mission, which is “to encourage the adoption and advancement of cryptocurrency technologies and to remove patents as a barrier to growth and innovation.” They go on to say that “the success of cryptocurrency is a direct result of the community coming together to build and develop upon existing technologies for the benefit of all.”

The same rhetoric comes from practically all corners of the anti-Dr. Wright crowd. See the press blitz of the Bitcoin Legal Defense Fund, which is financially supporting those opposing Dr. Wright, for more examples.

Brilliantly, Dr. Wright directly challenges the people behind COPA to live up to their own mission statements in the settlement offer. In the preamble by Dr. Wright which was disseminated to media and on his blog, he says (emphasis added):

“This settlement offer preserves my objective of maintaining the integrity of the Bitcoin system as it was initially developed, while limiting (for all parties) the needless expense of a lengthy High Court trial, which would take our collective focus away from supporting, adopting and advancing digital currency technologies – not just my own work, but those of potential good faith competitors (my legal opponents included).”

Since the industry is dead in the water (at least as far as enterprise and legitimate business are concerned) unless it can show itself to be legally compliant, Wright’s demand should be an easy accept for COPA, Coinbase, Kraken and the BTC developer defendants. COPA members get to continue building within the digital asset industry under an entirely free license with the only restriction being to follow the same laws they should already be compliant with.

You’d think this would be even more of a pressing concern for Coinbase. It is Coinbase who acts as the custodian for the recently-approved spot BTC exchange-traded-products. In fact, they’re on record as the custodian for nine of the 11 approved ETP applications. These ETPs by the following companies:

  • Grayscale
  • Ark/21 Shares
  • BlackRock
  • Bitwise
  • WisdomTree
  • Invesco/Galaxy
  • Valkyrie
  • Global X
  • Franklin

In other words, Coinbase has become a pivotal infrastructure pillar within the BTC ecosystem. For them, non-compliance is simply not an option going forward. By acting as custodians of record in this way, they have in theory taken on the mantle of ensuring the BTC ecosystem remains compliant. Judging by this hasty rejection (assuming it ever reached Coinbase’s desk before COPA rejected it) it’s a responsibility they do not intend to live up to.

So, why would anyone in COPA’s shoes reject that?

The obvious answer (which is likely going to be obvious to the Judge at trial, too) is that there’s nothing that Dr. Wright can offer that will satisfy COPA’s true objective, which is the permanent and complete discrediting of Dr. Wright, so that neither he nor his vast patent empire can have any input into the future direction of the digital asset industry.

That being said, though these terms seem extraordinarily generous, they are not quite as favourable to COPA as they first appear. Accepting the offer means agreeing to take certain steps to ensure that Bitcoin’s derivative blockchains cannot be forked and must comply with all laws and regulations. This puts the majority of Dr. Wright’s opponents—particularly the BTC developers—in a difficult situation.

This is because they are currently desperately trying to convince the U.K. High Court in a separate case that they never have and never will have such control over the blockchains they operate. If they can’t convince the court of that, then it is highly likely that they will be deemed to be operating as fiduciaries, a legal designation which would mean the developers are under a duty to act in the best interests of their network’s users. In turn, that could mean they are under a legal obligation to (among other things) restore user access to lost or stolen coins.

This is partly the beauty of Dr. Wright’s latest gambit. They are functionally unable to accept a settlement offer which should align perfectly with the goals they have stated to the judge, because they have no choice but to maintain the fiction that they have no centralized control over their blockchains.

As we’ll see, however, rejecting the offer has its own implications—and the end result for COPA and the rest of them could be the same.

Consequences of rejecting settlement will be far-reaching

On the surface, rejecting this settlement offer means just that: the offer goes nowhere, and each of the relevant identity cases will proceed towards trial (beginning with the joint trial in February).

However, the consequences of that rejection will impact the likely outcome in that Satoshi trial. Most importantly, they will reach far beyond that—not just to Dr. Wright’s other litigations but all litigations involving the digital asset industry going forward.

This is apparently by design. Most often, settlement offers are made formally under Part 36 the U.K.’s Civil Procedure Rules, or are at least made on what’s known as a ‘without prejudice’ basis (meaning that the offer cannot be referred to in the course of the case) or a ‘without prejudice save as to costs’ basis (meaning the same, except for when the parties discuss who should pay what costs). The thinking behind these sorts of designations is that parties need to be able to make legitimate offers without it later being treated by the Judge as a sign of weakness in the case.

Dr. Wright made a purely open offer of settlement—which is comparatively rare. The effect of that kind of offer is that it places it squarely before the eyes of the Judge. This should have been COPA’s red flag: it demonstrates that Dr. Wright wants this settlement in front of the court whether COPA accepts it or not.

And that makes perfect sense. In every substantive filing it has made in this case, COPA has told the court that it “is a US-based non-profit mutual benefit corporation” which “was formed to encourage the adoption and advancement of cryptocurrency technologies and to remove barriers to growth and innovation in the cryptocurrency space.” In other words, what their website says—and precisely what Dr. Wright is offering to them in this settlement.

In light of those repeated sworn representations to the court, how is the Judge likely to view COPA knowing that they rejected that offer? In particular, how will the Judge view the manner in which COPA gave their rejection?

Is this the conduct of a giant association of professional business interests purely hoping for the advancement of the digital asset industry for everyone? Is it the conduct of an organization that has seriously considered the offer on the table and wants to make best efforts to come to a result that allows digital asset development to proceed into the future?

The answer to these questions is a resounding no. That much has been obvious to many for some time now: it’s obvious from the fact that since its inception in 2020, it has done precisely nothing except for launch this case against Dr. Wright—not seeking a declaration that he is not Satoshi, but seeking a declaration that has no rights in the white paper (a foregone conclusion thanks to the Cobra case). In fact, the tweets COPA made rejecting Dr. Wright’s offer is the first activity on COPA’s Twitter since January 31, 2022, when it announced that Meta (yes, that Meta run by Mark Zuckerberg) was joining its board. Aside from the rare tweet announcing another organisation has joined its ranks, every other posting relates to Dr. Wright.

No, the COPA litigation is and has always been about destroying Dr. Craig Wright, one of the most prolific patent holders in the world and certainly the only man with the patents that matter: those which will govern the use of Bitcoin and its various use cases. How is the Judge likely to view COPAs case with the knowledge that its true objective?

That’s the kind of subtlety that normally wouldn’t be able to be raised at trial. But an open settlement offer is a different matter, and the Judge will both be able to consider its terms and the basis on which it was rejected by COPA. It’s going to lead the Judge to begin asking questions: why was this case brought? Is COPA’s façade as an ‘open patent alliance’ a lie? Why is it that COPAs membership is primarily built out of the corporate interests with the most to lose if Dr. Wright is found to be Satoshi Nakamoto? Why are they so keen to avoid any kind of promise to follow the law?

Even if the Judge’s answers to these questions does not destroy COPA’s case, the impact it is likely to have on his consideration of COPA’s claims and evidence is significant.

Then there’s the impact of the decision on other cases, most notably the previously-mentioned fiduciaries litigation (Tulip Trading). That case will hinge on whether or not it can be proven that blockchain developers have centralized decision making power over their chains. If so, they are far more likely to be found to be fiduciaries. That’s why the BTC developers have argued in that case that they are merely an indeterminate, ever-fluctuating group of coders that are incapable of assuming such control.

This claim is self-evidently not true given the constant tinkering of the BTC protocol by those very same developers. But if COPA can, within hours of a multi-faceted settlement offer, unilaterally decide to reject it on behalf of that same group of developers, that arguably kicks the question of ‘control’ further up the chain and right to COPA’s doorstep. COPA cannot claim to have put the offer under serious review by its own lawyers, let alone have sent it to each BTC developer for each to consider it themselves. In that instance, the only natural conclusion to draw is that the centralized power of these developers is itself being managed and directed by COPA. Which leaves COPA with one enormous liability: it is they who owe the fiduciary duty.

Control by COPA or control by the individual developers (or both), the end result is the same: users of blockchains are owed fiduciary duties by the people in charge of them.

Dr. Wright appears to have indicated that this is at least one part of his line of thinking in making the offer:

What’s next?

Those are just the hard legal consequences. They will likely take time to play out: Tulip Trading’s fiduciaries case is the first time the issue has been brought before the courts, and just this year received a greenlight from the U.K. Court of Appeal. That will not go to trial until 2025 at the earliest.

The court of public opinion, however, moves much quicker.

Already, the initial shock and concern from those who would like to see COPA raked over the coals in February has given way to the realization that COPA has been caught out.

Wright has already intimated the offer is open to any one developer. As the true consequences of the offer begin to dawn on COPAs members and the BTC developers, expect questions to be asked of COPA: why was this rejected out of hand? Why put us at the risk of being deemed fiduciaries? Why didn’t we get a say?

COPA had better get its answers straight because the Judge in February’s trial is likely to have the same questions.

The full settlement offer can be found here.

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