Ownership Claims Over Auction Of “The First NFT” Previously Dismissed By A New York Court Now On Appeal – Fin Tech
In 2014, artist Kevin McCoy created the first non-fungible token (NFT) by recording his digital artwork Quantum on the Namecoin blockchain. Little did he know that this act would lead to a legal battle over ownership rights seven years later. The NFT was eventually sold at auction for $1.5 million, sparking litigation in federal court.
Namecoin is an early blockchain that allows users to register and manage domain names. Each registered name is associated with a unique token that grants the user control over the domain and the ability to manage its settings. McCoy’s Namecoin name expired in 2015 and remained unclaimed for six years. In 2021, McCoy minted a new NFT on the Ethereum blockchain to record and preserve Quantum.
Sotheby’s, the auction house, began marketing Quantum for auction in May 2021. Around the same time, Free Holdings re-registered McCoy’s expired Namecoin token and claimed ownership of the NFT. They contacted McCoy, but their messages went unanswered. Sotheby’s sold McCoy’s “re-minted” Quantum NFT for $1.5 million, leading to a lawsuit by Free Holdings.
Free Holdings sued McCoy and Sotheby’s, arguing that they presented an inaccurate narrative during the sale of the Ethereum-Quantum NFT. They claimed ownership rights based on their registration of the expired Namecoin name. The defendants countered that Free Holdings lacked any proprietary interest in the original Quantum NFT or the Ethereum-Quantum NFT.
The court ultimately dismissed the complaint for lack of standing and failure to state a claim. It ruled that Free Holdings had no basis to claim ownership of Quantum based on their re-registration of the Namecoin-Quantum NFT. The court also found that Free Holdings failed to allege any actual or imminent harm to the value of the NFT. It concluded that Free Holdings was attempting to exploit ownership questions in the evolving NFT field.
This dispute highlights some interesting issues with NFTs. It raises questions about the value of an NFT if identical copies exist on different blockchains. It also raises concerns about ownership and rights when copies of an NFT are made on different chains. The case ultimately demonstrates the complexities and uncertainties surrounding NFT ownership and the need for clarity in this emerging field.
