Court case determines ownership of the world’s first NFT
A court in the Southern District of New York has reached a decision on claims brought in one of the first cases in the United States to deal with non-fungible tokens (NFTs) and the blockchain technology behind them.
“Who owns the world’s first NFT?” was a central proposal in Free Holdings Inc. v. Kevin McCoy and Sotheby’s, Inc case is being heard in an ongoing battle taking place in a New York courtroom. But this week, judge James Cott ruled in favor of the defending party, and confirmed that the plaintiff had failed to demonstrate true ownership of the digital artwork.
To understand why this decision was made, we have to cast our minds back nine years, to when Kevin McCoy and Anil Hyphen created what is considered to be the world’s very first NFT at a conference in 2014.
It created the NFT, which has the title Quantum, was minted on an early blockchain called Namecoin, which uses ‘names’, or a series of numbers and letters, to authenticate its creation. However, this specific blockchain requires users to update their records every 200 to 250 days, otherwise the ownership blocks can be claimed by other users.
As the market for NFTs began to heat up in 2021, McCoy prepared to sell the artwork through the auction house Sotheby’simprinting NFT and its metadata on the more modern blockchain Ethereum in the process.
This was then followed by the sale of the digital artwork for $1.47 million in 2021.
Shortly before that, however, the Canadian holding company sold Free Inventory created a new NFT on the Namecoin blockchain, using the same namespace that McCoy had used seven years earlier and duplicating McCoy’s original metadata. It was able to do this on the condition that McCoy had his records on the blockchain lapse.
Free Holdings then claimed that it was in fact the owner of the “first ever NFT”, which if true would invalidate the 2021 sale through Sotheby’s.
The case is dismissed
The matter, Free Holdings Inc. v. Kevin McCoy and Sotheby’s, Inc., is one of the first in the US to deal with blockchain technology behind NFTs. While acknowledging the “new” problems presented by such technology, the court, in a detailed 43-page decision, agreed with Pryor Cashmanhis (McCoy’s representative) arguments and held that traditional legal principles govern the ownership of NFTs.
The court rejected this position and awarded judgment to McCoy and co-defendant Sotheby’s. In particular, the court agreed that Free Holdings had not identified, and could not identify, any injury to its separately created NFT based on McCoy’s sale of Quantum and the associated Ethereum token.
The court also agreed that Free Holdings’ claims, which included allegations of false advertising, slander of title, deceptive business practices and unjust enrichment, were all void as a matter of law.
In a decision carefully analyzing the relevant technology and issues, the court found, among other things, that Free Holdings “demonstrated nothing more than an attempt to exploit open questions of ownership in the ever-evolving NFT field to claim the profits of a legitimate artist and creator. It is not claimed to have taken any part in the creation of Quantum or the blockchains used to record it.”
