NBA Top Shot NFTs are ‘plausibly’ securities, judge rules in Dapper Labs lawsuit
by James · February 22, 2023
Oar NBA top shot NFT instant unregistered securities? That’s what a trial filed against Top Shot creator Dapper Labs in 2021 claims – and the judge apparently agrees.
United States District Court Judge Victor Marrero today denied Dapper’s request to dismiss the lawsuit, writing that NFTs offered on Dapper’s platform actually appears to satisfy the requirements of a security.
IN his ruling, applied the Marrero Howey test – citing a landmark US Supreme Court case – and determined that the NBA Top Shot NFT collectibles platform likely meets the requirements of a security. As a result, the lawsuit against Dapper Labs will move forward.
Dapper Labs commented on the ruling in a statement sent to Decrypt.
“Importantly, today’s ruling only denied the defendants’ motion to dismiss the complaint. It did not conclude that the plaintiffs were right, and it is not a final decision on the merits of the case,” the spokesperson wrote.
“Courts have repeatedly found that consumer goods — including art and collectibles like basketball cards — are not securities under federal law,” Dapper’s statement continues. “We are confident that the same is true of Moments and other collectibles, digital or otherwise, and look forward to vigorously defending our position in court as the case continues.”
The judge’s ruling suggests that the plaintiff’s arguments are reasonable in part because he describes Flow blockchain– which runs Top Shot and other NFT projects and platforms – as a “private” network as opposed to a public one which Bitcoin blockchain.
Dapper Labs would likely disagree with this claim. The company actually created the Flow blockchain to support NBA Top Shot and other projects, but it is intended to be an open and permissionless network that has increasingly decentralized the pool of node operators. In late 2021, Dapper representatives claimed that Flow is now “controlled by society.”
The judge believes there is sufficient evidence to suggest otherwise, and further points to Dapper’s control of the NBA Top Shot platform itself, along with control of the underlying IP by the NBA and the National Basketball Players Association (NBPA).
The decision further points to statements made by Dapper Labs and CEO Roham Gharegozlou regarding the market value of moments, and the potential for Top Shot NFTs to maintain and even increase in value over time. It also notes that in early 2021, when NBA Top Shot eased under the stress of user demand, NFT holders were unable to access the marketplace and sell their owned assets.
However, Marrero is careful to suggest that his take on NBA Top Shot won’t necessarily apply broadly to all NFTs.
“Ultimately, the court’s conclusion that what Dapper Labs offered was an investment contract under Howey is narrow,” he wrote. “Not all NFTs offered or sold by any company will constitute a security and each scheme must be assessed on a case-by-case basis.”
