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NFT’s legal battle ends with the rejection of ownership claims
In a landmark decision, US District Court Judge James Cott dismissed a case centered around the disputed ownership of Quantum, the world’s first non-fungible token (NFT) created in 2014 by Kevin McCoy and Anil Dash. The Canadian company Free Holdings had claimed ownership of NFT, leading to a complex legal battle that ultimately reinforced the legal system’s primacy over the Web3 principle that “code is law.”
NFT Legal Battle: Origins and details of the dispute
Quantum, a historically significant NFT, sold for a staggering $1.5 million at a Sotheby’s auction in 2021. Six months later, Free Holdings filed a lawsuit against McCoy, claiming they were the rightful owners of the NFT. The plaintiff claimed that McCoy had allowed his ownership rights to lapse between 2014 and 2021, during which time Free Holdings claimed the Quantum blockchain record on Namecoin. In anticipation of the sale, McCoy and Sotheby’s minted Quantum on the Ethereum blockchain, claiming that the original record was destroyed when the registration expired.
Iconic NFT Legal Battle: Exploring the Complexities of Digital Ownership
The court was tasked with examining different interpretations of digital ownership within the framework of the Namecoin blockchain. Namecoin assigns tokens a “name” linked to a public key, which determines ownership. The court considered three main interpretations of what constitutes a digital asset: the token as the asset, the public key as the asset, and the creation of a new registry marking a new NFT that preserves the history of the previous public key.
Judge Cott appeared to favor the second interpretation, arguing that Free Holdings failed to present a convincing case for its right to Quantum. In his resignation, he stated that the company sought to “exploit open questions of ownership in the ever-evolving NFT field to claim the profits of a legitimate artist.”
United States District Court Judge James Cott dismisses NFT Battle
Initially, McCoy minted Quantum using Namecoin, a blockchain software based on Bitcoin’s code, which required him to renew ownership rights approximately every 250 days. McCoy was unable to do so, however, and the NFT lawsuit remained dormant until news of the Sotheby’s auction emerged. In response, Free Holdings created a new NFT using the same namespace that McCoy had used seven years earlier and duplicating his original metadata. The company accused Sotheby’s and McCoy of defamation and commercial disparagement.
U.S. District Court Judge James Cott ultimately dismissed the case, finding that Free Holdings had failed to establish its claims for ownership and damages. In his ruling, Cott concluded that Free Holdings’ actions constituted “an attempt to exploit open questions of ownership in the ever-evolving field of NFT law.” This case highlights the growing intersection between Web3 and the legal system, offering a clearer understanding of digital ownership boundaries and setting a precedent for future NFT-related legal disputes.
