China Holds Trading Platform Liable for Sales of Infringing NFTs

China Holds Trading Platform Liable for Sales of Infringing NFTs

HeadshotTianchu Gao is an IPilogue Writer and a 2L JD Candidate at Osgoode Hall Law School.

On April 20, 2022, China released a first-of-its-kind judgment on a dispute over the alleged infringement of a non-fungible token (“NFT”) published on a trading platform.

The dispute arises from a copyrighted image known as “Pang Hu Getting Vaccinated,” a cartoon depiction of a tiger receiving a vaccination. A third party released the image as an NFT and published it on the defendant’s NFT trading platform. The NFT image even has the original author’s watermark in the lower right corner. The official licensee of the image sued the trading platform for failing to protect its right of dissemination under copyright principles. It argued that the defendant, as the operator of a professional NFT platform, should conduct a preliminary review on the copyright of the NFT works published on its platform. The defendant, on the other hand, argued that its obligation was only to review the notification and delete suspicious works accordingly.

Like most jurisdictions in the world, China has yet to publish laws that deal with the trading of NFTs. Moreover, the NFT market in China is unique because the government is firmly opposed to cryptocurrency and has issued a regulatory document (Notice on Further Preventing and Handling Speculation Risks in Virtual Currency Trading) in September 2021 to restrict its circulation in China. As a result, NFTs in China are digital commodities traded in traditional fiat currency. Examples of Chinese NFT markets include NFT China, Huanhe, and Jingtan. E-commerce platforms in the past, according to the Regulations on Protection of Information Network Transmission Rights, are not liable for copyright infringement unless they know or should know that the linked items are infringing copyright.

The court found the trading platform in this case liable for infringing the licensee’s right of transmission over an information network. The court also ordered the defendant to delete the infringing NFT works and compensate the licensee 4,000 RMB (about USD$600). Although the fine is nominal, it is a significant decision that requires NFT trading platforms to shoulder a greater duty of care to protect the copyrights of published works.

With the case as an important step, the Chinese legal system for online trading platforms is developing with greater emphasis in favor of copyright holders. With the power Chinese courts wield over China-based defendants, the lower litigation costs in China, as well as the relative ease of obtaining certain injunctive relief, China may become a favorable forum for multinational companies to enforce their copyrights.